Cracking the last mile

Cracking the last mile

Three quarters of India lives in the villages but it is a very hard market to reach. As a rural microfinance company, we have been approached over the years by a large number of companies hoping that we will peddle their products in the villages – from FMCG to food and drink products to medical products to stoves, lamps and a host of other durables. Naively, companies believe that because we have a network of offices, field staff and a rural client base that all it takes is to put the product in our hands with a promise of a sales commission. They have the product and we have the network. It should be a happy marriage.

“Finally, there is the all important component – money. For every product that moves, money has to change hands. Let’s say you have found someone to deliver your product to the village at a low cost. How will the recipient – the local distributor – pay for it? You need someone reliable to collect and remit the money back to the company.”

Let’s assume it’s a fantastic product with a compelling value proposition. What does it take to crack the last mile?

Last mile distribution is all about efficient flow – the flow of information, product and money.

The first part: information concerns the product. People need to understand the product, sometimes experience it, before they will buy it and certainly before they can sell it. With a largely illiterate and semi-literate audience, your text rich brochures and pamphlets, as we have learned with experience, will largely serve the purpose of packing material for their lunch. Television is expensive, especially if you don’t have the distribution network yet and other than Tamil Nadu with its free television schemes, the message probably won’t reach the right people in most other areas. It’s most effective when people can see, feel and experience the product and then talk about it. Someone who has used homemade Shikakai all her life needs to experience a shampoo to be convinced about that particular product category first, let alone buying a specific brand.

So, how do you accomplish this? You need someone in a village who can gather a crowd for you to demonstrate and sample the product. Once this is done, will those people talk about it? They will. But only in small closed groups. What we have found is that the social networks of rural folk are very insular. They talk to a small number of people within their village frequently, but rarely to others outside their group. How do you get the information to flow?

There are two primary channels of information flow in rural India today: the mobile phone and the movement of people. A research study that we did on the mobility of 1,000 people across 125 villages in Vadipatti Taluk in Tamil Nadu  was an eye-opener(see graph T1). On an average, they reported that they ventured beyond five kilometres from their village less than once a month. This was extraordinarily low. A short online survey of 125 folks across India’s major cities showed that our perception is that they travelled beyond five kilometres about 10 – 15 times a month. That’s over a ten-fold error in perception. And besides, it is people who travel more, who also chat on the phone to people outside their village more. So, if you want information to flow, you need to first target people who move around. Get the information out to people on the bus and in the bus stop, on the train and in the train station. I would bet that this is where companies can get the biggest bang for their buck.

Then, there is the movement of the product. A village of a few thousand people can’t support a whole lot of products. The actual time and cost of transport is high (see graph T2). Besides, if the product is heavy and not easily portable, and if the sales agent needs to go to a warehouse to pick it up, then they act as heavy deterrents. Personal vehicles are not common because, like in Vadipatti Taluk, a villager has to travel sometimes 20 km or more to get to a petrol pump while most urban folk have to travel hardly a kilometre or two. Many companies want to distribute through self-help women groups but women are less likely to travel the distance to pick up a product. They are also less likely to have their own vehicle – be it a cycle or a moped. This is why the village middle man is very important. The village middle man is usually the person who travels frequently and has the ability to aggregate products, and thereby lower the cost of bringing it to the village. Don’t discount the middle man. He can lower your cost of product flow.

Finally, there is the all important component – money. For every product that moves, money has to change hands. Let’s say you have found someone to deliver your product to the village at a low cost. How will the recipient – the local distributor – pay for it? You need someone reliable to collect and remit the money back to the company. Even with mobile money transfer facility, somewhere at the end of the chain there is cash that has to be collected and deposited. Now, this is where a microfinance company can help. Microfinance companies are in the business of money flow and their staff are trained to handle and remit cash. Not to peddle shampoo, potato chips and lanterns. There’s a reason why the clerk in your bank is not selling you a rack of stuff every time you go to deposit a cheque, withdraw money or take out a loan. Here’s your money sir. How about an anti-dandruff shampoo to go along with it? No? How about some chips? Solar lanterns?

A local distributor could pay for the product at the local microfinance location, or the microfinancier may eventually be able to extend credit for product – a sort of working capital loan. These models have not been tried yet, but I believe this is a direction microfinance companies can head in that is of mutual benefit – it is productive money flow.

So, when you think of last mile, think flow of information, product and money – an IPM flow strategy.