GSK Rural Conundrum

GSK Rural
Conundrum

By
SPJIMR Mumbai
Arthy
Narayanan(pgp09.arthyn@spjimr.org)
Arpit
Mundra(pgp09.arpitm@spjimr.org)
Abhisheikh
Lahoti(pgp09.abhisheikhl@spjimr.org)
SPJIMR -2009 [Arthy Narayan, Arpit Mundra, Abhisheikh Lahoti] Page 1
 GSK Rural Conundrum

Rural Distribution Conundrum

Live Life
Ltd

Super Additional
Distributor distribution
Dist. network as a
part of the
new strategy
Wholesale NGO/Villa
Sub Dist.
r ge leader

Rural Dist.

Retailer

New strategy:

Present model of 2 TIER approach could be expanded as follows to increase

Reach - Live Life works with an external entity like an NGO or Village
leaders/Sarpanch in the villages that have access to Live Life products at
present. This entity now acts like a hub for the smaller villages that are closer to
it and have no coverage through vans. These entities gather unemployed
locals from the same or nearby small villages who can act as rural distributors.
They buy the products from the wholesalers and sub-distributors of Live Life who
are already serving the villages and can re-distribute them in
cycles/mopeds to the remote villages on a regular basis.

The above network is devised mainly for the Foods category and the Rahat and
Roshan OTC products (assuming selling the two will not need a drug license). In

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 GSK Rural Conundrum

order to improve the other OTC drug sales, Live Life Ltd can look for potential tie-
up with pharmacy chains like Apollo which are also working towards expanding
their reach in the rural areas.

Strengths Weakness
• Increased layer increases • Operational issues of finding
reach an NGO. Hence need for
• only incremental changes alternate arrangements for
made to the network – carrying out the same
minimum infrastructure responsibilities.
investment • High dependence on the
• Involvement of local people rural distributor’s integrity
– status as facilitators of and sincerity
rural income
Opportunities Threats
• Reaching untapped markets • Proliferation of local
– opens up more imitation in this channel
opportunities
• Mobile trader is an asset -
All in one package for rural
marketing, brand building,
information sourcing, mela
distributions
Our learning’s from some best practices in Industry:

With the growing rural economy of India, heavy competition from other players
and poor infrastructure in rural areas – distribution is a huge challenge. The
various distribution channels we came across used the tier system, Hub and
spoke model, direct distribution, wholesale channel, using local people and
mobile traders. Hence, many companies have adopted innovative strategies to
improve their reach. Our strategy is a combination of Tata Tea’s Gaon Chalo
model with 3 tiers (NGO and 2 tiers of rural distributors) and HLL’s Project
StreamLine where goods were distributed from C&F agents to the Re-
distributors, who in turn pass it on to the star sellers. Other innovative models:

• ITC’s e-choupal – a complete infrastructure network for distribution of

various products across sectors. One stop shop

• HLL’s project Shakti – Direct to Home model through Self Helf groups.

A very high investment is needed to implement the above models

at Live Life since its product portfolio is much smaller than ITC
and HLL.

• Collaboration in direct distributorship posed problems of having similar

frequencies in case of other sectors (fertilizers) and competition would not

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 GSK Rural Conundrum

collaborate with a small player or reach would not create awareness for a
small product line

• Telecom sector for example used low price range and combination. They
had fixed revenues because of usage in case of service providers. Airtel
too is invested in Agro processing to create a rural presence. The trend is
to leverage local people and a single channel.

Leveraging the wholesale distribution channel.

• The red line in the diagram indicates the redistribution channel.

• The use of wholesale as pseudo inventory stock holder for us may be cost
beneficial

• The wholesaler now can have reduced margins as stock is pulled by the
rural distributor. Also now the issue of wholesaler pushing other products
does not come into picture. He also caters to the regular retailers.

• In the absence of NGO’s they can be used to implement similar structure.

Data Analysis supporting our Strategy

NGO/Village Leader/Rural
Rural Distribution conundrum Distributor economics
6.3 No of NGOs-
Total no of Villages lac India 20 Mn
Population of
% of villages not connected 40 India 113 Cr
Villages not connected by
road (Additional Total 25534 No of persons per
market) 6 NGO 565
Reasonable NGO to
Rural Popln. 74 Cr People Ratio
No of people
seeking work 70081562
Costs
Involved
Cost Assumption - Initial Building
Mnth Avg rural percapita Network of NGO's + Village
consumption expenditure 559 leaders(opinion makers) < Creating
Present rural FMCG 512 own distribution channel and
sales Bn inventory management
Cost mobile coverage
Yearly Avg Rural percapita person ( 4-5 villages) (>
FMCG expenditure 9.71 govt ) 4000
GSK-CH revenues (2% of 0.194
FMCG) SO RRL percapita 2
These figures show Wholesaler/ distributor partners
tremendous growth margin can be reduced as
opportunities guaranteed sale to our channel

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 GSK Rural Conundrum

Marketing / Human Resource

Distribution Strategies Angle

1. Employment of rural
1. Rural distributor hired acts not only people - Value creation in
as distributor but - CATALYST village
1) Pulls products from wholesale,
2. Training rural distributor will create
distributors
health consciousness in areas
2) Pushes products into unchartered
3. Value nutrition to
territories
children through health
3)Brand awareness to locals -Health
drinks
products
4) Information sources from villages 4. Corporate social responsibility
5) Newer products market without compromising Profit – leverage
identification and easy entry to supply This
chain
6) Village opportunities like Mela’s can
be exploited through him
7) Distribution outsourced not
Selling

* Data according to census and financial

reports of 2009

Price Points and Pack Sizes

Roshan

1. Price lowest for Iodex in 10 gm pack size

2. Price highest for Iodex in 20 gm pack size (Moov is
Rs 36 for 25gms) – Trying to tap consumer surplus
3. Price lowest for Iodex in 50gm pack size
4. Though price higher caters to rural markets via low
price points-5

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 GSK Rural Conundrum

Rahat

1. Highly priced. Rural market acceptance of antacids vulnerable

2. Variants and Tablets available at very nominal price

3. Psychological effect of affect by antacid could be conveyed – Instant Relief

4. Pack sizes for one time use could be developed which could be priced at
Rs 2 to compete.

OTC Analgesics- Here the price points and packs sizes is not that relevant.
Medicines are taken from a chemist and when required. It is about brand building
and pushing the sales over the counter. The prices too are low for analgesics like
crocin or calpol and therefore have a space in rural markets.

Health
Drinks

1. Complan charges a premium as compared to its competitors

2. Perhaps, that why it doesn’t come in 1 kg pack as the price would be to high
3. 18 and 90 gm – Rural Category. Is 18 gm in health drink justified?
4. Qty / Re is highest for 90gms Badshah/ Hoshiar, it’s not even that high for 1 kg
packs (Value for money packs selling most. Refill used suggests repeat usage and
less relevance on pack size
5. Not much scope of selling variants in villages (variants like kesar , woman
horlicks , children horlicks , bournvita 5 star as rural people might not even know

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 GSK Rural Conundrum

about them. So concentration on basic range)

6. 500gm pack for upper middle class (rural) and 200gm for lower middle class
(rural) and 90 gm below that

Tasty Tiger Parle

Treat (Cream) (Cream)
72gm 5 5 5
144g
m 10 10 10
189g
m 15 0 0
288g
m 20 20 0

1. Pack size and Product Range similar for all the products
2. When qty is similar, attractive packing , text on pack in local language
can differentiate
3. The 15 Re variant is not available with competitors (can look at it both
ways)

4. The price doesn’t reduce with increase in qty (exact linear)

5. Bigger pack (20Rs) for upper middle class and big families
6. Branding Necessary

Energy Bars –

The energy bar segment has prices starting from 5 to 10, 15, and 20 for
increasing quantity. They are a niche product and may not yet find a space in the
rural market. Also to create a market children could be a target and to make it
affordable pack sizes of Rs 2 could be tried.

Rural Market Pricing and Pack sizes

1. Low volume-low price strategy

2. Refill packs / Reusable packaging
3. Application of value engineering
4. Ensuring price compliance
5. Overall efficiency & passing on benefits to consumers

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