With its vast geographical expanse, India offers a challenge for new companies wanting to setup a pan India footprint. While looking at the market reach, the question which strikes is, should we have a single layer distribution model or multi layer? Of course a lot depends on the type of product, end customers, stage of the product life cycle, expectation from the business partners, customer support required, commercials and others.
For most of the industrial companies entering new in India, generally, their focus continues to be restricted to 8-10 major cities from a distribution perspective (Mumbai, Delhi, Bangalore, Hyderabad, Chennai, Ahmedabad, Kolkata, Pune). This is because there end customers are highly concentrated in these cities or are likely to have their decision making centers in these cities. However looking at the slightly longer term, the Category B cities (next to the metros) are slowly doing a catch up game.
Single Layer Distribution Model:
A single layer model means having multiple distributors all across the country (you still have very few distributors who operate on all India basis in India) and the firm interacting with them directly (goods & services, information & communication). Other than the few major cities (Mumbai, Delhi, Chennai, Bangalore, Hyderabad, Kolkata, Pune & Ahmedabad), there are 15-20 other strong cities in India with good industrial/commercial activity. While the distributors in larger cities are accessible easily, reaching out to smaller cities will be not so easy.
The challenge for single layer model are - the ROI’s on having direct distributors for smaller cities could be lower than for the bigger ones, longer times to service/communicate, low process orientation of distributors from these cities could be a challenge too.
However the advantages of single layer model are – being closer to the customer and a greater control over the channel network and brand communication. The decision would also be determined by how many resources the firm intends to have on the ground and its vision on the direction of the business going forward.
Multilayer Distribution Model:
The disadvantage would be – you get farther away from lot of your end customers and might get filtered information. The ambition of the firm may not be shared by the channel partners downstream as they get to hardly interact with the firm and understand its philosophy; whatever it knows, is through the distributor. This might make them vulnerable to switch if the distributor switches or if another opportunity comes up.
Another factor to be considered is that there are emotions attached around interacting directly with the company (being the distributors) or through another distributor (being a dealer or sub distributor). Larger strong distributors even from smaller cities might have an ambition and feel pride in dealing directly with companies rather than with other distributors. This might mean missing out on some potential strong route to market partners.
If the product needs high technical skills or large investments, companies prefer to have distributors in the metros (Delhi, Mumbai, Chennai, Bangalore, and Kolkata…) and will ask these distributors to build up their own sub distribution network to cover larger geographies.
Of course the third option is to have a hybrid model where you could have multiple direct distributors, who in turn will have multiple sub- distributors. This could be needed for Industrial products which have strong retail sales as well and reaching out to the closest point to the end customer is important.
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