India - The Base of Pyramid Distribution Challenge-IfMR

The Base of Pyramid distribution challenge:
Evaluating alternate distribution models of energy products for rural

Base of Pyramid in India
Sachin Shukla
Sreyamsa Bairiganjan
Published by Centre for Development Finance,
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Copyright Sachin Shukla, 2011
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Preface
In recent years, we have been riveted as rural India has begun to fercely negotate its rightul place
in the world. Analysts predict that by 2020, for the frst tme in history, the number of deprived
households in rural India will be less than aspirers and seekers. This is just the efect. The cause
of this massive transformaton lies in a rise in discretonary incomes from increasing productvity
and integraton of rural markets. While the number of rural Indian consumers earning a dollar
a day would fall from 400 million to 250 million by 2020, consumers earning over fve dollars a
day would increase from 50 million to 150 million. The economic and social shifs underway will
have far-reaching efects for companies large and small, policymakers and all stakeholders in rural
Indias wellbeing.
In parallel with Indias rapid economic growth, Indian rural consumpton has grown remarkably.
While this is expected to contnue, the dynamics of this rural consumpton is expected to change
drastcally. Today, the average rural Indian household spends about 75% of its annual income on
food, beverages and tobacco, 12% on energy needs, and merely 2-3% on housing and health. In the
near future, rural populatons, supported by development policies like NREGA, farm loan waivers
and enhanced rural infrastructure, are likely to spend proportonally much more on discretonary
items and new product categories like healthcare, educaton, transportaton and personal care.
Success in encouraging growth of rural Indian markets will depend extensively on contnuous
innovaton in alternate product distributon channels. Rural markets are ready for large scale
interventons. However, intent and ingenuity in these markets will count as much as executon.
Only those who can create win-win possibilites in this market will get a shot at the fortune lying
in millions of Indias poorest households.
The compelling case of rural markets has lured large corporatons and small and medium
enterprises (SMEs) alike. Indias largest Fast Moving Consumer Goods (FMCG), consumer durable
and automobile companies are already clocking 20-40% of their annual revenues from rural
markets, beatng the growth rate estmates of their urban counterparts year on year. The trend is
spreading rapidly across product categories. But limited investment appette in rural markets has
forced SMEs to be right the frst tme or crash out. Some SMEs have found local success, but have
not achieved the desired scale, inspite of contnued demand-supply gaps. Since the proftability
argument in servicing these markets is based on the low margin-high volume equaton, scale is
imperatve to achieve the desired botom-line impact. SMEs today are adoptng unique mix-n-
match distributon strategies, exploitng the strengths of local players and creatng hybrid value
chains to reach as many end users as possible.
Indian government too has picked up the cue and they are ready to act where the private sector
has lagged. With less than 45% of Indian populaton having access to basic banking services, a
planning commission commitee on fnancial inclusion has proposed rural ATMs at Post Ofces.
This convergence of a wide distributon outreach of 1.55 lakh post ofce branches with the
governments fnancial inclusion agenda could bring a signifcant rural populaton into the formal
banking domain. Game-changing initatves, like Aadhar-Unique Identfcaton, are expected to
accelerate the inclusion mandate, while cornering implementaton issues, such as pilferage in
public distributon system, and make any prosperity stck at the ground level. Such measures
from the government stmulate the rural economy and create favourable incentves for organised
players to partcipate in rural India.
Against this encouraging backdrop, this paper analyzes product distributon choices available in
rural BoP markets and helps enterprises evaluate the key drivers of distributon for successful go-
to-market strategies. It is based on extensive feld work with commercial and social enterprises,
rural BoP consumers and rigorous secondary research. The paper highlights the complexites of
operatng in rural Indian markets. To this end, it presents a new analytcal framework to help
companies identfy viable alternate distributon channels and evaluate their capabilites.
We hope that this paper will help manufacturers, producers and marketers partcularly in India
to beter realise the enormous potental of the underlying structures in this market and engage
them in a mutually benefcial way. We believe that integrated rural markets hold the key for
inclusive growth in a scalable and sustainable way. Favourable natonal policies, targeted capital
investments and efcient business models would further realise the enormous potental of this
market.
Sachin Shukla Sreyamsa Bairiganjan
CDF-IFMR CDF-IFMR
Acknowledgement
The authors acknowledge the valuable comments and inputs from colleagues at the Centre for
Development Finance (CDF) (a) Dr. Jessica Seddon Wallack, Ex-Director (b) Mr. David Fuente,
Ex-Programme Head, Infrastructure and Governance (c) Mr. Navneet Narula, Programme Head,
Strategy Advisory Group (d) Mr. Santosh Singh, Programme Head, Rural Market Insight.
The authors extend a special thanks to the research team at the Centre for Development Finance
comprising of Bree Bacon, Joanne Sprague, Elizabeth Mathew and Anand Shankar.
The authors also wish to acknowledge the generous support of the ICICI Foundaton for Inclusive
Growth who funded this research.
The views expressed in this note are entrely those of the authors and should not be atributed to
the insttutons with which they are associated.
PHOTO CREDITS: Sreyamsa Bairiganjan, Selvan Thandapani
With funding support from:
ICICI Foundaton
ICICI Foundaton for Inclusive Growth (ICICI Foundaton) was founded by the ICICI Group in
early 2008 to give focus to its eforts to promote inclusive growth amongst low-income Indian
households. It is commited to making Indias economic growth more inclusive, allowing every
individual to partcipate in and beneft from the growth process. The ICICI foundaton does this
by supportng strong independent organizatons which work towards empowering the poor to
partcipate in and beneft from the Indian growth process.
Terminology & Assumptons
Rural India
Natonal Sample Survey Organizaton (NSSO)
a
defnes rural India as areas with (i) populaton
density of less than 400 per sq. km. (ii) 75 percent of the male working populaton engaged in
agriculture and (iii) no Municipal Corporaton or Board. Other government agencies, such as
Insurance Regulatory and Development Agency (IRDA) and Natonal Council for Applied Economic
Research (NCAER), defne rural as villages with populatons of less than 5000 and 75 percent of
the male populaton engaged in agriculture.
Base of the Pyramid (BoP)
Here the rural Indian BoP market is defned as households in the botom four expenditure
quintles (based on data from the Natonal Sample Survey Organizaton, India) that spend less
than Rs. 3,453 Indian rupees (US$75) on goods and services per month. This defniton represents
a market of 114 million households, or 76 percent of the total rural populaton.
b
Village Level Entrepreneur (VLE)
c
A VLE is ofen identfed as a person who conducts business in a designated village/local area to
increase the reach and penetraton of a certain set of products and services. VLEs generate leads
and make sales using their own social networks. Typically, VLEs earn commission on every sale.
A VLEs role is important for sales, product promoton, product selecton, feld-testng and trials.
VLEs can act as important communicaton touch points between producers/organized distributors
and potental customers.
Energy products
In the context of this report, energy products are durable or hard goods, which address the
lightng or cooking needs of the consumers and yield service or utlity over tme. Examples of such
products include cook stoves and solar lanterns.
a Government of India. (2002). Natonal Sample Survey Organizaton. Available: www.mospi.gov.in.
Last accessed 20 July 2010.
b CDF-IFMR analysis, Natonal Sample Survey Organizaton (NSSO) 2004/2005, round 61.
c Villgro. (2009). Village Level Entrepreneur. Available: htp://www.villgro.org/index.php?opton=com_content&
view=artcle&id=26&Itemid=35. Last accessed 25 August 2010.
Contents
1. Introducton 1
2. The Rural BoP Distributon Challenge 2
2.1 Rural BoP customer profle 3
2.2 Product Challenges 5
2.3 Operatng Environment 6
3. Defning Rural BoP Distributon 8
4. Mapping requirements for Rural BoP Distributon Channels across Product
Classifcatons 12
4.1 Distributon requirements of energy products for Rural BoP 14
5. Case Studies Energy Products for the Rural BoP 17
5.1 First Energy Oorja 18
5.2 TIDE 21
5.3 Prakt Design 25
5.4 ENVIROFIT 27
5.5 d.light India 30
6. Generalized Models 33
6.1 Proprietary Distributon 33
6.2 Non-Governmental Organizatons (NGOs) 35
6.3 Cooperatves 37
6.4 Self Help Groups (SHGs) 39
6.5 Microfnance Insttutons (MFI) 42
6.6 Rural Retail 45
7. Conclusion 48
References 50
About the authors 51
List of fgures
Figure 1 : Rural BoP Market Complexity Contributng Factors 3
Figure 2 : Indian Rural BoP expenditure by Sector 4
Figure 3 : First Energy Oorja Models 19
Figure 4 : TIDE Models 23
Figure 5 : Prakt Design Models 26
Figure 6 : Enviroft Models 28
Figure 7 : d.light model 31
Figure 8 : Proprietary Model and Variants 34
Figure 9 : NGO Model and Variant 36
Figure 10 : Co-op Model and Variant 38
Figure 11 : SHG Model and Variant 40
Figure 12 : MFI Model and Variant 43
Figure 13 : MFI Variants 43
Figure 14 : Rural Retail Model and Variant 46
List of Tables
Table 1 : Distributon Capability Gradient 12
Table 2 : Distributon requirements across product classifcatons 13
Table 3 : Distributon Scenarios/Requirements of BoP energy products 15
Table 4 : Existng distributon approaches used by some BoP energy product companies 17
Table 5 : TIDE Product details 21
Table 6 : Comparing critcal requirements of Energy products for the rural BoP and channel
capabilites. 48
1 | Page
Sachin Shukla, Sreyamsa Bairiganjan : The Base of Pyramid distribution challenge
1. Introduction
With an approximate populaton segment of 700 million people, Indias rural Base of the Pyramid
(BoP) market presents itself as a signifcant opportunity not only for multnatonal corporatons
but also for small and medium manufacturers and producers. Analysts predict the revenue
opportunity in this market to be growing almost at pace with urban markets.
1
While numerous
experiments have been conducted in pursuit of frst mover advantage in Indian rural BoP markets,
in reality, the success in this segment to date has remained elusive. So far, atempts to exploit
opportunity in BoP markets have emphasized on product and process improvements. Success
stories of increasing market penetraton by certain fast moving consumer goods (FMCGs) with
modifed packaging, such as shampoo sachets, are encouraging but ofer limited insights that can
be put to use in other product classes.
The quest for innovaton in distributon channels has just begun. Distributon networks in
emerging markets tend to be unique and disjointed; Indian rural markets are no excepton.
2
As
C. K. Prahalad categorically highlights in The Fortune at the Botom of the Pyramid, Distributon
systems that reach the BoP are critcal for developing this market. Innovatons in distributon are
as critcal as products and process innovatons. It is critcal for any multnatonal corporaton
or small-to-medium enterprise considering entry into Indias rural market to understand both
the characteristcs of the prevailing distributon systems and how the distributon systems would
evolve
3
. The corporaton or enterprise must also assess whether accurate and tmely product
distributon can be achieved without frst investng in its distributon networks.
For multnatonal corporatons and small-to-medium enterprises alike, this paper analyzes the
product distributon choices available in rural BoP markets and evaluates the key drivers of
distributon for a successful go-to-market strategy. It presents the case for identfying products
unique distributon requirements and for working with distributon channels that have matching
capabilites, using the example of energy products in rural Indian BoP markets. Secton 2 describes
how the distributon challenge makes rural BoP markets seem unatractve to producers/
manufacturers. Secton 3 puts forth a new analytcal framework for evaluatng rural BoP distributon
channels and their capabilites. It highlights typical marketng scenarios in which these distributon
capabilites are essental. Secton 4 applies the distributon capabilites framework to several
1 McKinsey Global Insttute. (2005). Income Classes - Income Pyramids - Urban / Rural breakdown. Available: htp://
www2.mckinsey.com/mgi/publicatons/india_consumer_market/images/India_Interactve1.swf. Last accessed 25
August 2010.
2 Dawar, N. & Chatopadhyay, A. (2002). Rethinking marketng programs for emerging markets. Long Range
Planning, 35, 457.
3 Parhalad, C.K., Lieberthal, K. (2003). The end of corporate imperialism. Boston: Harvard Business School.
2 | Page
product classifcatons. It then also focuses specifcally on the distributon requirements of rural-
targeted BoP consumer energy products. Secton 5 is a case study analysis of fve rural-targeted
consumer energy products, specifcally solar lights and improved cook stoves, based upon the
distributon capabilites framework established in Secton 4. In Secton 6, six generalized alternate
distributon models for energy products are presented and evaluated based on the framework. In
conclusion, Secton 7 summarizes the distributon capabilites framework, presents key strengths
of alternate distributon models for energy products and draws lessons applicable for successfully
distributng all products/services classes to Indias rural BoP markets.
2. The Rural BoP Distribution Challenge
The BoP populaton is characterized by unmet basic needs (access to basic healthcare, water and
sanitaton, fnancial services, educaton, etc.) and a so-called BoP-penalty
4
that results in higher
prices for BoP customers than their wealthier counterparts for basic products and services. The
BoP-penalty is primarily an outcome of local monopolies, inadequate access, poor distributon
and strong traditonal intermediaries.
5
BoP markets are ofen rural, especially in emerging
countries like India, are poorly served, dominated by local informal economies and consequently
relatvely uncompettve and inefcient. They starkly contrast wealthier mid-market populaton
segments that are largely urban, relatvely well-served and extremely compettve.
On close observaton, rural BoP markets are demanding and complex for producers/manufacturers
because of multple challenges that broadly fall into three categories:
a. Rural BoP Customer Profle
b. Product Challenges
c. Operatng Environment (Eco-system)
4 Allen L. Hammond, Robert S. Katz, William J. Kramer, Julia T. Tran, Courtland Walker (2008). The Next 4 Billion -
Market size and business strategy at the base of the pyramid. Washington D.C.: World Resource Insttute and
Internatonal Finance Corporaton.
5 Prahalad, C.K., 2004. The Fortune at the Botom of the Pyramid. 1st ed. San Francisco: Wharton School Publishing.
3 | Page
Figure 1: Rural BoP Market Complexity Contributng Factors
2.1 Rural BoP customer profile
Rural BoP populatons are not a homogenous group. Living in all kinds of setlements, they have
varied income and expenditure levels. BoP customers unique demands mean that product or
service solutons are neither interchangeable nor readily transferable even within the segment. In
spite of their diverse needs that vary across regions, BoP populatons share several commonalites
in their fnancial hardships, domestc constraints, difcult living conditons, lack of basic informaton
for making informed decisions and informal quality standards, amongst others, such as:
Income levels and volatility: Income levels of rural BoP are low in both per capita income
and disposable income. Household earnings compulsorily go first towards fulfilling survival
needs and investments required to assure health in the next round of the economic cycle.
This underlies the need for conservative cash flow management and a low risk appetite for
unproven offerings. The seasonal nature of income necessitates credit services that match
cash outflows to cash inflows for discretionary products. Purchase of essential products, such
as medicines or other emergency necessities, is less reliant on credit availability.
BoP
Market
Complexity
Rural BoP Customer Profle
Income Levels & Volatlity
Savings Patern
Language & Literacy
Mobility & Travel Paterns
Customer Preferences
Product Challenges
Push vs. Pull products
Unavailable Complementary Products & Services
Need vs. Latent Need
Product Diusion Curves
Limited Product Acquisiton Models
Logistcs Dependence
Operating Environment
Government Interventons & Policy Support
Infrastructure Constraints
Geographical Challenges
Populaton Densites
Non-homogenous Stakeholders
Scarcity of Data Sets
4 | Page
Savings pattern: There is a lack of ready access to financial institutions and services, which
could facilitate movement of resources across time and help arrest the economic risks felt by
rural BoP households. BoP households continue to have minimal savings (beyond major life
cycle events, such as education and marriage), retain illiquid assets (such as land, gold and
animals), and have less capability to handle economic shocks.
Language and literacy: Variation in languages across regions and low literacy levels inhibit
the creation of standard, cost-effective marketing and communication materials, such as well-
designed publications, signage, advertisements and brochures. The lack of consistent and
effective marketing contributes to information asymmetry and long gestation periods for new
product introductions.
Mobility and travel patterns: Restricted mobility and limited travel patterns of rural BoP end
customers lead to slow dissemination of knowledge, resistance to change, and little benefit
from existing customer experiences from outside their local communities.
Customer Preferences: Rural
BoP end customers demand a
high degree of customization
before changing consumption
patterns, due to deep cultural
beliefs and preconceived
notions or experiences with
prior purchase decisions. This
lowers the attractiveness of
the rural BoP segment for
commercial players looking
to cross-sell products and
services from urban centers.
For Indias rural BoP market segment as a whole, the current expenditure across product
portfolios is highly concentrated in portfolios that correspond with immediate survival needs,
overwhelmingly food (refer to Figure 2). There is a large (66 percent) gap between segment
expenditure on food and the next largest expenditure, on energy needs, which accounts for
roughly 12 percent of the Indian rural BoP annual expenditure.
Figure 2: Indian Rural BoP expenditure by Sector
Food
78%
Housing
2%
Water
~0%
Energy
12%
Household
Goods
2%
Health
3%
Transportaton
2%
ICT
1%
Educaton
~0%
Other
~0%
Rural BoP Expenditure by Sector (Million $'s adjusted by 2005 PPP)
Source : The next 4 Billion - Market Size & Business Strategy at the base of the pyramid-By World Resource
Insttute, Internatonal Finance Corporaton, IFMR-CDF Analysis
5 | Page
2.2 Product Challenges
Product-related challenges for rural BoP end customers need innovatons on products as well
as business models. Manufacturers and producers of rural BoP products face many pressures to
reinvent their oferings, supply chain arrangements, marketng and communicaton techniques,
along with ownership models through which customers can access their products, such as:
Push vs. Pull products
6
: Pull products, such as consumption products and income- and lifestyle-
improving products with recognized brands, need little demand stimulation. A lack of rural-
targeted brands across multiple product categories, prominent institutions or mass-media
communication methods excludes most products from the pull-products category, negating
any cross-sell opportunity. Most luxury products and new, improved products with marginal
enhancements are typically considered push-products that require enormous effort to
communicate added benefits and scale demand.
Unavailable complementary products and services: Lack of available complementary products
and services skews purchase choice towards a product that is part of well-functioning and
complete product suite, even if that purchase inadequately serves BoP customers unique
demands. For example, although kerosene lamps are costly, less efficient and pose health and
environmental hazards, they are still a preferred choice over incandescent lamps due to the
easier availability of kerosene fuel as compared to electricity in rural areas.
Need vs. Latent need: Historical purchase decisions, product associations and conventional
wisdom, along with long running market inefficiencies, have lead rural BoP consumers to deny
or not recognize their latent needs and to pursue a fulfillment of only immediate, tangible
needs. For example, three-brick chulhas
7
are still preferred over improved cook stoves, which
have well known health and economic benefits. Consequently, products that would otherwise
qualify only as substitute products actually drive demand and take away most end-customer
spend.
6 Push Products: In a push strategy, the producer or manufacturer promotes the product to wholesalers, the
wholesalers promote it to retailers, and the retailers promote it to consumers. Thus, with products promoted via this
strategy, it is the supply which creates the demand.
7 In Hindi language, the word chulha means stove, but for the low-income populaton in developing countries, a
chulha or stove is an arrangement of three bricks or stones heated by an open wood- or cow dung-burning fre. Indoor
air polluton from this cooking method poses serious health and environmental hazards.
6 | Page
Typical product diffusion curves
8
in a rural BoP market: Given low levels of income and low-
risk appetites, rural BoP customers avoid independent decision making for new and improved
products for which there is not much social proof.
9
Opinion leaders
10
and social media
11
in
rural communities play critical roles in influencing early adopters and followers.
Limited product acquisition models: Only a few product acquisition models for rural BoP markets
have been tested at scale, with limited success. The three most prevalent ways for rural BoP
end users to acquire energy products, such as improved cook stoves and solar lanterns, are:
a. A household owns the product afer an inital upfront payment;
b. A household purchases the product at a fxed price, and any additonal
complementary products/services are purchased on an ongoing basis from a local
agent;
c. The local community owns a product/service and shares the associated fxed costs,
while individuals/households avail the facilites on a pay-per-use basis.
Logistics dependence: Products with challenging physical distribution requirements, such
as specialized transportation, complex assembly, and installation, repair and maintenance,
necessitate various components to be physically transported to different sites and then
assembled locally.
2.3 Operating Environment
Politcal, social, economic and technological unpredictability in rural BoP markets has discouraged
manufacturers and producers to actvely partcipate in the operatng environment. Variables in
the operatng environment that have adversely afected the interests of rural BoP end customers
include:
8 The product difusion curve models the rate of adopton of a new product in a certain region or segment. Consumers
of the product can be grouped under various categories based on how quickly they adopt a new product. Five diferent
product adopton groups typically used explain these curves are Innovators, Early adopters, Early majority, Late
majority and Laggards. Sales and marketng plays in rural markets must be planned to infuence a desired segment
considering this sequence.
9 Social proof (also referred to as informatonal social infuence), is a psychological phenomenon that occurs in
ambiguous social conditons where individuals or group of individuals are unable to determine an appropriate ratonal
behavior by themselves. Thus, making the assumpton that others (individually or collectvely) in similar conditons
possess more knowledge and deeming their behavior as appropriate or beter informed.
10 In rural markets, the infuencing capability of opinion leaders in decision making and purchasing the product is
remarkable. An opinion leader is a peer group leader in the sense that this person tends to lead the view and beliefs
of a group of people in a reference group.
11 Social media are media for social interacton, using highly accessible and scalable publishing techniques. A common
thread running through all defnitons of social media is a blending of technology and social interacton for the co-
creaton of value.
7 | Page
Government Interventions & Policy Support: Ill-planned, poorly executed and intermittent
government schemes in certain regions have led to a wide introduction of low-quality products
that shift the end customers perception away from better product choices.
12
Short-term
subsidy programs have led to sparse distribution of products in certain rural areas, skewing
the price point perception against a more long-term market-based solution.
Infrastructure Constraints: Low penetration of civic and private infrastructure in rural markets,
such as roads, water channels, electricity and telecommunications, has created barriers to entry
for affordable, mainstream products. It has added to the financial burden on manufacturers and
producers of product redesign, manufacturing facilities, physical distribution, and operations
and maintenance that are more suited to local infrastructure availability. Lack of adequate
infrastructure in rural areas has shifted producer/distributer attention away from the basic
underlying needs of the end customer. Absence of modern technological interventions, mass
media instruments and platforms (coupled with excessive reliance on social media and opinion
leaders) contributes to the information asymmetry that prevents the growth of effective rural
markets.
Geographical Challenges: Extreme weather conditions, long distances (geographical spread),
and hostile terrain present unique transportation and storage requirements, which require a
high degree of customization both in planning and in execution of product distribution to rural
BoP markets.
Population Density: Sparse population density in Indias interior, compounded by geographical
spread of rural villages, has prohibited commercial players from enjoying economies of scale.
Non-homogenous stakeholders: Lack of homogeneity among key stakeholders in BoP market
play, such as commercial players, civil society organizations, government institutions, and
uncertain power centers (political, economic and social) across local communities demand
sustained, local insight by distributors, manufacturers and producers.
12 For example: Natonal Programme on Improved Chulha (NPIC) started in 1983 by Govt. of India ofered subsidies
of up to Rs. 450 /- (as of 2001-2002) for varied classes of chulhas. NPIC was initally implemented as a central pro-
gramme with a mult-agency approach but was converted to a state programme due to the mixed response it received
in the feld.
8 | Page
3. Defining Rural BoP Distribution
A distributon channel is conventonally envisioned as a series of intermediaries, who pass the
product down the chain to the next entty untl it fnally reaches the consumer or end user. Each
element of the chain has its own specifc needs, stmulus, and ability to deliver in a unique operatng
environment, which the producer must take into account, along with those needs of the end
user. Recent innovatons in rural distributon models have expanded the role of the distributon
partner. The distributer role is no longer restricted to physical distributon of products alone, but
has also expanded to provision of several other inputs, which infuence a consumers purchase
decision, such as credit and post-sales service.
Depending upon the product, customer and operatng environment described in Secton 2, a rural
BoP distributon channel must demonstrate one or more of the following nine capabilites
13
:
a. Physical Distributon: Physical distributon involves the transportaton and storage of
manufactured goods to make them available to the consumer. A prospectve rural BoP channel
must demonstrate these minimum capabilites under physical distributon:
1) Transportaton/shipping infrastructure according to the civic infrastructure
avaiable en route, such as road, fuelling statons, etc.
2) Accessible storage/warehousing for temporary storage of goods during transit
3) Inventory control at all sites to ensure uninterrupted supply to target geographies
4) Protectve packaging and materials for handling goods in the factory, warehouse,
and transport terminals
This capability is most relevant to scenarios involving (i) Physical products (not services)
essental for delivery of the value propositon (ii) Special packaging or sortng requirements
(iii) Unique storage & transportaton requirements (e.g. ice cream, vaccines).
b. Promoton: Promoton involves developing and spreading persuasive communicatons about
an ofer
14
for the purpose of informing or persuading a potental buyers purchasing decision,
both above and below the line.
15
A prospectve rural BoP channel must demonstrate these
minimum capabilites under promoton:
13 & 14 Kotler & Armstrong. (2006). The nature and importance of marketng channels. Available: htp://www.
laukamm.de/fomweb/elearning/marketng/channel/kotl_channels1.htm. Last accessed 02-12-2010.
15 Above the line promotons are carried out through mass media and are tailored for a mass audience. Below the
line promoton refers to forms of non-media communicaton or advertsing targeted at individuals according to their
needs or preferences.
9 | Page
1) Capability to develop powerful messaging which is easily understood by the
audience and stmulates the recipients to take acton
2) Capability to create or access communicaton vehicles, such as mass media
platorms (local media), social events, etc.
This capability is most relevant to scenarios involving (i) New product introducton (ii)
Diferentatng a product (iii) Increasing demand for an existng product by creatng customer
pull (iv) Presentng product-related informaton to customers and other stakeholders.
c. Credit and Financing: Credit is a fnancial instrument to match the end customers payment
ability to the products pricing requirement. A prospectve rural BoP distributon channel must
demonstrate the following minimum capability under Credit:
1) Provide fnancial products and services in a manner which are accessible,
convenient, fexible, contnuous and afordable
This capability is most relevant to discretonary products priced in a mid-to-high range.

Financing is the acquisiton and use of funds to cover the costs of the channel.
16
A prospectve
rural BoP channel must demonstrate these minimum capabilites under Financing:
1) Access to alternate sources of capital for proper functoning of channel
operatons
2) Ability to exploit manufacturer/producer promotonal schemes and ofers
This capability is relevant to all products.
d. Post-Sale Services: Post-sale services include all support services, such as provision of
informaton, servicing/repair and product fulfllment, provided to the customer for ensuring
smooth functoning, maximizing uptme and an extended product life cycle. A prospectve
rural BoP channel must demonstrate these minimum capabilites under Post-Sale Services:
1) Ability to optmize facility locaton and provide rapid product fulfllment, laying the
groundwork for a post-sales program that consistently meets customer demands
2) Ability to accurately manage inventory and establish control through integrated
capabilites supported by technology and operatonal processes
3) Ability to map out the longevity of a product and/or its parts to plan for
maintenance and predict repair cycles
4) Ability to execute repair/fulfllment and contnuous outreach
This capability is most relevant to (i) Products with relatvely high degrees of technical
complexity and maintenance requirements (ii) Products requiring other complimentary
(usually consumable) products for their normal functoning.
16 Kotler & Armstrong. (2006). The nature and importance of marketng channels. Available: htp://www.laukamm.
de/fomweb/elearning/marketng/channel/kotl_channels1.htm. Last accessed 02-12-2010.
10 | Page
e. Informaton: Informaton capability is comprised of collecton and distributon of research
and intelligence informaton about the marketng environment.
17
A prospectve rural BoP
distributon channel must demonstrate these minimum capabilites under Informaton:
1) Create or have easy access to primary and secondary research on populaton,
usage rate, demographics, behavioral paterns, alternate product choices and
lifestyle
2) Data analysis capability for meaningful insights
This capability is most relevant for diferentated (non-commodity) products and services.
f. Contact: Contact is the set of actvites involving fnding and communicatng the value
propositon of an ofering with potental buyers. A prospectve rural BoP distributon channel
must demonstrate these minimum capabilites under Contact:
1) Regular physical outreach or branding presence with target customers in their
local areas
2) Access to local intermediaries, village level entrepreneurs (VLEs) and opinion
leaders with deep understanding of pathways to infuence rural individuals,
households and enterprises
This capability is an absolute requirement for all oferings that are not essental for immediate
survival needs.
g. Matching: Matching refers to the ftng and shaping of an ofering according to the needs of
the customer.
18
It might include actvites, such as manufacturing, grading, assembling and
packaging. A prospectve rural BoP channel must demonstrate these minimum capabilites
under Matching:
1) Ability to understand diferent needs of various customer segments, artculate
their customizaton needs and adapt manufacturers ofering, as required
2) Access to infrastructure and supplementary products required to alter/complete
the product portolio so as to best serve end customers latent needs
This capability is most relevant to customizable products where alteraton (by design) of
product atributes is required to suit customer requirements.
17 & 18 Kotler & Armstrong. (2006). The nature and importance of marketng channels. Available: htp://www.lau-
kamm.de/fomweb/elearning/marketng/channel/kotl_channels1.htm. Last accessed 02-12-2010.
11 | Page
h. Negotaton: Negotaton is the act of agreeing upon a price and other terms of the ofer so
that ownership or possession can be transferred.
19
A prospectve rural BoP channel must
demonstrate these minimum capabilites under Negotaton:
1) Access to local marketng intermediaries capable of engaging the end customer in
a pricing and product informaton related dialogue
2) Knowledge of end customers product alternatves, walk-away positons and zones
of possible agreement
3) Ability to communicate long-term vs. short-term tradeofs among alternate choices
to the end customer
This capability is most relevant to (i) Customized products (ii) Products for which price discovery
mechanisms are not already established (iii) Products with relatvely medium to high price
points.
i. Risk Taking: Risk taking entails assuming business risks, such as the inability to sell inventory
at full margin. A prospectve rural BoP channel must demonstrate these minimum capabilites
under Risk Taking:
1) Ability to identfy and account for known sources of risks to business, including
natural shocks, economic shocks to customers, operatonal and other market
risks
2) Ability to understand product life-cycle and end customer purchasing paterns for
undertaking discount decisions to clear unsold inventory
This capability is most relevant to (i) Products with uncertain demand (ii) Physical products
with signifcant transportaton and inventory costs (iii) Perishable products.
19 Kotler & Armstrong. (2006). The nature and importance of marketng channels. Available: htp://www.laukamm.
de/fomweb/elearning/marketng/channel/kotl_channels1.htm. Last accessed 02-12-2010.
12 | Page
4. Mapping requirements for Rural BoP Distribution Channels
across Product Classifications
Rural products have distnct functonal and market characteristcs. For successful go-to-market
strategies, multnatonal corporatons and small-to-medium enterprises interested in entering
Indias rural BoP markets must assess these product characteristcs. They should identfy distnct
distributon requirements of their products and services and a distributon model with capabilites
to match those requirements. Each distributon capability can fulfll more than one sales and
marketng scenario. Based on the marketng scenarios likely to be faced by their products,
distributers need to frst identfy the unique product distributon requirements and then pursue
distributon channels which fulfll these requirements optmally. Taking tme to complete this
analysis in advance of product launch will help distributers choose the best possible distributon
channel and also identfy marketng scenarios that can be successfully handled by a given
channel.
Any typical rural product can be categorized into one of the fve following classifcatons:
(a) FMCGs (b) Consumer Durables (c) Services (d) Agricultural Inputs - Consumables (e) Agricultural
Inputs - Durables. Based on the capability gradient defned in Table 1 below, each of the nine
distributon capabilites set forth in Secton 3 is applied to the fve major product classes in
Table 2. The same capability gradient defniton is being used throughout the paper.
Legend Distributon
capability gradient
Capability requirement of
diferent product classes
Available capability of
diferent distributon channels
High Good distributon capability is
required
Good distributon capability
exists
Medium High Favorable distributon
capability is required
Favorable distributon
capability exists
Low Medium Unfavorable distributon
capability is acceptable
Unfavorable distributon
capability exists
Low No distributon capability is
acceptable
No distributon capability exists
Table 1: Distributon Capability Gradient
13 | Page
1
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Product
Classifcation
Characteristcs
e.g.
Distribution
Capabilities
FMCG
Small tcket size
Standardized
products
Sold at a regular
frequency
Toothpaste, Soap,
Shampoo,
Toiletries,
Cosmetcs
Consumer Durables
Goods that yield
services or utlity over
tmes
Mid to large tcket size
TV, Fridge, Fan, Cycle,
Two Wheelers, Sewing
Machines, Mixer
Grinder, Radio
Services
Non-material
equivalent of a good
No restrictons of
carrying stock
(inventory) or raw
material
Involves
opportunity cost for
service provider
Telecom, Banking,
Health care,
Insurance
Agri-Inputs
(Consumables)
Recurrent purchase
& consumpton for
agricultural actvity
Small to medium
tcket size
Essental in nature
Seeds, Fertlizers,
Pestcides
Agri-Inputs
(Durables)
Fixed assets that
yield service or utlity
over tme and used
for agricultural
purposes
Large tcket size
carries percepton of
once in a life tme
purchase
Tractors, Generators,
Bore well
Physical Distribution
Promotion
Credit & Financing
Post Sale Services
Information
Contact
Matching
Negotiation
Risk Taking
Table 2: Distributon requirements across product classicatons
14 | Page
4.1 Distribution requirements of energy products for Rural BoP
Energy products for the rural BoP, such as the improved cook stoves and solar lanterns produced
by the companies studied later in detail in Secton 5, can be classifed as consumer durables. For
energy product companies, identfying relevant marketng scenarios can facilitate the mapping of
requirements for a rural BoP distributon channel as follows:
Scenarios/Requirements of BoP energy products Applicable
Physical Distributon
Physical product (not service) is involved and is essental for delivery of
the value propositon
Yes
Special packaging or sortng requirements No
Unique storage & transportaton requirements No
Promoton
New product introducton Yes
Diferentatng product Yes
Increasing demand for existng products by creatng customer pull No
Presentng product related informaton to customers as well as other
players
Yes
Credit
Discretonary products priced in a mid to high range Yes
Financing
All products & services Yes
Post-Sale Services
Products with relatvely high degree of complexity & maintenance re-
quirements
Yes
Products requiring other complimentary (usually consumable) products
for their normal functoning
Yes
Informaton
Diferentated (Non-commodity) products & services Yes
Contact
15 | Page
Scenarios/Requirements of BoP energy products Applicable
Absolute requirement for all oferings which are not essental for imme-
diate survival needs
Yes
Matching
Customizable products where alteraton (by design) of product atri-
butes is required to suit customer requirements
No
Negotaton
Customized products No
Products for which price discovery mechanisms are not already estab-
lished
No
Products with relatvely medium to high price points Yes
Risk Taking
Products with uncertain demand Yes
Physical products with signifcant transportaton and inventory cost No
Perishable products No
Table 3: Distributon Scenarios/Requirements of BoP energy products
Based on the above marketng scenario analysis, the six critcal distributon channel capabilites
required by BoP energy products (improved cook stoves and solar lanterns) for rural distributon
can thus be summarized as: (1) Physical Distributon (2) Promoton (3) Credit & Financing (4)
Post Sale Services (5) Informaton, and (6) Contact. These types of energy products can be easily
distributed through channels where (1) Negotaton and (2) Risk Taking capabilites are low and
have no Matching capability.
Numerous enttes, including the government, public and private sectors, partcipate in product
distributon to the rural BoP. In this paper, they were analyzed as viable distributon channels
based on the following criteria:
a. Ability to make an independent decision on fnancial viability of a project
(Financing capability)
b. Ready access to rural BoP (Contact capability)
16 | Page
Based on these criteria, the following six enttes were identfed as viable distributon channels:
a. Proprietary Distributon
20
b. Non-Government Organizatons
c. Co-operatves
d. Self Help Groups
e. Micro Finance Insttutons
f. Rural Retail
An in-depth evaluaton of each general model is provided in Secton 6.
Apart from these enttes, the government public distributon system (PDS) also qualifed as a
strong contender but was omited as it did not ft into the scope of this evaluaton, due to a lack
of private partcipaton by the non-commodity oferings in this channel.
20 Proprietary distributon networks are included in the scope of this evaluaton as manufacturers/distributors can
decide upon developing an independent go-to-market capacity and not piggyback on any of the existng market
players. Other than proprietary distributon, most channels mentoned above are typically designed to carry a bouquet
of products supplied by multple, distnct manufacturers/producers.
17 | Page
5. Case Studies Energy Products for the Rural BoP
Representng most current models, the case studies profled below analyze fve distributon
strategies adopted by companies working in Indias rural BoP markets. They aim to provide
deeper understanding of distributon channels for the BoP by highlightng current distributon
practces of new and established companies to reach mass populatons.
Single distributon models do not answer all the requirements for any given BoP product. These
fve case organizatons have developed hybridized approaches, and in some cases adopted
multple distributon models, to tackle challenging issues like transportaton and warehousing of
goods, post-sales services and others described in Secton 3.

Their hybrid approaches mean the companies leverage and integrate key aspects from several
models to more efectvely reach their BoP markets. For example, one of the most discussed
channels to reach BoP markets is based on leveraging the grassroots reach of non-governmental
organizatons (NGOs). However, an NGO may not be well adapted or equipped to undertake
credit and fnancing actvites. For these requirements, the BoP producer may have to look for
another organizaton, such as an MFI, that can provide fnancial products along with the main
product to create demand for the product, or cover purchase fnancing. Overall, employing hybrid
distributon models has suited these companies well. Partnering with other BoP organizatons
incurs less cost than establishing skill sets of distributon expertse within their own organizatons.
In sum, the fve case organizatons have adopted the following approaches to reach the BoP:
Organizatons Model 1 Model 2 Model 3
First energy oorja NGO + Rural Retail NGO
(Proft-sharing model) (Partnership-based model)
TIDE Entrepreneurs
21
Entrepreneurs Retail
(VLEs) (Extension workers) (Rural + semi-urban)
Prakt Design Piggyback Retail
(Through an existng - -
retail network)
Enviroft Rural Retail Micro Finance Insttutons -
D.light NGO Open market -
(Grant-based model)
Table 4: Existng distributon approaches used by some BoP energy product companies
21 The entrepreneurs mentoned here are integral roles in several distributon channels analyzed in Secton 6 and,
therefore, are not considered an independent distributon channel, per se.
18 | Page
Many organizatons adopt an NGO-based distributon model
22
to reach large rural BoP market
segments; but, approaches to partnership building with NGOs difer based on company priorites.
In the cases below, the three with NGO distributon models, First energy oorja, THRIVE and D.light
Design, have been separated based on their NGO partnership terms to highlight the nuanced
actons that diferent companies in the BoP space take to reach their end users.
5.1 First Energy Oorja
Company Background: First Energy Oorja started as a partnership between the Indian Insttute
of Science Bangalore and Britsh Petroleum (BP) Emerging Consumer Market (ECM) division to
develop a stove using the power of innovaton and a strong understanding of consumer energy
needs.
23
First Energy Oorja started promotng the stoves by conductng pilots in Tamil Nadu and
Maharashtra. Initally incubated within BP, the company branched out as a separate unit in the
2009. In late 2009, First Energy Oorja was acquired by The Alchemists Ark (TAA), a privately-held
business consultng frm
24
.
Product/Technology: The First Energy Oorja stoves are promoted as low-smoke, low-cost stoves,
which work on pellets an organic bio-fuel made of processed agricultural waste. The reduced
smoke feature of the stove is achieved by using a fan that forces air into the fuel chamber for
more complete fuel combuston, and by the stoves inner lining that allows for more complete
heat transfer. In the earlier models, the fan was powered by exhaustble bateries that required
regular replacements. The latest model of the oorja stove, launched in 2009, uses rechargeable
bateries to power the fan. Since its incepton in early 2007, the price of the stove has been
revised three tmes from Rs. 675 to Rs. 950, and to the current price of Rs. 1150. This increase in
price is atributed to the increase in the cost of producton at the manufacturers end.
22 In this paper, NGO based distributon model is an approach to reach the end user where the company piggybacks
on an existng NGOs reach to rural masses. This may enttle the NGO to gain beneft from the partnership.
23 Source: Growth and Innovaton Lights Up India by Adam Smith - The BP Magazine: Issue 4, 2007
24 First Energy Private Limited, Press Releases, Business Wire India, Mr. Raymond Moses. (n.d.). Press Release
Distributon,Press Release India,Press Release Distributon Services. Retrieved October 18, 2010, from htp://www.
businesswireindia.com/pressrelease.asp?b2mid=20232
19 | Page
First Energy Oorja
Villgro/Adharam Local NGOs
Samruddhi (Villgro)
Shak retail (Adharam)
Village level
entrepreneur
End user
T
O
P

L
E
V
E
L

P
A
R
T
N
E
R
S
H
I
P
First Energy Oorja partners two
kinds of NGOs, larger NGOs
with retail divisions in rural
locations and also smaller and
more decentralized NGOs.
Smaller NGOs are helpful in
making the product accessible at
different locations, however
NGOs with the retail outlets help
the product in building up a
brand in rural locations.
End user
Model 1 Model 2
Product
Credit & Finance
Promotion
Information
S ervice

Figure 3: First Energy Oorja Models
Business model: First Energy Oorja depends mainly on local NGOs for the marketng and distributon
of the stove. Apart from the NGOs, First Energy Oorja has forged te-ups with dealer networks in
rural markets, such as Adharam Energy, Sakthi Retail and Villgro Stores, to market their products
in rural markets. One of the organizatons involved in selling these stoves is Villgro Stores an
initatve by Villgro that employs VLEs to market and provide innovatve afordable solutons to
villagers. Villgro and First Energy Oorja involve the local community to beter understand the
needs and demands of the target group through constant interacton with local people. A similar
strategy is followed by Adharam Energy Private Limited (AEPL), which employs VLEs, known as
Jyot. First Energy Oorja mandates the involvement of women from the local community who
have never had sales experience is a vital component of their business model. They believe that
this will help in the overall growth of the market and largely the society.
Distributon network alternatves
Model 1 (NGO + Rural Retail): This model addresses the necessity of adoptng a distributon
channel, which increases the product visibility, reach and uptake across rural belts, to stmulate
the product push and pull described in Secton 2.2. It also highlights the importance of partnering
20 | Page
with local established NGOs in order to give the product its frst push into the local markets.
First Energy Oorja uses a distributon mix of NGO and rural retail organizatons to sell its product
in rural BoP markets. The product is transferred from the company warehouse to the Villgro
store, which is the retail division of Villgro in small towns. The Villgro store is used as a warehouse
for the First Energy Oorja products and a hub/stockist for VLEs that distribute product in nearby
villages. The store partners with a VLE who transports and sells the product in villages. The Villgro
store performs the fnancial bundling of the product and extends credit to the end users through
the VLE.
This distributon model ensures that the product reaches remote locatons and is associated
with an existng NGO brand. The NGO-Retail channel also ensures that consumers have a readily
accesible store when they want to purchase the product or repair it.
Model 2 (NGO): Alternatvely, First Energy Oorja partners with local NGOs to sell the product
directly in rural areas. In this case, product pull created by the companys well known parent
brand, BP, allows the company to sell its products through small, local NGOs. First Energy Oorja
bears the cost of packaging and training the local NGOs, who work as last mile linkages.
21 | Page
5.2 TIDE
Company Background: Technology Informatcs Design Endeavour (TIDE) is a non-proft
organizaton, established in 1993, registered under the Societes Registraton Act of 1860.
25

TIDE focuses on promotng sustainable development through technological intercessions. TIDE
supports and promotes a series of renewable energy and energy efcient products, specifcally
focusing on energy efcient stoves, dryers and kilns for households and small enterprises.
Product/Technology: TIDE has no specifc product of its own; rather, it focuses on bringing to
market upcoming renewable energy technologies, at laboratories and research centers in diferent
universites based in India and abroad, to market. A core part of TIDEs research focuses on the
building of energy efcient cook stoves for poor households and BoP businesses.

TIDEs household stove initatve is termed the Sarala stove. This partcular stove model was
designed at the Centre for Sustainable Technologies, Indian Insttute of Science as a double-burner
with a single feeding port. Its development incorporated user experience and feedback of Sarala
stove pilot models. The stove is constructed at the end users premises using local raw materials,
including mud, brick pieces, a tle piece, cast iron grate and a chimney. The cost of a single unit
ranges between Rs. 250 to Rs. 300, depending on the size and material used for constructon.
TIDE trains women to build this cook stove model using a mold.
The same methodology is adopted in building bigger stoves, which are commercially used by silk
reeling clusters. The most popular models are:
Products Fuel used Fuel saving
26
Cost (INR)
Charaka oven (Loose biomass) 30% over conventonal oven 2050
Groundnut husk
Eucalyptus leaves
Italian oven Firewood 40% over conventonal oven 3275
Cotage oven (6 pan) Firewood 40% over conventonal oven 11025
Chimneys for silk reeling Power operated: N.A 6000 10000
Grid based
Table 5: TIDE Product details
TIDE follows a model of training VLEs in taking up the initatve of building the stoves. TIDE selects
its partners depending on the product and technology in queston. For example, TIDE partners
with the Centre for Sustainable Technologies to build cook stoves and with those who have
expertse in design to impart the training.
25 Technology Informatcs Design Endeavour.(2008). Overview. Available: htp://www.tde-india.org/06aboutus-
overview.html. Last accessed 12 April 2010.
26 Technology Informatcs Design Endeavor. (2008). Household Cooking Stoves. Available: htp://www.tde-india.
org/products/06household-cooking-stoves.html. Last accessed 18 June 2010.
22 | Page
TIDE also disseminates stoves for other rural industry sectors as well, typically areca boiling,
jaggery making, herbal medicine preparaton, textle bleaching, dyeing, large scale cooking in
commercial kitchens.
Stove constructon training and installaton procedures are designed to ensure that only limited,
permissible deviatons from standard design are carried out by the stove builder to accommodate
end users opinion or convenience. This installaton procedure makes sure that the environmental
benefts, as measured on the standard stove design, are delivered in actual practce to the
maximum extent possible.
Business model: The mission statement of TIDE is to identfy suitable technological interventons,
to efect improvements needed for feld deployment and to undertake various measures to
promote the spread of these technologies.
27
TIDE uses a four-step model to achieve its objectves
of promoton and disseminaton of these sustainable technologies:
a. Identfying technologies generated at research insttutons in India and abroad
b. Assessing their suitability for the environment for which they were intended
c. Further adaptng technologies to ft user requirements and local conditons
d. Demonstratng and disseminatng the technologies
TIDE trains university graduates or any enterprising local youth without a university degree
to become extension workers and promote TIDE technology in new areas. TIDE incubates the
graduates for up to two years; the trainees are prepared to become private entrepreneurs, to
develop their own marketng strategy, and to work in a specifc geographical area with a controlled
degree of competton. TIDE ensures that entrepreneurs promoted by TIDE are not competng
against each other. For quality control, the entrepreneurs are required to keep detailed records
of locatons of the installed stoves for TIDE.
Since small BoP business owners have a low risk appette for taking on new technology and
changing their working paterns, as described in Secton 2.1, TIDE stoves atempt to replace
existng equipment with minimum interference in the daily working patern and routnes of users.
New customers usually help to construct their own stoves, and the entrepreneurs educate the
customers on how to use the stove properly. TIDE arranges interacton sessions for stove users,
allowing them to learn from each other. Around 90 percent of the stove parts are produced
using locally available materials. For remote installatons, the metal air chambers are purchased
in urban areas.
27 Technology Informatcs Design Endeavour.(2008). Overview. Available: htp://www.tde-india.org/06aboutus-
overview.html. Last accessed 12 April 2010.
23 | Page
The stoves product life cycle is four to fve years. Entrepreneurs ofer a one-year warranty on the
equipment they have installed; afer expiry of the warranty period, servicing and repairs expenses
are borne by the customer.

TIDE also has a for-proft retail division known as SustainTech India pvt ltd., whose retail showrooms
display TIDE products in semi-urban regions.
Sustaintech India is a retail outlet which has
been setup by TIDE in a peri-urban area. This
is a store which is for profit and charges a
margin for building industrial or household
level stoves. The employees are directly
employed by Sustaintech India
TIDE
Sustaintech
India
VLEs
End users
Extension
workers
Local
suppliers
Model 1 Model 2 Model 3
End users End users
TIDE is an NGO which trained VLEs and
extension workers to build stoves. TIDE also
funded the extension workers in setting up a
business.
Product
Credit & Finance
Promotion
Information
S ervice
Figure 4: TIDE Models
Model 1 (VLEs): This model, in which TIDE does not distribute the physical product, highlights the
importance of producing the product components locally, so that the end users fnd them more
accessible.
TIDE provides the training and necessary know-how to VLEs and connects them to the component
manufacturers to be used in assembling/manufacturing TIDE products. Using locally manufactured
components and materials, the VLEs build the products at the users premises or workshops.
24 | Page
Model 2 (VLEs + Financing): This model of distributon is similar to the TIDEs frst model, in which
physical transfer of the product does not take place, but this model features a larger product and
fnancial bundling
TIDE adopts this model for installaton of larger and more expensive stove units made for
commercial vendors. Extension workers assist in building the product and TIDE connects the
end users to fnancial insttutons and helps with loan applicatons to get them fnancing to get
started. The extension workers are typically individual entrepreneurs who work on the product
manufacturing. The extension workers, apart from being linked to parts suppliers, are fnanced
by TIDE. The loan payback tme to the extension worker is around three years and the physical
delivery or constructon of the product takes place at the end users locaton.

Model 3 (Semi-Rural Retail): TIDE also adopted a Rural Retail sale model. SustainTech India pvt
ltd. is based in urban and semi-urban locatons where customers can come to a brick-and-mortar
storefront to see the diferent stove prototypes. Stoves bought at the store can be taken home by
the end user. In cases of large commerical stoves, the company sends extension workers to build
the stoves at the end users desired locaton.
25 | Page
5.3 Prakti Design
Company background: Prakt Design was started in December 2007. Its headquarter is based
out of the southern part of India in the union territory of Pondicherry. Mouhsine Serrar is the
founder/owner and also the technical director of Prakt Designs. They aim to create afordable,
easily replicable fuel-efcient stoves for deployment in Asia and Africa.

Product/Technology: Prakt focuses on manufacturing improved biomass cooking stove. Their
product portolio covers household and insttutonal stoves. They design stoves suited for diferent
fuels: wood, charcoal. Their design aspect also includes stoves designed for using either light
(manual) or dense (machine) briquetes. Prakt also manufactures the briquetes which are made
from either urban waste or agricultural waste.

Business Model: Prakt design is primarily a product development lab. They are involved in the
research and development / technology difusion /engineering / feld testng / pilot producton
phases of the product. The pilot deployments are done with rural/BoP distributors. Once the
product has proven itself to be viable, they license their product to producers/distributors. They
also venture into producton if there is a sustained demand for a product. Prakt Design promotes
its cook stoves through Selco. Selco has an existng network of stores which customize solar home
systems. Prakt Design piggybacks its cook stoves through the Selco retail channel. The product
fows from Prakt Design labs to Selco to the end user. Selco subsidizes bank loans for the end users
by partnering with them and providing 5 percent loan relief. Prakt Design is Selcos preferred
stove supplier. Till date Selco has ordered and sold 5000 of the Prakt Design stoves.
26 | Page
SELCO
Sales & Service Center
(Only SELCO Products)
End Users
Prakti Design
Regional rural
banks
Prakti design labs promotes its
cook stoves through SELCO,
SELCO has an existing network
of stores which customize solar
home systems. Prakti
piggybacks its cook stoves
through the SELCO retail
channel. The product flows
from Prakti labs to SELCO to
the end user
Selco subsidizes bank loans for
the end users by partnering with
them and providing 5 percent
loan relief.
S
U
B
S
I
D
Y
Product
Credit & Finance
Promotion
Information
S ervice
Figure 5: Prakt Design Models
Distributon network alternatve
Distributon model (Piggyback - Retail): Prakt Design uses the existng network of SELCO to
promote its products across Karnataka. This distributon model adapts the piggybacking approach,
where in the product is using the already established network. The benefts of this model range
from having a market base which is more tuned to environmental products to beter fnancial
bundling of the product. Prakt Design end users also get to avail the 5 percent loan relief which
the bank provides to Selco customers.
27 | Page
5.4 ENVIROFIT
Company Background: Enviroft India started in 2007 as a part of the US-based non-proft
organizaton Enviroft Internatonal. Enviroft designs, develops and markets improved cook
stoves in the southern states of India, Karnataka, Tamil Nadu and Andhra Pradesh. It sells stoves
through a channel network of dealers, distributors, VLEs and NGOs. Enviroft India works in over
700 villages in Karnataka and over 300 villages in Tamil Nadu.
28
Enviroft Internatonal
29
, the parent company of Enviroft India, is a non-proft organizaton based
in Colorado, USA, founded in October 2003, by Tim Bauner, Nathan Lorenz, Paul Hudnut and
Bryan Willson. Enviroft Internatonal receives funding from Lemelson Foundaton and Shell
Foundaton.
Product/Technology: Enviroft India markets energy efcient biomass stoves to rural areas and
a few semi and peri-urban locatons across India. According to Enviroft, the stoves consume up
to 50 percent less fuel, allows for cooking up to twice as fast, while preserving the traditonal
approaches to cooking, and generate 75 percent less air polluton than traditonal biomass
burning.
30
Enviroft works closely with Colorado State Universitys Engines and Energy Conversion
Laboratory to develop new stove prototypes. It currently ofers four stove models in India priced
between Rs. 750 and 2500, depending on the models efciency and number of burners.
Business model: Enviroft sources product components through a global supply chain with a
manufacturing base in China and an assembling unit at Coimbatore, India.
31
Envirofts supply chain
department works closely with marketng and distributon partners to prepare sales forecasts
32

and to take inventory in the local markets. Enviroft uses a combinaton of transport optons to
optmize tme to market, freight costs and inventory costs.
Enviroft Internatonal has a partnership with the Shell Foundaton to support the design and
marketng of the improved cook stoves and to fnd commercial partners to manufacture and
distribute stoves. The Shell Foundaton provided $3.5 million seed funding as part of Envirofts
goal to raise a total of $25 million of investment. Enviroft Internatonal claims to have higher
penetraton levels and greater product customizaton as compared to its counterparts in Indian
markets.
33
28 Informaton based on Enviroft India fgures. Anchan, H. (2010, June 3). Personal interview. Conducted by
Bairiganjan, S.
29 Enviroft - Making the World Fit for Humanity. (n.d.). Enviroft - Making the World Fit for Humanity. Retrieved June
18, 2010, from htp://www.enviroft.org/
30 Enviroft. (2009). Enviroft Benefts. Available: htp://www.enviroftcook-stoves.org/products/b-1100/benefts.
Last accessed 18 June 2010.
31 Anchan, H. (2009,January 5). Personal interview. Conducted by Bairiganjan, S.
32 Sales forecast is done by the Enviroft State head ofce (Bangalore).
33 Enviroft. (2008). Our Impact. Available: htp://www.enviroft.org/?q=our-products/clean-cook-stoves/our-impact.
Last accessed 22 June 2010.
28 | Page
Figure 6: Enviroft Models
Model 1 (Rural Retail): Enviroft piggybacks on existng retail networks which can sell its product
in the target markets. Enviroft focuses on local mult-brand retailers and distributors to build
brand visibility in small towns and rural areas and minimize distributon tme (usually 24 hours
from the tme of order). Enviroft also used its grants for subsidizing the product in order to gain
market visibility in the inital years.
Enviroft employs a local youth at the retail store to promote the stove. To gain market share and
make it atractve to the local dealer/distributer networks, Enviroft subsidizes the cost of the
stove by more than 60 percent through its grants and subsidies.
The dealer keeps a 20 percent margin on the product cost. Thus, the overall rate of the product
for the end user is 80 percent of the manufacturing cost.
Model 2 (MFI): Enviroft India is one of the pioneers pushing products designed for the BoP through
a MFI channel. It partners with Grameen Koota (GK), an MFI in Karnataka, to promote the stove
product to the GK client base. The MFI customers interested in purchasing the stove can pay a
Envirot
Envirot
regional oce
District Level
Distributon (Mult-
Product)
Local retailers
MFIs (only for credit)
End users
Envirofit piggybacks on
existing retail networks which
can sell its product in the
market. Envirofit focuses on
multi brand retail shops to
build visibility in small towns
and rural areas.
The MFI channel also uses
the retail shops as the last
mile to distribute the stove to
the end user, MFI clients are
offered a better rate than
users who buy the stove
directly at retail shops.
Enviroft Employee
Model 1 Model 2
Envirofit
employee sits
in the local
retail shop
MFI clients/End users
Product
Credit & Finance
Promotion
Information
S ervice
29 | Page
deeply subsidized Rs. 500 with a stove coupon, which can be redeemed at a local Enviroft stove
retailer. The MFI ofers fnancial product bundling to lower the Rs. 500 cost for the MFI client end
user. In this model, the role of the retailer is limited to redeeming the coupon from Enviroft at
pre-fxed rates, as it cannot charge any margin on the pre-fxed rates in this case.
30 | Page
5.5 d.light India
Company Background: Sam Goldman and Ned Tozun formally started d.light design on May 31,
2007 with $250,000 seed capital from winning the Draper Fisher Jurvetson Venture Challenge, a
business plan competton. The focus of the company is to provide high-quality, afordable light
and power solutons to the rural poor. d.light calls itself an internatonal consumer products
company serving people without access to reliable electricity.
34
To date, d.light has received
investment from the Acumen Fund, Draper Fisher Jurvetson, Garage Technology Ventures, Gray
Maters Capital, Mahindra & Mahindra, Nexus Venture Partners and Omidyar Network.
Product/Technology: Co-founders Sam Goldman and Ned Tozun, along with a team of founding
engineers, frst designed d.lights solar lantern prototype in the Entrepreneurial Design for Extreme
Afordability class at Stanford University in California, USA .
35
d.light designs and manufactures
LED lights powered by solar and batery charge. It currently ofers three solar home light models
(D.LIGHT S250, D.LIGHT S10 and Solata S380). The S250 is priced about Rs. 1350 and comes with
a 1-year warranty. S250 has a 1-wat solar panel and a solar or AC-chargeable batery that, per
d.lights claim, can last up to two years.
36
S250 has a mobile phone charging socket, which can
recharge a cell phone batery in one hour. The Solata is a desk lamp, which costs Rs.700-800, and
comes with an AC or solar-charge opton. Solata has a 360-degree head revolving opton, which is
helpful for small businesses like barber shops. S10 is a household lantern with diferental power
setngs; it costs Rs. 500 and is currently one of the lowest priced solar lanterns in the Indian
market.
Business model: d.light is a commercial social for-proft enterprise that designs and manufactures
LED-based solar lights. d.light India was set up in February 2008 and Enviroft conducted a pilot
in the Aligarh district of Utar Pradesh to get consumer feedback on the Nova (predecessor to
the S250) and Solata lanterns. d.lights business model relies on channel partners (dealers and
distributors) and the open market for product sales and promoton, as well as subsidies and
fnancing for the end users in certain markets when it is absolutely essental.
d.lights producton design team includes product designers, mechanical and electrical engineers
and a group of quality control professionals to ensure quality in large scale producton. In 2008
34 D Light Design.(2009). Who we are. Available: htp://www.dlightdesign.com/about_who_we_are.php. Last
accessed 29 March 2010.
35 Manu, A.B. (2009). Say goodbye to kerosene lamps, heres Kiran! Available: htp://business.redif.com/slide-
show/2009/dec/23/slide-show-1-worlds-cheapest-solar-lamp.htm. Last accessed 29 March 2010.
36 Products - Nova Series (Global). (n.d.). D.light. Retrieved June 21, 2010, from htp://www.dlightdesign.com/
products_nova_series_global.php
31 | Page
d.light design
End Users
Open
Market
NGO
Open
Market
Product
Credit & Finance
Promotion
Information
S ervice
d.light uses NGOs as channels
of product distribution. It
partners local NGOs to
promote its product. The NGO
workers serve as agents who
service the lantern in different
regions.
Other than the NGO channels,
d.light sells its products
through an open market
network of retailers.
d.light established its manufacturing operatons in China; the import duty and other taxes to bring
the product to India add 11 percent to the overall cost of the product. This overall cost of the
product does not include the cost of distributng the product to the end user.
Beyond Solar, a US-based NGO that supported 162 lightng projects in the Koraput district of
Orissa, purchased solar lanterns from d.light and distributed them to end users. Beyond Solar
partnered with local NGOs and provided the lanterns to benefciary households. The local NGOs
worked towards getng the repayment on the solar lanterns from the end users over a set period
of tme. This distributon model worked as a regular installment purchase system, in which the
local NGO acted as an intermediary that provided the end users with a cushion of paying over a
period of tme. The end users provided their savings on kerosene every month to the local NGOs,
which go into a community fund that can be utlized for village infrastructure projects.
d.light also runs a subsidiary charitable initatve, known as Give Light, to provide solar lanterns
to extremely poor rural households around the world. Previously d.light collaborated with two
NGOs, One World Childrens Fund and Rural Educaton for Development Society (REDS), to
provide donor-funded lights to Dalit households. As of July 31, 2008, the Give Light Impact initave
has provided light to 11 villages, 531 families, 1,497 adults and 964 children.
37
This distributon
network of d.light also partners with NGOs to distribute the grant-subsidized products.
Figure 7 : D.light model
37 D.light Gives. (n.d.). d.light. Retrieved September 16, 2010, from htp://www.dlightdesign.com/gives.php
32 | Page
Distributon Model (NGO grant-based): d.light uses donor funding to subsidize the cost of the
solar lanterns for the end user. This distributon model adapts the NGO partnership approach.
The company partners with local NGOs to distribute the product to the end users. The NGOs take
care of the post-sales servicing by pushing the product back to the company representatves.
Internatonal NGOs provide subsidies for products and bundles them so that the payment optons
become easier for the end user. The local NGOs have the role of physical product distributon to
the end users and collecton of monthly fees for the amount saved on kerosene. This collected sum
is transferred back to donors/internatonal NGOs who subsidize the upfront cost of the lantern
for the end users. Local NGOs also play the additonal role of warehousing the d.light products.
Distributon Model (Open Market): Apart from the above mentoned model, d.light uses the
open market channel to distribute solar lanterns in remote markets. d.light is also uses a rural
entrepreneur to distribute products in rural areas.
LESSONS FROM ThE ExISTING MODELS
The examples in the case studies highlight that there is no single soluton that can address all the
distributon challenges associated with getng a rural-targeted BoP product from a manufacturer
to the end user. The companys distributon network and its supply chain network have equally
key roles to play in ensuring that the product reaches the end user at an afordable and atractve
price.
The partners highlighted above, such as an NGO, MFI, and VLEs, play diferent roles in the
distributon channel of a product. For an NGO, the key factor is that it can use its presence/
spread and knowledge of the context very efectvely in taking a product forward to the end
users. However, as highlighted in Secton 6 below, NGOs by virtue of their history, organizatonal
structure and operatonal limitatons are not well suited to address the other challenges of
distributon such as providing fnancial bundling for the products, providing afer sales services,
etc. Similarly, VLEs, though very efectve in afer sales service and marketng the product through
word of mouth publicity, have inherent limitatons in various other aspects of distributng a
product. In order to have a robust distributon channel, the manufacturers or other stakeholders
must assess the product features, identfy core challenges, prioritze them and then develop the
distributon strategy by having an optmum mix of diferent distributon partners based on their
diverse capabilites making use of their capabilites to ensure that their product is well received
by the end users.
33 | Page
6. Generalized Models
This secton evaluates six generalized distributon models based on the fve capabilites required
for distributon of energy products for the rural BoP in Secton 4.1:
a. Physical distributon
b. Promoton
c. Credit and fnancing
d. Post sales service
e. Informaton
As mentoned in Secton 4, all six generalized models were fltered based on their ability to
demonstrate the Contact capability required for distributon of energy products to the rural
BoP.
The generalized models highlight the relatonship and ownership dynamics that occur between
multple stakeholders during distributon of consumer durable energy products to the rural BoP
market, as exemplifed by the fve case studies in Secton 5. As in the real-life examples, variatons
to the basic models ofen incorporate and hybridize features from several models to meet specifc
requirements dictated by the BoP customer profle, product challenges or operatng environment
discussed in Secton 2.
6.1 Proprietary Distribution
Proprietary distributon channels are similar to retail distributon networks except that, in the case
of proprietary distributon, the manufacturer/producer owns all or most intermediary levels to the
end-consumer. Few manufacturers/producers choose to develop and own their own dedicated
retail distributon networks, due to the complexites and prohibitve costs related to channel
development, control, monitoring and management. However, a few manufacturers/producers
stll might choose to develop and own dedicated retail distributon networks for branding, a desire
to push a more complex product and an intenton to create compettve barriers to entry in niche
markets. Proprietary channel choice is an expensive pursuit unless developed for funneling a
suite of complementary products.
34 | Page
Figure 8: Proprietary Model and Variants
As discussed in Secton 3, the product requirements infuencing a proprietary models potental to
demonstrate critcal distributon channel capabilites are as follows:
a. If required to create, own and maintain their own storage capability, most
manufacturers/producers might fnd it fnancially unsustainable in the early stages
of business or in reaching out to new markets.
b. Most manufacturers/producers have small product portolios. Building dedicated
distributon capabilites (for small- to mid-tcket product oferings) to reach end
customers is grossly inefcient as compared to other piggybacking optons, even
though they might not be the ideal distributon solutons.
Promoton
a. For manufacturers/producers relying on scale (quantty) for proftability, the local
disconnect & distance from the local markets diminishes their capability to
undertake efectve promoton and increases their dependence on local
intermediaries or opinion leaders.
End user
Company
Retail arm of company
Bank
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Basic Model
End user
Company
Retail arm of company
Village Level
Entrepreneur
Variant
Company/
manufacturer/ Retail arm
of the company reaches
out to customers directly
but extends credit
privileges via banks credit
schemes
Banks pay the company
for end-user purchase
and collects payment
from end-user as part of
its own credit collecton
cycle.
Company/ manufacturer /Retail
arm of the company reaches out
to the VLEs and provides venture
nance facilites for their product
specic oerings. (Normally VLEs
contribute with sweat equity)
L
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b. Most manufacturers/producers are ill-equipped to access and manage mass media
platorms.
Credit and Financing
a. Manufacturers/producers do not have a core competency or interest in design and
development of credit products. Without partners, they further lack the capability
to do credit appraisals and are reluctant to do collectons and deal with bad loan
portolios.
b. Manufacturers/producers are reluctant to link product performance with credit
collectons from end customers for a sustained period of tme.
Post-Sales Service
a. For small-tcket items, most manufacturers/producers are reluctant to spend on
post-sales service, as it is expensive to maintain client relatonship throughout the
product life cycle, has high fxed cost to serve rural customer and erodes the tght
margins earned by the sale.
Informaton
a. Most manufacturers/producers have no afordable means for creaton of or easy
access to primary and secondary research on its target market and end customer.
b. Most manufacturers/producers depend on experiental learning, dated public
sources or conventonal knowledge by small manufacturers or producers.
6.2 Non-Governmental Organizations (NGOs)
NGOs are legal enttes created by a group of people with no governmental afliaton or
endorsements who come together to address a social cause or a related set of social causes.
38

NGOs generate revenue and funding in the form of grants from internatonal or natonal donors,
membership dues, the sale of goods and services and private donatons. Large NGOs in India, such
as Pratham and Gram Vikas, reach large populatons of benefciaries ranging from 2 to 10 lakh each.
Their extensive reach becomes the primary driver for considering NGOs as distributon partners,
in spite of their limited commercial capabilites and orientaton required for most products. NGOs
can have decentralized structures, which can make decision-making for commercial endeavors a
complicated process.
38 Uwhejevwe-Togbolo, Samuel. (2005). The Role of Non Governmental Organizatons (NGOs) in Development.
Available: htp://www.nigeriavillagesquare.com/artcles/samuel-uwhejevwe-togbolo/the-role-of-non-governmental-
organizatons-ngos-in-development.html. Last accessed 12 April 2010.
36 | Page
Figure 9: NGO Model and Variant
Factors infuencing an NGO-oriented distributon models potental to demonstrate critcal
capabilites are as follows:
a. NGOs typically have weak distributon logistcs with limited access to storage and
transportaton of goods. However, some NGOs have limited physical distributon
capacity that was built during earlier government-sponsored market linkage
programs.
b. They possess limited inventory management skills and technical capability to take
up large-scale physical distributon.
Promoton
a. Local NGOs know the context in a village through experience. They can leverage
this knowledge to convey the use and importance of any new product, such as a
solar lantern or an improved cook stove.
Basic Model Variant
Company
End user
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Retailing arm of NGO
(optional)
NGOs engage directly with the
end customers through their
existng retails networks / outlets,
if available or through their eld
sta
NGO eld sta acquires any
specialized skill required for
servicing the end-user post sales.
Company
Village level
entrepreneur
End user
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Local NGO
Retailing arm of NGO
(optional)
Company / Manufacturer reach
out to locally present NGOs (with
or without a retail distributon arm)
and ask them to promote & sell
their products
NGOs engage Village level
entrepreneurs (on margin /
commission basis) for promoton
and physical distributon of
products.
VLEs provide the last-mile
coverage for the product by
increasing awareness, nding
interested customer, making
product installatons(if required)
VLEs also acquire specialized skills
(if required) for any post-sales
service
Product
Credit & Finance
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37 | Page
b. Local NGOs are not traditonally set up in a way that they can promote a commercial
product through mass media channels.
a. NGOs are not structured to promote fnancial lending as they normally lack the
expertse required for handling and provision of fnancial products.
b. NGOs use grant capital to reach the end users and are not eligible to receive direct
investments.
Post-Sales Service
a. NGOs have beter reach in remote areas and can have a turn-around tme for
service of less than a day, so they are ideal for post-sales service.
b. Ability to repair and service a product can be inculcated through additonal training
for NGO staf.
Informaton
a. Most large NGOs develop formal or informal databases on diferent demographic
variables for their program specifc needs. These databases, containing feld-level
inputs, can be leveraged by companies for formulatng efectve strategy and
estmatng a regions atractveness for diferent products and services.
b. However, most NGOs are small and maintain only operatonal data and have
minimum capability to aggregate and produce data sets for commercial use.
6.3 Cooperatives
A cooperatve (co-op) is a business organizaton owned and operated by its members for their
mutual beneft.
39
Cooperatves are frequently defned as autonomous associatons of people who
become the joint owners of an enterprise to meet their shared socio-economic objectves. A
cooperatve is a designated legal entty owned and democratcally controlled by its members.
Cooperatves share their annual earnings, divided among the members based on their partcipaton
in the enterprise. Cooperatves have an approximate spread of 20.45 crore members spread
across 4.53 lakh cooperatve societes (as of 1996-97).
40
Examples of cooperatves distributng
36 percent of total fertlizer consumpton in the country
41
demonstrate their overall capability
39 Tchami, Guy (2007). Handbook on Cooperatves for use by Workers Organizatons. Geneva: Internatonal Labour
Organizaton.
40 Press Informaton Bureau. (1996-97). Evoluton of Cooperatves in India. Available: htp://pib.nic.in/feature/
fe0299/f1202992.html. Last accessed 30 August 2010.
41 Prof. K V Thomas. (2009). Conference on Development of Cooperatve Fish Marketng & Achievements on Insurance
of Fishers (held at New Delhi on 20th November 2009), Speech of Prof. K V Thomas (Honorable Minister of State for
Agriculture, Consumer Afairs, Food & Public Distributon, India). Available: htp://kvtnews.blogspot.com/2009/11/
conference-on-development-of.html. Last accessed 30 August 2010.
38 | Page
and preparedness for undertaking commercial assignments, if an appropriate support structure
is available.
Figure 10: Co-op Model and Variant
Factors infuencing a cooperatve models potental to demonstrate critcal distributon channel
capabilites are as follows:
a. Cooperatves have a well-adapted infrastructure to work as warehouses because
of their retail-style selling. They can also do inventory management and work as a
network.
b. Cooperatves, however, are not capable of moving a product long distances. They
functon usually within a set area with readily available resources and manpower.
Promoton
a. Cooperatves are well adapted to promotng commercial products, although
members are not skilled to take up promoton through mass media.
Company
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Variant
Co-ops buy and hold products from the
company / manufacturer
Co-op members receive required
training & informauon on products
Co-ops through their retail outlets or
members educate and increase product
awareness and drive sales in their locallues.
Certain credit co-ops
nance the product they are
promoung to their members &
customer base.
Cooperauves
Retail arm of cooperative
(optional)
Cooperauves
Retail arm of cooperative
(optional)
Product
Credit & Finance
Promotion
Information
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39 | Page
a. Cooperatves are credit support organizatons for small groups with similar interests
or occupatons. Credit can also be a part of their services (especially in the case of
credit cooperatves) that can be extended to the end user.
b. Cooperatves can generate capital through multple channels, such as investors
government holdings, and can further diversify into retail channels, which have the
collectve power to bargain with the producers on schemes and ofers.
Post-Sales Service
a. Marketng and sales cooperatves can rapidly service products through their own
service agent network.
b. Major costs could be incurred in identfying and training key individuals who can
look afer any service network created by cooperatves.
Informaton
a. Most cooperatves have well-developed organizatonal structures and are successful
in certain geographies (e.g. Gujarat) with access to large BoP populatons.
b. Cooperatves have access to local marketng intermediaries; however, they lack
skilled manpower to pass on the informaton.
c. Cooperatves are highly group-specifc with a focus on producton. They do not
have the capability to do primary and secondary research on the local populaton.
6.4 Self Help Groups (SHGs)
A Self Help Group (SHG) is a group of micro-entrepreneurs, typically 10-15 local women, with
similar social-economic backgrounds, who voluntarily come together to save regular small amounts
of money individually, while also contributng to a common corpus to meet their emergency
needs on the basis of mutual understanding. SHGs were initally mobilized by NGOs that had
broad ant-poverty objectves and have evolved to serve a variety of goals, including womens
empowerment, livelihood enhancement, and improving health and nutriton. The group structure
of SHGs reduces the transacton costs of external agents interested in dealing with large populaton
bases which otherwise individually have small economic cycles, low sustainable demand and lack
independent decision making capability, thus making them a unviable target audience. There are
as many as 3.37 million SHGs in India (as of March 2006) providing access to 40.95 million poor
40 | Page
households.
42
SHG federatons
43
(especially those driving a predominant non-fnancial mandate)
are ofen created by NGOs and government bodies with community development objectves.
SHG federatons have extensive feld presence and organizatonal capabilites, however this might
not necessarily lead to any commercial capabilites. Nevertheless, partnerships between private
players and SHG federatons have been piloted with various degrees of success across value
domains (e.g. HLL Project Shakt involved 42,000 entrepreneurs
44
and TATA-AIG appointed 400
micro-agents
45
).
Figure 11: ShG Model and Variant
42 A. De Montesquiou. (2007). SHGs in India: An Interview with CS Reddy. Available: htp://www.apmas.org/
pdf%5CSHGs%20in%20India.doc. Last accessed 30 August 2010.
43 A SHG federaton is a democratc body formed with certain number of SHGs functoning in a specifc geographical
area with the objectve of unitng such SHGs for common cause and for achieving these causes which an individual
SHG would not be able to do. In short, the SHG Federaton has to be necessarily of SHGs, by SHGs and for SHGs.
(Source: APMAS. (2005). What is SHG federaton?. Available: htp://www.apmas.org/faq6.aspx. Last accessed 30
August 2010.)
44 Baillie, Doug. (2007). Unilever in India. Available: htp://www.unilever.com/images/ir_Unilever-in-India_tcm13-
113961.pdf. Last accessed 16th Sep 2010.
45 Business Standard. (2006). Tata AIG enters micro risk mart. Available: htp://www.tata.com/company/Media/in-
side.aspx?artd=ZpisRfwJEDE=. Last accessed 16th Sep 2010.
Company
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SHG Member
Company
SHG Cluster
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SHG Fed
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SHG Member
SHG Clusters nance the
acvity of its members from
their own funds.
SHG Federaons buy and hold
products from the company /
manufacturer
Federaon members receive
required training & informaon
SHG Clusters get required
training / informaon from
the company on product
SHG Clusters aggregate the
order for the company
Products are delivered
directly to the SHG Clusters
Federaons receive
informaon from the
company / manufacturer and
introduces them to its SHG
clusters.
SHG members provide the last-
mile coverage for the product by
interested customers, making
product installaons(if required)
Product
Credit & Finance
Promotion
Information
S ervice
41 | Page
Factors infuencing an SHG-centred distributon models potental to demonstrate critcal
distributon channel capabilites are as follows:
a. Some SHG federatons have access to infrastructure capabilites required for
physical distributon, such as transportaton facilites and warehouses, obtained
during involvement in previous government-sponsored market linkage projects.
b. However, SHG federatons have extremely limited experience in managing supply
chain logistcs and carrying inventory.
Promoton
a. Strong relatonships of SHGs with end consumers imply a high intensity touch-point
and a persuasive seller positon.
b. The lack of product knowledge (technological advancements) and trust-based
relatonships might make persuading all SHG federaton members to carry a certain
product a challenging task.
a. Most SHG federatons, including those with non-fnancial mandates, have the
capability of executng basic cash transactons.
b. Critcal actvites, such as credit product design and risk management, are stll
outside the capability limits for most SHG federatons.
c. However, most SHG federatons have limited fnancial capability to extend credit
facilites to non-members for product purchase.
d. The decentralized nature of SHG federatons restricts their capability for fundraising
from external sources.
e. Limited literacy and fnancial skills of most SHG members restrict their capability to
undergo complex fnancial transactons, such as insurance.
Post-Sales Service
a. SHGs lack the capability and fnancial strength required for development of servicing
facilites without external help.
b. Lack of experience in providing such services can be compensated by adequate
vocatonal training of SHG members to undertake such actvites.
c. High commitment of SHG members to reach out frequently to the consumer base
is an advantage.
42 | Page
Informaton
a. While SHGs normally consttute enterprising community members with real tme
marketng informaton, such as local demographics and customer preferences,
most SHG members can neither artculate nor organize such informaton for use at
scale by external players.
b. The decentralized nature of most SHG federatons and the physical spread of the
locaton of these knowledge bases make it difcult for any external producer
manufacturer to easily access marketng related informaton.
6.5 Microfinance Institutions (MFI)
A microfnance insttuton (MFI) is an organizaton with the core mandate to provide fnancial
services to the poor. This very broad defniton includes a wide range of providers that vary in
legal structure, mission and methodology. Many new players in microfnance have large existng
branch networks, vast distributon capabilites, and the ability to make signifcant investments in
technology that could bring fnancial services closer to their clients.
Increasingly, links among diferent types of service providers are emerging to ofer considerable
scope for extending fnancial access.
46
MFIs and corporatons have realized that the relatonships,
channels and infrastructure created for micro-credit can now be leveraged for delivery of services
beyond credit. This will bring greater choice and value to the end consumer while opening vast
new markets to corporatons in a manageable and cost-efectve manner.

While the microfnance supply market is estmated to consttute more than 500 players in India
(NGOs and for-profts), most outreach is concentrated amongst less than 50 players, with the top
5 players reaching up to 55 percent of the member base with their approximately 16.4 million
members.
47
The outreach, growth rates and fnancing capabilites of MFIs make them atractve
distributon partners; many MFIs have already experimented with leveraging their strengths for
pushing mobile phones, solar lanterns, improved cook stoves and white goods
48
into BoP markets.
However, such experiments have faced signifcant challenges in the feld and have struggled to
scale beyond the pilot stage. While MFIs contnue to hold a signifcant positon in the debate
for alternate distributon channels for rural BoP customers, most product partnerships have
46 CGAP. (2010). What Is a Microfnance Insttuton (MFI)?. Available: htp://www.cgap.org/p/site/c/template.
rc/1.26.1308/. Last accessed 26th Oct 2010.
47 Mix Market. (2010). MFIs in India|Microfnance India. Available: htp://mixmarket.org/mf/country/India. Last ac-
cessed 28 August 2010.
48 The term White goods here implies major household appliances such as Television, Stove, Washing Machine and
Refrigerator.
43 | Page
been atempted without an organized efort to match the kind of products with MFIs unique
distributon capabilites.
Company
End user
T
O
P

L
E
V
E
L

P
A
R
T
N
E
R
S
H
I
P
MFI
Basic Model
Company
End user
T
O
P

L
E
V
E
L

P
A
R
T
N
E
R
S
H
I
P
MFI
Variant - 1
MFIs buy and hold product from the
company/ manufacturer
MFI receive required training &
informauon
MFI educates and increases product
awareness amongst its customer base.
MFI sells the product using its loan
omcers/ other sta members
MFI uullzes its training for providing any
required aer sales service
MFI nances the
product it is promoung to
its customer base
L
E
N
D
IN
G
R
E
P
A
Y
M
E
N
T
Product
Credit & Finance
Promotion
Information
S ervice
Company
Village Level
Entrepreneur
T
O
P

L
E
V
E
L

P
A
R
T
N
E
R
S
H
I
P
MFI
Variant - 4
Company
End user
T
O
P

L
E
V
E
L

P
A
R
T
N
E
R
S
H
I
P
MFI
Variant - 5
End User
Company
End user
T
O
P

L
E
V
E
L

P
A
R
T
N
E
R
S
H
I
P
MFI
Variant - 3
MFI collects orders or
provides informaton about its
customer base and passes it
to company / manufacturer.
Based on the informaton
company reaches the target
base directly for product &
service delivery
MFIs reaches out
to VLEs in its
customer base to
train & nance
their actvity
around the desired
product
Company reaches
out to customers
directly but extends
credit privileges to MFI
clients
MFI pays the
company for end-user
purchase and collects
payment from end-
user as part of its own
collecton cycle.
L
E
N
D
IN
G
R
E
P
A
Y
M
E
N
T
L
E
N
D
IN
G
R
E
P
A
Y
M
E
N
T
Product
Credit & Finance
Promotion
Information
S ervice
Figure 12: MFI Model and Variant
Figure 13: MFI Variants
44 | Page
Factors infuencing a MFI-based distributon models potental to demonstrate critcal distributon
channel capabilites are as follows:
a. While a few large Indian MFIs, such as SKS and BASIX, have shown interest in
developing dedicated storage and warehousing facilites for BoP products, most
MFIs are hesitant to invest in such non-fnancial capabilites.
b. Most MFIs prefer to restrict themselves to providing credit facilites for products
and then to partner with enttes who can own responsibility of transportaton,
storage, inventory management and handling of physical products.
Promoton
a. MFIs enjoy mission-level synergies with social-beneft manufacturers/ producers,
of improved cook stoves and solar lanterns, who aim to contribute to the economic
wellbeing and standard of living of rural BoP customers. Most MFI loan ofcers
are well placed to infuence the decision-making in favor of these products that are
traditonally considered push products.
b. MFIs group methodology creates the social platorm for actve discussion, which
aids decision-making processes for new and improved products.
c. Confict of interest may occur as MFI feld ofcers may present a biased view to
push their credit oferings along with the product.
a. Driven by their core credit mandates, oferings from MFIs help bridge the working
capital gap of micro-entrepreneurs allowing them to carry larger volume and variety
of inventory.
b. MFIs have alternate sources of earnings from credit actvites and most MFIs engage
in livelihood enhancement actvites. MFIs are increasingly engaged in exploring
commercial and sof sources of capital for their scaling needs.
c. Excessive lending and spending on products, which neither directly contribute to
the economic wellbeing of the BoP customer nor enhance their living standards,
may lead to an increase in credit defaults and adversely infuence the portolio
quality of MFIs.
45 | Page
Post-Sales Service
a. Similar to physical distributon, most MFIs are hesitant to invest in developing
dedicated capabilites for non-credit products.
b. MFIs fnd litle incentve to provide post-sales service for non-credit products
disseminated through them.
c. MFI loan ofcers do not want to associate themselves or their credit oferings with
product performance, as it can potentally create a reputatonal risk and adversely
afect their portolio quality.
d. MFIs carry reputatonal risk if the product delivers a sub-standard performance
or post-sales service is poor, which might in turn adversely afect the MFIs portolio
quality.
e. Compared to VLEs, MFI loan ofcers have limited inclinaton to develop specialized
skills for mapping product life cycles, undertaking product repair and maintenance
work, which does not relate to their core ofering of credit products.
Informaton
a. MFI records can serve as valuable sources of informaton on several parameters
such as local demographics, consumer spending, saving paterns and an end users
ability to buy or aford certain products.

6.6 Rural Retail
Rural retail consists of multple players: wholesalers or distributors actng as intermediaries and
retailers actng as last-mile touch points to the end customers.
Wholesalers/Distributors: Wholesaling or distributng is an intermediary role for the resale
of goods or merchandise to various market players like retailers, industrial users, commercial
enttes, or even to other wholesalers and related subordinated services engaged in distributon.
Apart from their physical distributon role, wholesalers and distributors also frequently assemble,
sort and grade goods in large quanttes to repackage and redistribute in smaller lots. Traditonally,
wholesalers and distributors are located closer to the markets they supply than to the source of
products. Wholesalers and distributors typically carry a bouquet of products supplied by multple
manufacturers/producers.

Retailers: Retailing consists of selling products and services from a fxed locaton, such as
department stores, boutques or kirana shops, in small or individual quanttes for direct
consumpton by the consumer. A retailer buys goods and products in large quanttes directly
46 | Page
from manufacturers and producers or via wholesalers, and then sells them in smaller quanttes to
end customers. Retailers are normally at the end of the distributon channel. Retailing might also
include subordinated services, such as delivery. Marketers consider the process of retailing as an
essental part of their overall distributon strategy.
In India, retail establishments are ofen called kirana shops. Other than kirana shops, Indias
rural retail industry has two more forms: Haats and Melas. Haats are weekly local markets that
serve groups of 10-50 villages and sell FMCGs and day-to-day necessites. Melas are larger more
sophistcated local temporary markets where durable consumer goods like TVs are also sold.
Company
Village level
entrepreneur
End user
T
O
P

L
E
V
E
L

P
A
R
T
N
E
R
S
H
I
P
Distributor / Retailer
Company
End user
T
O
P

L
E
V
E
L

P
A
R
T
N
E
R
S
H
I
P
Distributor / Retailer
Basic Model Variant
Company / Manufacturer reaches
out to locally present distributors -
retailers and asks them to include
their product(s) into the exisng
product poo being promoted &
sold by them
Distributor / Retailer engage
Village level entrepreneurs (on
margin / commission basis) for
promoon and physical
distribuon of products.
Distributors / Retailers engage
directly with the end customers
through their exisng retail
networks / outlets
Retailer employees acquire any
specialized skill required for
servicing the end-user post sales.
VLEs provide the last-mile
coverage for the product by
interested customer, making
product installaons(if required)
VLEs also acquire specialized
skills (if required) for any post-
sales service
Product
Credit & Finance
Promotion
Information
S ervice
Figure 14: Rural Retail Model and Variant
Factors infuencing a rural retail distributon models potental to demonstrate critcal distributon
channel capabilites are as follows:
a. Rural retailers are well adapted to physically distribute the product to interior
regions. Rural retail chains typically carry a bouquet of products and have excellent
storage, warehousing, and material-handling capability suited for rural interior
regions.
47 | Page
b. Rural retailers (especially wholesalers and distributors) usually have robust
inventory management systems in place to keep track of demand (including
seasonal) and supply in various geographic regions.
Promoton
a. Retail networks are capable of reaching out to local intermediaries, radio, print
media and events for promotng their products.
b. Rural retail chains also design brochures, leafets and short movies that pass on the
product message in the local language.
c. Demonstratons and street plays promotng the product in local fairs are also staged
regularly by rural retailers.
a. Credit and fnancing actvites of rural retailers are largely focused on discounts,
rather than fnancial bundling.
b. Credit te-ups are extremely rare for rural retailers. Linkages with other credit
providers, such as MFIs, are stll rare and tend to be product-specifc, not channel
specifc.
Post-Sales Service
a. Rural retailers tend to avoid carrying products with detailed post-sale maintenance
requirements.
b. Few semi-skilled professionals trained by manufacturers are available for repairing
the product through retailers.
c. However, if required, turnaround tme is usually short for product servicing or
repair because of well-established outreach in rural areas.
Informaton
a. Established companies and rural retail players, such as the Indian natonal brands
ITC and Godrej, have access to market informaton made available to them by
market research frms. However, smaller players are dependent mostly on hands
on experiental learning, informal networks or local trade bodies.
48 | Page
7. Conclusion
Manufacturers and producers are susceptble to fall into the trap of assuming that their role is
complete once their products have been pushed to the frst link of the distributon chain. However,
each member in a distributon network is undertaking a part of the responsibility. If suppliers of
products and services for the BoP truly desire to be market-oriented, they must develop the
capability to manage all facets of channel functoning untl the product is available to the end
customer at desirable and actonable terms. This will not be easy for most small players. Finding
the most suitable distributon partner might come at a substantal cost, increasing the importance
of analysis of possible partners complete distributon capabilites and comparison with the
product oferings unique channel requirements. (Refer to Table 6 below for critcal distributon
requirements for energy products compared with capabilites of various distributon channels.)
Critcal
distributon
requirements
for energy
products
Proprietary
Distributon
NGO Co-ops SHG MFI Rural Retail
Physical
Distributon
Promoton
Credit &
Financing
Post Sale
Services
Informaton
Contact
Table 6: Comparing critcal requirements of Energy products for the rural BoP and channel capabilites.
For manufacturers/producers of rural-targeted BoP products, the distributon channel decision
is crucial to successful product adopton. As experimentaton with rural distributon models
contnues, the exercise of marrying a product with the channel that satsfes the products unique
distributon requirements will contnue to gain signifcance.
The distributon framework and analysis set forth in this paper can help both multnatonal
corporatons and small-to-medium enterprises alike assess the relatve importance of the
distributon requirements of various products and prioritze channel alternatves available. It can
49 | Page
also act as a management tool for the design and evaluaton of a products go-to-market strategy
in rural India. While some channels, such as MFIs, will remain in media discussions for variety
of reasons, they are nowhere close to being the one-stop solutons to all rural BoP distributon
problems. Other distributon optons, such as NGOs, SHGs and Cooperatves, need to be closely
analyzed to create enough ground for experimentaton by feld experts and market players.
Spending sufcient tme researching and experimentng with rural distributon choices before
diving into the rural BoP markets can help large, medium and small companies prevent
unnecessary crash and burns. Atempts to do it all alone will be difcult for manufacturers and
producers who are beter of focusing their energies on their core competencies and forging
relatonships with suitable partners. The cost of using intermediaries to achieve wider distributon
is theoretcally lower, and this shifs the argument in favor of piggybacking distributon optons for
most stakeholders. If the suitable opportunity presents itself, collaboratng with existng players
who have ready touch points in BoP markets can provide manufacturers and producers with key
strategic advantages.
As distributon channels emerge as the vital links in reaching untapped rural BoP markets,
they must contnue to stretch and evaluate their distributon capabilites. Any sustainable and
replicable success would mean unprecedented bargaining power for the channels and would
open up unexpected revenue streams for their stakeholders. The stakes are high and the winner,
for once, might actually take it all, or at least a very signifcant porton.
50 | Page
References
Allen L. Hammond, William J. Kramer, Robert S. Katz, Julia T. Tran, Courtland Walker (2008).
The Next 4 Billion - Market size and business strategy at the base of the pyramid. Washington D.C:
World Resource Insttute and Internatonal Finance Corporaton.
Huhmann, S. (2004). Tapping Indias Rural Market. Journal of student research, p92-99.
Ergeneman, A (2003). Disseminaton of improved cook stoves in rural areas of the developing
world: Recommendatons for the Eritrea Disseminaton of Improved Stoves Program. Berkley:
Goldman School of Public Policy, University of California. p1-49.
Christen, Robert and Ivatury, Gautam (2005). A Systemic View of SHG Bank Linkage Four Sustainable
Models. Washington D.C: CGAP (Consultatve Group to Assist the Poor). 1-12.
C.S. Reddy, G. Bhaskar Rao, S. Ramalakshmi, V. Samatha, S. Vanaja, M.K.S. Murali Krishna, K. Raja
Reddy, N. Tirupataiah, P. Poorna Chandrika, G. Trivikrama Devi, V. Sreenivasulu, Sridhar Kolluru,
Ch. S (2007). SHG Federatons in India (APMAS). Hyderabad: APMAS. 1-155.
White, Chris and Fearnon, Karen (2010). Developing the Next Generaton of Glowstar Solar Lantern.
United Kingdom: University of Cambridge & University of Liverpool. 1-5.
Williamson, Lionel (1998). Conductng a Feasibility Study for Marketng Cooperatves. Kentucky:
University of Kentucky Cooperatve Extension Service. p1-3.
Gupta, R.C (2005). The Role of Co-operatves in Community Economic Development. Canada: Rural
Development Insttute Brandon University. p6-14.
51 | Page
About the authors
SAChIN ShUKLA
Senior Consultant, Strategy Advisory Group
Center for Development Finance, IFMR
Sachin is a development fnance expert for social venture capital funds, for-proft social enterprises,
microfnance investment vehicles, development fnance insttutons and bilateral / mult-lateral
insttutons.

Sachin leads the private sector development initatve at Centre for Development Finance-IFMR
by facilitatng investments, providing business advisory services and developing platorms that
promote private enterprises and compettve markets to become stronger and more inclusive.
Prior to joining IFMR, he worked as an Engagement Manager at Intellecap, leading the incubaton
of 10 select Tier-II/III Indian microfnance organizatons to atract equity capital. He also led the
transformaton initatve for the livelihood fnance business of one of Indias largest livelihood
insttutons to become a separate commercially-oriented entty.
Sachin was also a Business Manager with IBM India leading Informaton Management brand
development in South Asia. He holds a Bachelors degree of Technology in Mechanical Engineering
from IIT-Kanpur and a Management Post Graduate degree from ISB-Hyderabad with specializaton
in Entrepreneurship & Analytcal Finance.
SREYAMSA BAIRIGANJAN
Researcher, Rural Market Insight
Center for Development Finance, IFMR
Sreys work primarily focuses on understanding dynamics of the rural energy market. He studies
specifc aspects like the business model, revenue model, growth opportunites and barriers for
various organizatons working in the BoP social venture space.
His research interests include developing instruments and toolkit for understanding the
demand dynamics of the BoP markets, developing thematc notes highlightng specifc aspects
of BoP markets such as the distributon model, marketng and communicaton strategies
deployed by the BoP space companies etc. He is one of the main authors of the recently
launched Power to the People: Investng in Clean Energy for the Base of the Pyramid report
52 | Page
along with co-authors from IFMR-CDF and the World Resources Insttute (Washington DC).
The report looks at the investment potental in the clean energy space for BoP companies.

Prior to joining IFMR, Srey worked on as a short term consultant for a project with the Mult
Commodity Exchange of India where he focused on developing trading models for the exchange
of certfed emission reductons (CERs). He graduated with a MBA (PGDFM) from Indian Insttute
of Forest Management in Bhopal.
53 | Page
About CDF
CDF: helping Market and States Work for Development
Centre for Development Finance (CDF), IFMR is an acton research think tank focused on
improving government systems and markets capacity to channel fnance into sustainable, holistc
development. The Centre for Development Finance is one of the seven research centers afliated
with the Insttute for Financial and Management Research (IFMR) in Chennai, India.
CDFs Strategy Advisory Group (SAG) specializes in addressing strategic and systemic issues,
business challenges and organizatonal botlenecks, in the social and development sector. SAG
is an eclectc mix of management consultants, development entrepreneurs and organizaton
development experts leveraging best in class business tools and management practces. SAGs
approach combines deep contextual knowledge and operatonal experience with academically
grounded development insight to contribute to more efectve delivery of the infrastructure and
services that are essental underpinnings for inclusive, sustainable economic and social opportunity.
The SAG team provides strategy and operatons consultng for corporatons focused on the Base of
the Pyramid. Our wide-ranging experience includes: implementaton of business models, systems
and processes re-engineering, conductng feasibility studies and value chain analysis of rural and
urban development projects and capital structuring for development enterprises.
CDFs Rural Market Insight (RMI) initatve seeks to promote social enterprise that respects the
BoP as both clients and consumers. To accomplish this, the RMI team draws upon behavioral
economics, social psychology, qualitatve research methodologies, traditonal market research
tools, and partcipatory rural appraisal techniques to develop - tools to help companies and
investors more accurately assess demand dynamics in rural communites and concrete methods
to efciently uncover consumer preference in BoP market segments. RMI seeks to improve the
impact of social venture investng and social enterprise by delivering deep, actonable insight into
rural market behavior. There is a gap in informaton accessible to companies trying to work in the
BoP space. RMI brings in traditonal research knowhow and customizes it to suit the BoP market
context beter. Through beter market knowledge, RMI distlls beter insights for the companies/
corporate/ policy makers to reach out to the BoP masses.
Centre for Development Finance
c/o Insttute for Financial and Management Research
IITM Research Park
Phase 1, 10
th
Floor
#1, Kanagam Road
Taramani
Chennai 600113
www.ifmr.ac.in/cdf
March 2011
` 1000/-
9 788192 098609

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Evaluating alternate distribution models of energy products for rural

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