Marketing Channel Strategies in Rural India: Lessons From d.light Design

Marketing Channel Strategies in Rural India: Lessons From d.light Design By Benjamin Neuwirth, Kellogg School of Management

Agenda • Background on d.light Design • Framework for Marketing Channel Success in Rural India • My Internship: Enabling a New Marketing Channel

Base of the Pyramid Markets If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up. - C.K. Prahalad 2006

Affordable Products to Alleviate Poverty Affordable devices like treadle pumps and drop irrigation combined with a last mile supply chain has helped 20 Million people move out of poverty as a result of IDE’s work alone. - Paul Polak 2011

d.Light Design’s Founding Product Solution Inspiration • Affordable, bright lights for rural consumers to promote health and livliehood • Founded out of the Stanford d.school by Sam Goldman and Ned Tozun • Many people in rural Africa and India do not have access to grid electricity • Kerosene is expensive, dangerous, unhealthy, and provides weak light • Founder’s burned hand in rural Africa

d.Light Products • S250 • Powerful spotlight • Mobile phone charger • $35 USD • S10 • Great performance for cost • Perfect to light a room at night • $15 USD • S1 • Ultra-portable and ultra-affordable • Designed to appeal to children • $9 USD

d.Light Products for Health and Livelihood • Benefits of d.light products for rural Indian consumers • Safer cooking • More effective studying • Increased time for business activities

Central Question for d.light How can a company attempting to enter a rural region in an emerging market with a new product or service and an unknown brand create a sustainable business?

Agenda • Background on d.light Design • Framework for Marketing Channel Success in Rural India • My Internship: Enabling a New Marketing Channel

Framework for Marketing Channel Strategy in Rural India Delivering Products Distribution Network Design Maintaining Customers Distribution Network Logistics After-Sales Service Customer Product Purchase Activating Customers Affordability Education Brand Trust

Distribution Network Design Challenges Solutions • Aggregate Consumer Demand to a Point Required by the Product • Low Density of Demand Leads to Slow Inventory Turnover

Distribution Network Design: Example Aggregating Consumer Demand Consumer Durables: Aggregate demand in cities and hypermarts FMCG Products: Aggregate demand in villages

Distribution Network Design Challenges Solutions • Low Density of Demand Leads to Slow Inventory Turnover • Aggregate Consumer Demand to a Point Required by the Product • Poor Transportation Infrastructure Raises Transportation Costs • Use Hub-and-Spoke Transportation and Rural Entrepreneurs

Distribution Network Design: Example Hub-and-Spoke Model Coca-Cola Hub Independent Entrepreneurs Autorickshaw Delivering Coca-Cola in an Indian Village Small Villages

Distribution Network Design Challenges Solutions • Low Density of Demand Leads to Slow Inventory Turnover • Aggregate Consumer Demand to a Point Required by the Product • Poor Transportation Infrastructure Raises Transportation Costs • Use Hub-and-Spoke Transportation and Rural Entrepreneurs • Consumer Expectations for Availability and Variety • Gain Insight Into Consumers to Meet Their Product Delivery Expectations

Distribution Network Logistics Challenges • High CapEx/OpEx required to set up a distribution network in rural India • Fragmented distribution and logistics industries • Potentially low chance of legal recourse if partner contracts are violated Solution: Distribution Network Piggybacking • Corporate Partnerships

Distribution Network Logistics: Example Corporate Partnerships Both Sara Lee and Proctor & Gamble entered into joint ventures with local Indian companies to more effectively distribute their products.

Distribution Network Logistics Challenges • High CapEx/OpEx required to set up a distribution network in rural India • Fragmented distribution and logistics industries • Potentially low chance of legal recourse if partner contracts are violated Solution: Distribution Network Piggybacking • Corporate Partnerships • Local Non-Profit Organizations

Distribution Network Logistics: Example Local Non-Profit Organizations • Hindustan Unilever’s Project Shakti • Unilever uses womens’ Self Help Groups to reach small villages deep in rural India • The women buy the products with cash from Unilever, and then distribute them in nearby villages • Project Shakti currently employs over 40,000 women entrepreneurs A women entrepreneur delivers Unilever products in rural India Information and picture sourced from MART internal presentation - 2005

Distribution Network Logistics Challenges • High CapEx/OpEx required to set up a distribution network in rural India • Fragmented distribution and logistics industries • Potentially low chance of legal recourse if partner contracts are violated Solution: Distribution Network Piggybacking • Corporate Partnerships • Local Non-Profit Organizations • Business-to-Business Sales

Distribution Network Logistics: Example Business-to-Business Sales Distribution Carrier Company Rider Company Sales • Pros • Bulk Sales to carrier company • Manage fewer relationships • Cons • Low visibility into end customer sales and product reception

Agenda • Background on d.light Design • Framework for Marketing Channel Success in Rural India • My Internship: Enabling a New Distribution Channel

Area of Operation: Uttar Pradesh Location of Uttar Pradesh in India • Facts about Uttar Pradesh: • Population of 200 Million people • Half the size of California • Annual per-capita GDP of $294 USD per year • Most residents do not have access to grid electricity

d.light’s New Distribution Partner • 2009-2010: • d.light set up a custom distribution network in Uttar Pradesh to supply solar lamps into small retail stores in villages. • The network failed due to high distribution costs and low consumer demand. • 2011 • d.light forms a piggybacking relationship with Bharat Petroleum (BPCL), the second largest oil-product distributor in India, to distribute solar lamps in Uttar Pradesh. • My Internship • Analyze the BPCL distribution network • Recommend strategies for successfully selling d.light products through the BPCL network

Analysis of BPCL Distribution Network BPCL has 281 cooking gas retail stores in Uttar Pradesh. Each stores serves thousands of consumers, effectively aggregating demand for d.light.

BPCL also sells FMCG and consumer goods in its retail stores in order to have other non-oil revenue stream. D.light products will be sold as part of this program.

Each store is owned by an independent franchisee. While the owners felt good about d.light, they were not highly motivated to sell d.light products.

50% of BPCL customers come to the retail store to pick up their cooking gas. While at the store they may buy other products or schedule their next cooking gas pick-up.

The other 50% of BPCL customers have their cooking gas delivered to them. The delivery men are a true last-mile link to rural consumers in India. The delivery men are often poorly educated and have little or no sales experience.

Analysis and Recommendations • Analysis of the BPCL Distribution Channel • Pros • Consolidates demand into central retail points • Established and successful warehousing and logistics network • BPCL is a very trusted brand with Indian consumers • Cons • Retail store owners not motivated to sell d.light products • BPCL end customers may not need d.light products • Recommendations • Incentivize BPCL management and retail store owners to sell d.light products • Piggyback off of the BPCL brand to establish the d.light brand • Educate consumers in Uttar Pradesh who use kerosene for light about solar lamps, and drive sales at BPCL retail stores • Establish d.light distribution centers in Uttar Pradesh to provide for better product restocking time

Marketing Channel Strategies in Rural India: Lessons From d.light Design