Product Type and Consumer Sophistication
Firms in consumer goods industries that are trying to sell to a large segment of the market generally favor a pull strategy. Mass communication has cost advantages for such firms, thus they rarely use direct selling. Exceptions can be found in poorer nations with low literacy levels, where direct selling may be the only way to reach consumers (see the Management Focus on Unilever). Firms that sell industrial products or other complex products favor a push strategy. Direct selling allows the firm to educate potential consumers about the features of the product. This may not be necessary in advanced nations where a complex product has been in use for some time, where the product’s attributes are well understood, where consumers are sophisticated, and where high-quality channels exist that can provide point-of-sale assistance. However, customer education may be important when consumers have less sophistication toward the product, which can be the case in developing nations or in advanced nations when a new complex product is being introduced, or where high-quality channels are absent or scarce.
The longer the distribution channel, the more intermediaries there are that must be persuaded to carry the product for it to reach the consumer. This can lead to inertia in the channel, which can make entry difficult. Using direct selling to push a product through many layers of a distribution channel can be expensive. In such circumstances, a firm may try to pull its product through the channels by using mass advertising to create consumer demand—once demand is created, intermediaries will feel obliged to carry the product.
MANAGEMENT FOCUS Unilever—Selling to India’s Poor
One of the world’s largest and oldest consumer products companies, Unilever has long had a substantial presence in many of the world’s poorer nations, such as India. Outside of major urban areas, low income, unsophisticated consumers, illiteracy, fragmented retail distribution systems, and the lack of paved roads have made for difficult marketing challenges. Despite this, Unilever has built a significant presence among impoverished rural populations by adopting innovative selling strategies.
India’s large rural population is dispersed among some 600,000 villages, more than 500,000 of which cannot be reached by a motor vehicle. Some 91 percent of the rural population lives in villages of fewer than 2,000 people, and of necessity, rural retail stores are very small and carry limited stock. The population is desperately poor, making perhaps a dollar a day, and two-thirds of that income is spent on food, leaving about 30 cents a day for other items. Literacy levels are low, and TVs are rare, making traditional media ineffective. Despite these drawbacks, Hindustan Lever, Unilever’s Indian subsidiary, has made a concerted effort to reach the rural poor. Although the revenues generated from rural sales are small, Unilever hopes that as the country develops and income levels rise, the population will continue to purchase the Unilever brands that they are familiar with, giving the company a long-term competitive advantage.
To contact rural consumers, Hindustan Lever tries to establish a physical presence wherever people frequently gather in numbers. This means ensuring that advertisements are seen in places where people congregate and make purchases, such as at village wells and weekly rural markets, and where they consume products, such as at riverbanks where people gather to wash their clothes using (the company hopes) Unilever soap. It is not uncommon to see the village well plastered with advertisements for Unilever products. The company also takes part in weekly rural events, such as market day, at which farm produce is sold and family provisions purchased. Hindustan Lever salespeople will visit these gatherings, display their products, explain how they work, give away some free samples, make a few sales, and seed the market for future demand.
The backbone of Hindustan Lever’s selling effort, however, is a rural distribution network that encompasses 100 factories, 7,500 distributors, and an estimated 3 million retail stores, many of which are little more than a hole in a wall or a stall at a market. The total stock of Unilever products in these stores may be no more than a few sachets of shampoo and half a dozen bars of soap. A depot in each of India’s states feeds products to major wholesalers, which then sell directly to retailers in thousands of small towns and villages that can be reached by motor vehicles. If access via motor vehicles is not possible, the major wholesalers sell to smaller second-tier wholesalers, which then handle distribution to India’s 500,000 inaccessible rural villages, reaching them by bicycle, bullock, cart, or baskets carried on a human back.
Sources: K. Merchant, “Striving for Success—One Sachet at a Time,” Financial Times, December 11, 2000, p. 14; M. Turner, “Bicycle Brigade Takes Unilever to the People,” Financial Times, August 17, 2000, p. 8; “Brands Thinking Positively,” Brand Strategy, December 2003, pp. 28–29; and “The Legacy That Got Left on the Shelf,” The Economist, February 2, 2008, pp. 77–79.
In Japan, products often pass through two, three, or even four wholesalers before they reach the final retail outlet. This can make it difficult for foreign firms to break into the Japanese market. Not only must the foreign firm persuade a Japanese retailer to carry its product, but it may also have to persuade every intermediary in the chain to carry the product. Mass advertising may be one way to break down channel resistance in such circumstances. However, in countries such as India, which has a very long distribution channel to serve its massive rural population, mass advertising may not work because of low literacy levels, in which case the firm may need to fall back on direct selling or rely on the good will of distributors (see the Management Focus on Unilever).