Table of Contents

1.Introduction..1
2.1 Marketing Channel Strategies in Rural Emerging Markets...................................................5
2.2 Marketing of Agricultural Products........................................................................................9
3.Objectives and Methodology...................................................................................................11
4. Agriculture and Marketing Channels12
5.1.HUL A Brief Overview.....................................................................................................22
5.2.Evolution over Time.............................................................................................................22
5.3.Distribution System of HUL................................................................................................23
5.3.1.Distribution at the Villages:...............................................................................................24
5.3.2.Distribution at the Urban centres:.....................................................................................25
5.3.3.Indirect distribution...........................................................................................................27
5.3.3.1Single-Party Selling System............................................................................................27
5.3.3.2.Multiple-Party Selling System.......................................................................................28
5.3.4.New distribution channels.................................................................................................28
5.3.4.1.Project Shakti.................................................................................................................28
5.3.5.Project Streamline / Stream Line Distribution:.................................................................28
5.3.6.Hindustan Lever Network (HLN).....................................................................................29
5.3.7.RS Net Initiative................................................................................................................30
5.4.Channel Structure.................................................................................................................30
5.4.1.Field Sales Force...............................................................................................................32
5.5.Initiatives taken to Improve the Distribution Network........................................................32
6. Key Takeaways..34
7. Conclusion.....35
8. References.36

1. INTRODUCTION
1
Marketing intermediaries are individuals or businesses that make it possible for the
product to make it from the manufacturer to the end user, essentially facilitating the
sales process. The four basic types of marketing intermediaries are agents,
wholesalers, distributors and retailers. Need of the intermediaries arises because: (1)
Producers cannot reach all their consumers (2) They multiply reach and provide
efficiency to the marketing process (3) They facilitate smooth flow and create time,
place and possession utilities (4) They possess the core competency and provide
specialization and scales of operation.
Companies must decide on the number of intermediaries to use at each channel level
according to 3 strategies: intensive, selective and exclusive distribution.
In intensive distribution, the strategy is to make sure that the product is available
through every reasonable outlet. This is generally preferred for consumer,
pharmaceutical products and automobile spares.
In selective distribution, a few selected outlets whose image the company wants to
project are permitted to keep the products. It is preferred for high value products and
keeps the distribution costs lower.
In exclusive distribution, there is a highly selective choice of outlets- may be even
one outlet in an entire market like car dealers. Generally producer wants a close
watch and control on the distribution of his products using this distribution.

Channel structures range from two to five levels as explained in the diagram.

Companies have a wide range of distribution channels available to them, and

structuring the right channel may be one of the companys most critical marketing
decisions. Businesses may sell products directly to the final customer, as is the case
with most industrial capital goods. Or they may use one or more intermediaries to
2
move their goods to the final user. The design and structure of consumer marketing
channels and industrial marketing channels can be quite similar or vary widely.
The channel design is based on the level of service desired by the target consumer.
There are five primary service components that facilitate the marketers
understanding of what, where, why, when, and how target customers buy certain
products. The service variables are quantity or lot size (the number of units a
customer purchases on any given purchase occasion), waiting time (the amount of
time customers are willing to wait for receipt of goods), proximity or spatial
convenience (accessibility of the product), product variety (the breadth of assortment
of the product offering), and service backup (add-on services such as delivery or
installation provided by the channel). It is essential for the designer of the marketing
channeltypically the manufacturerto recognize the level of each service point
that the target customer desires. A single manufacturer may service several target
customer groups through separate channels, and therefore each set of service outputs
for these groups could vary. One group of target customers may want elevated levels
of service (that is, fast delivery, high product availability, large product assortment,
and installation). Their demand for such increased service translates into higher costs
for the channel and higher prices for customers.
In order to deliver the optimal level of service outputs to their target consumers,
manufacturers are willing to allocate some of their tasks, or marketing flows, to
intermediaries. As any marketing channel moves goods from producers to consumers,
the marketing intermediaries perform, or participate in, a number of marketing flows,
or activities. The typical marketing flows, listed in the usual sequence in which they
arise, are collection and distribution of marketing research information (information),
development and dissemination of persuasive communications (promotion),
agreement on terms for transfer of ownership or possession (negotiation), intentions
to buy (ordering), acquisition and allocation of funds (financing), assumption of
risks (risk taking), storage and movement of product (physical possession), buyers
paying sellers (payment), and transfer of ownership (title). Each of these flows must
be performed by a marketing intermediary for any channel to deliver the goods to the
final consumer. Thus, each producer must decide who will perform which of these
functions in order to deliver the service output levels that the target consumers desire.

2. Literature Review
2.1 Marketing Channel Strategies in Rural Emerging Markets
2011
Benjamin Neuwirth, Kellogg School of Management,
The Paper talks about various challenges which the companies face while operating
3
in the rural areas.

Design of Distribution Network

The paper explains that when a company sells its products and services in a rural
market, the most important decisions it to make the distribution network design.
A company which operates in developed areas has to carefully consider its
distribution network design & companies operating in rural emerging market face
particular challenges because of the low population density and bad transportation
infrastructure.
Because of the low population density companies have to face escalating inventory
holding and transportation costs because they are made to stock and manage sales
points in thousands of villages to be able to meet expectations for availability.
This paper focuses on distribution network design for fast moving consumer durable
(FMCG) products like food products and cosmetics, and for consumer durables like
consumer electronics. An important point is that, the distribution network must be
tailored to meet the needs of the business and its customers irrespective of type of
product or service of the company.
FMCG: Hub-and-Spoke Model

Fast response time is demanded by FMCG products consumers; that is, when a
consumer decides to either eat a chocolate or wash their laundry with Nirma
detergent, the consumer expects their desired product to be available immediately for
purchase. A company which enters into a rural emerging market with FMCG products
should make the product available at the local village level.

Distribution networks that carry local inventories are suitable for products with high
demand, especially if transportation is a large fraction of total cost. These networks
incur higher inventory cost but lower transportation cost and provide a faster
response time.

Some of the companies choose to stock many small village shops with their products.
For example, Hindustan Unilever Limited (HUL)s products are available in 6.3
million retail outlets in India, and HULs competitor Nirma claims that its products
are available in 2 million retail outlets.

Colgate took this approach while determining how to best reach small villages in
rural India with
its oral care products. The company had experimented with stocking retailers in very
small villages, but found that its traditional sales force-driven model was not
economically feasible in geographically dispersed villages with low levels of
demand. Colgate decided to hire local entrepreneurial youth to distribute its products
in villages and at weekly markets called haats. The youth bought Colgate products
with cash from a local distributor, and then biked within a 10 kilometer radius selling
the products to villagers. Although Colgate payed the youth a small stipend, they
received less margin than a professional sales person would have and they reduced
Colgates inventory costs
4
Other FMCG companies have had success with the hub-and-spoke (with the spokes
being local entrepreneurs). Coca-Cola has employed the hub-and-spoke model in
multiple rural emerging markets. Manual Distribution Centers were set up in
Africa. In this an independent person was given the rights to distribute Coca-Cola
products within a defined radius. These examples show that the hub-and-spoke
model works well for FMCG products as it covers the transportation infrastructure
issues that are associated with distributing products in rural emerging markets.

CHALLENGE: DISTRIBUTION NETWORK LOGISTICS

The paper then talks about the next challenges lying in creating an effective
distribution network on the ground. The first issue which the company may face is
that the logistics capabilities required by the company may not currently exist in the
market. To add to the problem, the company may also face problem to keep its costs
low for the low prices that rural customers need.

If the organization previously had ensured demand in the market, it can make a
custom distribution network with relatively low risk. Eveready which makes of
batteries, did this in India. To reach deep into rural markets, Eveready procured 1,000
vans and 44 warehouses and began distributing to 600,000 retail outlets. As Eveready
has 80 percent market share in flashlights in India, the large expenditures required to
make distribution system could be made with good assurance that there will be
customers when an Eveready van went to a small village.

But, if a company does not have a product and brand which previously has good pull
from the market, it is risky to create an expensive custom distribution network . As
Marketing consulting firm in India, remarks, large companies are incurring huge
costs to distribute their products into rural areas of India and they are finding it
challenging to design a distribution model that is cost effective.
Pharmaceutical industry is a good example of the problem of creating a distribution
system from existing distributors and logistics companies. There is increasing
demand for medical products in rural India, the industry has not been able to meet
this as their distribution network is inefficient and made up of private clearing and
forwarding agents and small retailers.
The paper gives the reasons for the pharmaceutical industrys problems in India:

The main problems are highly fragmented nature of the distribution network, limited
advancement in regulatory reforms, and presence of strong resistance from lobbies of
traders involved in the supply chain of pharmaceutical products.

An example given in the paper is pharmaceutical company Ciplas attempt to break

out of the existing distribution network and deliver its asthma medicine directly to
homes of customers failed as the traders lobby started boycotting Cipla and stopped
stocking its drugs in retailers. Cipla was forced to stop its distribution network
innovation and give in to the traders lobby.
The paper further explains way to keep costs low and increase success chances, the
5
entering company should as much as possible piggyback on top of successful
distribution networks which either have already been made by companies or that
already established in the local society. Piggybacking has been identified in the
academic literature as a good alternative to building a new distribution network.
Piggybacking is defined in the paper as a non-equity arrangement wherein one
producer markets the products of another producer. The first producer the carrier in
this case performs as a distributor in marketing the products of the second producer
the rider. The fact that the riders products are being distributed by another
producer may bring important benefits to the rider as compared with using a regular
distributor
The rider chooses to piggyback to take advantage of the distribution system of carrier
and local knowledge, while the carrier joins in the relationship to add on to the
product of the rider or service to its portfolio. The paper gives the example of
Whirlpool piggybacking on Sonys distribution network which happened in Japan in
the 1970s, a partnership which helped in increasing Whirlpoos sales.
More recently, in India the Energy and Resource Institute (TERI) found out that
piggybacking their solar light distribution on existing infrastructure and
entrepreneurial networks lowered the cost of their supply chain.

The key factors for a piggybacking relationship should be:

1. The carrier should have good distribution system that reaches deep into rural
areas

2. The carrier should have long-term interest in making the rider piggyback on its
distribution system.

3. The carrier should have a model that is effective for the type of product the
rider is providing

In the same way as Whirlpool did with Sony in Japan, an entering company can also
make a partnership with a corporation that has an existing distribution network in the
target geography.

A good example of this in an emerging market is the partnership between Sara Lee
and Godrej in India. In 1995,Looking to find an entry into the enter the India market,
Sara Lee had a partnership with local conglomerate Godrej to market and distribute
its products. There is another example of a s corporate piggybacking relationship in
the form of Proctor & Gamble and Indian consumer goods company Marico
Industries., Proctor & Gamble created a distribution alliance looking to distribute,
detergent, deodorant and diapers in rural parts of India in 1999 with the help of
Marico in order to make use the Distribution system of the Indian Company.

Below figures show additional explanation of Channels-

6
7
2.2 Marketing of Agricultural Products

- By FAO(Food and Agricultural Organization) Rural Radio report,2006

Agricultural products Marketing has two important points related to it. The first one
is related with the physical process which brings products from producers to
consumers; the first stages of this process is the collection, followed by packaging,
transport, processing, storage and agricultural products retail sale which is at the end.

The report puts a a lot of concentration on the price an mechanism of the market
which decides the prices of the products produced after agricultural processes and
also the way in which
producers can get reasonable prices for their produce.

Pricing mechanism and demand and supply

Prices of Agricultural depend upon a lot of factors which finally depend on the
conditions of demand and supply.
Supply depends on the total present amount of a particular product and includes -
depending on the particular product - local production, and the production in
neighbouring countries as and also the world production in the case of products
which are exported. It also depends on the requirements of producers for ready
cash:the more is the requirement of cash at harvest-time, the more will be the chances
of inclinination to accept low prices. If they decide to stockpile instead of selling the
products immediately, market prices have high chances of going up .

Demand has origin from the final users or consumers and its supply is done by
dealers or intermediaries. Demand at End user is influenced by product quality and
8
price. Consumers will be buying more goods if the price is low, but they may be
willing to pay a higher price (it depends on their income) if the quality of products is
good.

The dealer, who act as intermediaries between the producer and the customer, make
their profit from the difference between the price at which product is purchased from
producers and that at which they sell the products to consumers. In order To
complete this, they tend to seek out production areas that have easy access and also
require low costs of transport, and those where crops are present in abundance. If
crops are in more abundance in neighboring countries, traders will go to that place
to collect the available products at a much lower cost.

Distant production area which is often combined with poor road and railway
infrastructure are major factors that drive prices of the producer down.

If infrastructure is bad, part of the money that the dealer could pay to the
producer will be used to pay for transport; therefore, the dealer will tend to bring
down the price offered to the producer in order to make up for the higher costs of
transport. Another factor that can influences prices is the presence of competition
among dealers.

If there are many dealers present who want to buy the available products, producer
prices will tend to rise. Also , if there is only one dealer and many producers or
abundant production, a modest price will be offered.

Finally, prices also vary depending on the seasons. During the harvest time, prices are
generally low, while they rise at the time when sowing time is close. The capacity of
producers to stockpile the products produced by them can help to minimise the
seasonal variations by putting on the market only amount of production which is
enough to maintain to maintain a set price.

So, It is very important for producers to know about 3Ws-which are-when, where,
and what amount of produce to sell, while bearing the market price in mind. In best
situations, they should be in a position to get the best output out of the present
pricesin the market. To do so, access to information must be provided on markets and
prices prevailing.

3. Objective & Methodology:

OBJECTIVE

9
The objective of the project is to
Identity does increase in number or intermediaries really increase the cost of
the product for end consumer and vice versa
Analyze the impact of intermediaries in two sector mainly FMCG (HUL) and
Agricultural sector
Analyze the distribution channel in FMCG and Agricultural Sector
Identify the parameters that impact choice of channel customer needs,
channel objectives, major alternatives of intermediaries, value adds versus cost
Review the trends towards consolidation of distribution channels
Do critical analysis of Disintermediation and Re-intermediation on firms &
customers

METHODOLOGY

We had primarily focused on Secondary research. We had studied various journals,

research papers and also made internet research related to the topic. After studying
various empirical studies conducted in this area of distribution channel, we had
analysed what is the impact of intermediaries in FMCG and Agricultural sector. What
are the reasons for having intermediaries? Why do why firm go for Disintermediation
and Re-intermediation.
Secondary Research: From magazines, articles, Journal papers, Websites etc.

Agriculture in India & its Importance:

Agriculture is important to the Indian economy, contributing 21 percent to India's
Gross Domestic Product. The rural areas comprising of 72 percent of the India's 1.1
10
billion people, among which a large number are poor. The recent changes in domestic
& global markets are creating significant opportunities for farmers and agribusiness
entrepreneurs. The demand for high-value primary products is rapidly increasing
because of rising incomes, faster urbanization & advancing technology.
The agricultural markets that are well-functioning and effective could reduce the
uncertainty of supply and improve the food security. Efficient markets are those that
have institutions and services that provide market information, manage risks,
establish grades and standards, and enforce contracts a big challenge in India.
Intermediaries in Marketing of Agricultural Commodities in India:
In India, layers of intermediaries are common in the marketing of agricultural
commodities. There are traders, commission agents, money lenders, wholesalers
and other intermediaries as well. The traders and intermediaries in India are often
self-funded because of limited access to credit. They maximize the returns on
working capital by rapidly turning over smaller quantities, with little storage. Quality
grades are commonly not standardized, nor are weights and measures, which make
personal inspection by buyers important.

Red colored percentages indicate the wastage in the channel of Agricultural goods.

As per a research report published at IIM Bangalore, the price of agricultural goods
at farmer level and retail level

11
Produce Farmgate Price Retail Price Farm gate as % Wastages
(Rs) (Rs) of retail price

Tomato 2 8.2 24% 40%

Potato 6.6 12 55% 24%

Banana 5 9 56% 30%

Cabbage 5.5 9.5 58% 36%

Cauliflower 4 12 33% 24%

In India, the Ministry of Agriculture operates AgMarkNet that collects price

information from wholesale markets nationwide and disseminates it through the
Internet. The private sector in players like ITC and Reliance are also investing in
telecommunications infrastructure, which aid in strengthening market information,
extension, and other services to farmers.
In this paper we tried to highlights the effects of a pioneering intervention
implemented in the Madhya Pradesh that delivers relevant price information to
soybean farmers as well as facilitates direct interactions between farmers and
processors to enhance the functioning of rural agricultural markets. This study helps
us to understand the role of various intermediaries in term of cost and contribution.

A Case Study-Agricultural Marketing in Madhya Pradesh

Madhya Pradesh (MP) is the second largest Indian state in terms of area and ranks
seventh in term of population. The Madhya Pradesh State Agricultural Marketing
Board facilitated the establishment of mandis. Mandis are government regulated
wholesale agricultural markets which help farmers to receive a fair price for their
produce. There are around of 233 main mandis in the MP which have well built
storage and display areas where farmers periodically sell their produce. The MP State
Agricultural Marketing Act, 1972 prohibits any transactions outside the mandis.
According to law, every farmer is required to sell his or her produce in these
regulated markets.
India is the 5th largest producer of soybean in the world and MP produces more than
60 percent of India's total soybean crop. It is ready to be harvested in September and
being a cash crop, almost the entire crop is marketed. Around 65 percent of the total
soybean produced in a year is sold in the mandis between October-December,
immediately after the harvest. There also appears to be considerable seasonal
fluctuation in price. For instance, the average price in the fourth quarter, over the
12
years 2000-2005, is 8.5 percent lower than in the corresponding price in second
quarter.
After harvest, the farmers transport their produce by animal-drawn carts and tractors
to a close by mandi where it is sold through an open outcry ascending bid auction.
Field studies reveal that farmers travel thirty to fifty kilometers on an average to
reach a mandi and they usually make these trips a couple of times each month. The
auction begins when the auctioneer-a government employee, visually inspects quality
and sets initial bid. From here, traders bid upwards until the produce is sold. This is a
very fast process and in a matter of seconds the final price is decided. The
government employee and traders move from heap to heap picking up samples of the
produce and making a price estimate.
In principle, edible oilseeds are traded on basis of Fair Average Quality (FAQ)
determined by presence of dirt and moisture content in each lot of produce offered for
sale. Traders begin to discount price of crop when the proportion of dirt, moisture and
damaged seeds exceed that level. Once final price is set, the farmer's produce is
weighed on a manually operated balance scale. The full value of the farmers produce
is calculated and farmer is paid in cash.

In this scenario, the traders make up for lack of infrastructure such as transport &
storage facilities in villages. They are also well informed about prices prevailing in
different markets and price offered by processors. The farmers often do not have
complete information about market conditions, prior to the sale. Adding to this, the
processors are unable to perfectly monitor traders. Access to information as well as
direct interactions between farmers & processors can thus have a potentially
important effect both on the price received by rural producers and on their behavior.

An Innovative Intervention by Private Sector in Central India- ITC Way

A large private sector company, ITC , launched a unique e-choupal intervention in
October 2000 in the state of MP that to some extent addressed this need. Before this
intervention, ITC bought soybean from traders which areoperating in the mandis &
processed the beans. ITC didnt have any direct contact with the farmers, it
commissioned certain traders called commission agents to buy soybean from the
mandis on its behalf. The company was dependent on its agents' knowledge about the
local farmers and their produce.

Interviews with ITC officials revealed that distortion of quality undertaken by agents
13
meant that the company paid a high price for a lower overall quality of soybean,
which upon processing yielded less oil.
By Passing Intermediaries
ITC believed that by bypassing the intermediaries, it would be able to better control
the quality of the produce and also lower its transaction costs. ITC calculated that it
saved Rs. 12.9 million in the first year of operation through better quality oil obtained
from processing soybean procured through the e-Choupal intervention. Moreover, the
company had dual roles for the infrastructure that it was creating as it planned to sell
its own consumer products in rural areas in the future.

This intervention helps in providing an alternative way both to ITC for procuring
soybean and to farmers for selling their produce. Beginning in the year 2000, ITC
established a total of 1700 internet kiosks and 45 hubs over the course of 4.25 years
in the state. The intervention has two dimensions. Internet kiosks were set up in
villages that provide information about mandi prices to farmers in the state. Each day
the (minimum and maximum) prices in approximately 60 local mandis are posted on
the website. Along with this information, ITC's own offer price at its 45 hubs is also
posted. In addition, information on farming techniques and weather conditions is also
available in the local language to farmers through the kiosks. Each internet kiosk was
designed to cater to its host village and four other neighboring villages within a five
kilometer radius .The internet kiosks are managed and operated by trained farmers
who are selected from within the village and provide free services to other soy
farmers.

Hubs represent a point of contact between farmers and ITC. A farmer can sell
directly to ITC by going to nearest hub. ITC's goal is to have a hub within a 30-40
km. radius of its target farmer. Once farmer arrives at one of hubs, his produce is
carefully tested to discern quality. ITC can offer a price below posted FAQ price if
quality is below FAQ level. However, minimum support price (declared annually by
Government of India) is lowest price that ITC can offer for a certain poor quality
threshold. After price is set and accepted by farmer, his beans are weighed on an
electronic weighbridge, and weight is multiplied by offered price. farmer n receives
cash instantly.
In initial period of intervention, ITC used a provision in by-laws of Marketing Act
to procure soybean from farmers at its hubs. This provision permitted farmers with
small landholdings and low annual output, who are unable to travel to mandi, to sell
ir produce outside regulated markets, in front of a government official in village
(Government of MP 2003). state Marketing Act was subsequently amended in April
2003 allowing farmers to sell outside mandis provided that buyers obtain a
Purchase Center License. This license enables a particular buyer to establish centers
to procure agricultural produce outside physical confines of a particular mandi
subject to full documentation of its transactions and payment of mandi tax.
amendment of Act represents an important step towards greater flexibility in
14
marketing of agricultural produce in state.
Th impact of this innovative initiative on price received by soybean farmers in
mandis and on subsequent planting decisions. Improvement in price information to
farmers, due to presence of kiosks, is likely to reduce trader's monophony power
leading to an increase in offer price of good in mandis. presence of a hub, however,
is likely to exert two opposing forces.
On one hand, direct buying by ITC is expected to divert a part of sales away from
mandis, leading to an upward pressure on price, competition effect. On or hand,
scientific testing of quality performed at ITC hubs might induce farmers to self-
select, putting a downward pressure on price offered in mandis, composition effect.
If farmers with good quality soybean have a greater tendency to sell directly to
private company, effect of hub on mandi price is a priori ambiguous, and is
ultimately an empirical question.
location and installation date of each internet kiosk and hub, available from private
company, provide spatial and time patterns of implementation of intervention in
state of Madhya Pradesh. outcomes, monthly wholesale price and volume of crops
sold in all government regulated mandis in state from April 2000 to September 2005,
are available from Madhya Pradesh State Agricultural Marketing Board. Measuring
output response to this intervention is crucial for understanding effect of this
intervention on farmers' behaviour. Annual district level data on area cultivated,
production and yield of crops from 1998 to 2004 are available from Commissioner
of Land Records, Madhya Pradesh.
This is first attempt to collect detailed data on price and volume of crops sold in
mandis to examine impact of information technology on functioning of rural
markets in India. Using differential timing in introduction of kiosks and hubs across
districts of state, study finds an immediate and significant increase in average price
of soybean after kiosks are introduced, presence of an internet kiosk in a district is
associated with an increase in monthly mandi price of soybean by approximately two
percent. While presence of hubs appears to have no effect on average price, hubs are
associated with a dramatic reduction in volume of sales in mandis. In addition,
dispersion of soybean prices across affected mandis in Madhya Pradesh decreased
after intervention. increase in price and reduction in dispersion appears to influence
farmers' planting decisions. re is a significant increase in area under soy cultivation
due to this intervention. findings of study show that information provision to
farmers is potentially crucial to increasing efficiency of rural markets in India.
analysis also contributes to an understanding of role of information technology in
enhancing rural development.

Value Chain With and without Intermediaries:

A typical value chain for farmer as as shown below:

15
As can be seen a money lender playes an important role in this regard. In the above
chain the farmer interacts with a lot of people which inturn increases his costs.

Middleman is not a villain. He is actually making up for the weak infrastructure. He

has become a villain by blocking information flow & market signals
Harness the power of IT to leverage his strengths, yet disintermediate
him from information flow
And, use the collaborative business model to give the freedom of choice
to the farmer
So long as the business description is commodity trading, the lemons problem will
persist
Focus on unique customer needs and build a demand driven supply
chain
Combine the two-way flow of goods & services to build relationships and to bring
down the cost of last mile
Interactive transaction and efficient fulfillment channel

Then came ITCs E-Choupal. Shown below is how the entire problem with the
middleman was eliminated.

16
 PakkaAdtiya
(Registered Dealer)

Trade
r
Choupal
Broke

Processor
Processor
r
Money Farmer
Lender
ITC-IBD
Sanchalak

KacchaAdtiya
(Un-Registered Dealer)

In the above chain the farmer now interacts directly with the Sanchalak only. All the
other entities in turn interact with the sanchalal. This reduces cost significantly as
shown below:
Costs without E-choupal

17
Costs with E-choupal

18
Price information is crucial for market efficiency. The introduction of internet kiosks
across districts of the state of Madhya Pradesh is associated with a significant
increase in the monthly price of soybean in government regulated wholesale
agricultural markets. The use of Information and communication technologies by
farmers and other agents in the agricultural supply chain, particularly in the
marketing of output, such as obtaining price information or arranging sales has risen
significantly in recent years. Moreover, direct interactions between producers and
processors are gaining considerable interest in developing world. While
intermediaries deliver critical services to rural producers, they are also often
exploitative and there can be large efficiency gains from their removal. The
innovative intervention by ITC shows that it requires serious investment to bypass
intermediaries, but it is possible, and can be beneficial for both farmers and final
buyers.

19
5.MARKETING CHANNEL FOR HINDUSTAN UNILEVER LIMITED

5.1.HUL A Brief Overview

Hindustan Unilever Limited (HUL) is India's largest consumer goods company

based in Mumbai, Maharashtra. It is owned by the British-Dutch
company Unilever which controls 52% majority stake in HUL. Its products include
foods, beverages, cleaning agents and personal care products.
HUL was formed in 1933 as Lever Brothers India Limited and came into being in
1956 as Hindustan Lever Limited through a merger of Lever Brothers, Hindustan
Vanaspati Mfg. Co. Ltd. and United Traders Ltd. It is headquartered
in Mumbai, India and has an employee strength of over 16,500 employees and
contributes to indirect employment of over 65,000 people. The company was
renamed in June 2007 as Hindustan Unilever Limited.
Lever Brothers started its actual operations in India in the summer of 1888, when
crates full of Sunlight soap bars, embossed with the words "Made in England by
Lever Brothers" were shipped to the Kolkata harbour and it began an era of
marketing branded Fast Moving Consumer Goods (FMCG).
Hindustan Unilever's distribution covers over 2 million retail outlets across India
directly and its products are available in over 6.4 million outlets in the country. As per
Nielsen market research data, two out of three Indians use HUL products.
We have analyzed the distribution network of HUL from the following aspects:

Evolution of HULs distribution network

Channel Structure
Initiatives taken for channel member management.
Field force management
Analytical Framework

Distribution Network of HUL

5.2.Evolution over Time

HULs distribution network has evolved with time. The first phase of the HUL distrib
utionnetwork had wholesalers placing bulk orders directly with the company. Large r
etailers also placeddirect orders, which comprised almost 30 per cent of the total orde
rs collected.
The companysaleman grouped all these orders and placed an indent with the Head Of
fice. Goods were sent tothese markets, with the company salesman as the consignee.
The salesman then collected and
distributed the products to the respective wholesalers, against cash payment, and the
money was remitted to the company. The focus of the second phase, which spanned
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the decades of the 40s, was to provide desired products and quality service
to the company's customers. In order to achieve this, one wholesaler
in each market was appointed as a "Registered Wholesaler," a stock
point for the company's products in that market. The company salesman still covered
the market, canvassing for orders from the rest of the trade. He then distributed
stocks from the Registered Wholesaler through distribution units maintained by
the company. The Registered Wholesalersystem, therefore, increased the distribution
reach of the company to a larger number of customers.
The highlight of the third phase was the concept of "Redistribution Stockist" (RS)
who replaced the RWs. The RS was required to provide the distribution units to the
company salesman. The second characteristic of this period was the establishment of
the "Company Depots"system. This system helped in transshipment, bulk breaking, a
nd as a stockpoint to minimise stockouts at the RS level. In the recent past, a significa
nt change has been the replacement of the Company Depot by a system of third party
Carrying and Forwarding Agents (C&FAs). The C&Fas act as buffer stock-points to
ensure that stock - outs did not take place. The C&FA system has also
resulted in cost savings in terms of direct transportation and reduced time
lag in delivery. The most important
benefit has been improved customer service to the RS. The role performed by the
Redistribution Stockists includes: Financing stocks, providing warehousing facilities,
providing manpower, providing service to retailers, implementing
promotional activities,extending indirect coverage, reporting sales and stock data, de
mand simulation and screening for transit damages

Detail Overview:

The distribution network of HUL is one of the key strengths that help it to supply
most products to almost any place in the country from Srinagar to Kanyakumari. This
includes, maintaining favorable trade relations, providing innovative incentives to
retailers and organizing demand generation activities among a host of other things.
Each business of HUL portfolio has customized the network to meet its objectives.
The most obvious function of providing the logistics support
is to get the companys product to the end customer.

5.3.Distribution System of HUL

HULs products, are distributed through a network of 4,000 redistribution stockists,

covering 6.3 million retail outlets reaching the entire urban population, and about 250
million rural consumers. There are 35 C&FAs in the country who feed these
redistribution stockists regularly. The general trade comprises grocery stores,
chemists, wholesale, kiosks and general stores. Hindustan Unilever provides tailor
made services to each of its channel partners. It has developed customer management
and supply chain capabilities for partnering emerging self-
service stores and supermarkets. Around 2,000 suppliers and associates serve HULs
40 manufacturing plants which are decentralized across 2 million square miles of terri
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tory.

Schematic of HULs Distribution Network

5.3.1.Distribution at the Villages:

The company has brought all markets with populations of below 50,000 under one
rural sales organisation.The team comprises an exclusive sales force and exclusive
redistribution stockists.The team focuses on building superior availability of
products. In rural India, the network directly covers about 50,000 villages, reaching
250 million consumers, through 6000 substockists.

HUL approached the rural market with two criteria the accessibility and viability.
To service this segment, HUL appointed a Redistribution stockist who was
responsible for all outlets and all business within his particular town. In the 25% of
the accessible markets with low business potential, HUL assigned a sub stockist who
was responsible to access all the villages at least once in a fortnight and send stocks
to those markets.

This substockist distributes the company's products to outlets in adjacent smaller

villages using transportation suitable to interconnecting roads, like cycles, scooters or
the ageold bullock cart. Thus, Hindustan Unilever is trying to circumvent the
barrier of motorable roads. The company simultaneously uses the wholesale channel,
suitably ncentivising them to distribute company products. The most common form
of trading remains the grassroots buyandsell mode. This enables HUL to
influence the retailers stocks and quantities sold through credit extension and trade
discounts. HUL launched this Indirect Coverage (IDC) in 1960s.Under the Indirect
Coverage (IDC) method, company vans were replaced by vans belonging to
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Redistribution Stockists, which serviced a select group of neighbouring markets.
5.3.2.Distribution at the Urban centres:

Distribution of goods from the manufacturing site to C & F agents take place through
either the trucks or rail roads depending on the time factor for delivery and cost of
transportation. Generally the manufacturing site is located such that it covers a bigger
geographical segment of India.From the C & F agents, the goods are transported to
RSs by means of trucks and the products finally make the last mile based on the
local popular and cheap mode of transport.

BUSINESS MODEL OF HUL:

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\

Direct marketing: Selling products through direct dealing with consumers

bypassing intermediaries.
Traditional methods: cold calling, telephone selling, and door-to-door calling,
telemarketing, mail order, direct-mail selling, direct radio selling, magazine
and TV advertising
The main advantages of selling direct are that there is no need to share profit
margins and the producer has complete control over the sales process. Products
are not sold nearby those of competitors either.

Specific market factors that would encourage direct selling are -

need for an expert sales force, to demonstrate products, provide detailed pre-
sale information and after-sales service
Unwillingness of retailers, distributors, dealers and other intermediaries to sell
the product
Clout of competitors over existing distribution channels

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There are significant costs associated with selling direct which may be higher than
the costs associated with using an intermediary to generate the same level of sales.
However, there are several potential advantages of using an intermediary.
Greater efficiency in distribution logistics
Lower overall costs (even after including margins or commissions)
Variety seeking behavior of consumer at point of sale
Lack of resources / expertise for producers in direct selling

7. Conclusion:
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We have done research on a brand HUL and studied its marketing channel structure
and also the way the whole system works. In its network, we understand that there are
intermediaries and less of direct selling. This method proved to be good for HUL
which has large penetration and if it needs to work alone without intermediaries, it
would lead to high inventory costs and hence price of goods also increases.
Hence it is good for HUL to have a certain level of intermediaries to reduce the costs
on the company and prevent that cost from being transferred to the consumers.
Limitation:
This report talks about HUL and its marketing channel. It is a niche topic and HUL
being one of the biggest FMCG brands and a brand operating for so long has
streamlined the process. This limited out study scope. But established practices were
understood and appreciated.
Scope :
We have worked only with FMCG sector and a particular brand. This will hold true
for HUL but will not be applicable for other brands in neither same FMCG category
nor in other categories. Many factors like penetration, number of distributors,
margins of distributors, inventory levels, product lifetime etc play a critical role in
determining costs incurred in the product. This study can be carried out in others
categories and sectors to understand the impact of middlemen on the price of the
goods. Hence a vast scope is available for researchers on this issue.

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8. List of References

www. hul.co.in
www.wikipedia.com
profit.ndtv.com
timesofindia.com

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