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d.light Design: Marketing Channel Strategies in India, by Anne T.

Coughlan and
Benjamin Neuwirth
A discussion by Hans Hosenfeld (152118259)

In the following paragraphs, I will discuss d.light’s challenges when overcoming channel alignment
constraints and how these channel alignment constraints can lead to demand-side misalignment by
selling through various distribution channels. To conclude, I will furthermore assess the question,
whether d.light can achieve its goal of “doing good and doing well” – improving lightning access to
rural India while being profitable simultaneously.

1) What channel alignment constraints face d.light as it thinks about how to establish a
channel structure in India?

Sam Goldman and Ned Tozun founded d.light in 2007 to mitigate harming consequences provoked by
the soot of kerosene as well as to enhance the access to lightning solutions, even in rural areas with
lacking or unreliable electricity supply. Goldman and Tozun had, therefore, identified households in the
rural areas of India to be the most appropriate beachhead market segment. Still, around 70% of the
Indian population lives in rural areas, of which the majority uses kerosene fuelled lamps, which tend to
prone to accidents or health issues.

d.light sees itself confronted with several constraints when establishing a marketing channel structure
for the kerosene lamp substitutes. Firstly, conventional marketing channels, such as television or radio
advertisement seem not to be applicably respecting the lack of widespread adoption of traditional
promotion channel throughout the rural areas in India. This raises the need to use other marketing
channels to reach the customers. But furthermore, analyzing the given circumstances, there are a few
more constraints, which have to be named and discussed for d.light. Generally, low levels of education
and information access across rural areas aggravate d.light’s reach further because the product has to be
explained to customers. Especially because people do not actively look for substitutes for their kerosene
lamps, trained personnel has to raise awareness for the product and explain the benefits. Those might
not seem obvious in the first place to potential customers, which are used to the kerosene lamps since
ever. Another really specific constraint, d.light has to find a solution for, is the lack of brand recognition
and trust, which is a significant barrier to customer adoption of the products. Customers in rural areas
are understandably hesitating to trust new brands and products because of the plethora of fake and poor-
quality brands. To overcome these hesitations and build a trust-worthy and recognized brand is,
therefore, crucial to penetrate the estimated market.

Also, the customer segment itself confronts d.light with challenges: the average annual household
income in rural areas was Rs. 41,194 (around $915) and mostly earned throughout two harvests.
Additionally, many households are in depts. Due to a lack of educational infrastructure and financial
resources, general education levels and the literacy rate is comparably low to other parts in India. The
unpredictability of income-streams of customer and the lack of savings increases the need to keep the
products as affordable as possible. A well-developed transportation and distribution infrastructure are
furthermore lacking.

2) For rural consumers in India, discuss how these channel alignment constraints lead to
demand-side misalignment if the company sells through the (I) rural entrepreneurs, (II)
village retailers or (III) centralized shop channel.

(I) Rural entrepreneurs (REs) are salespeople from local villages, which are mostly responsible
for bridging the “last-mile” distribution gap between the distribution centres and the villages, as well as
selling the products itself. REs are often well-known and liked by customers in the villages, and therefore
used by several companies to translate the high level of interpersonal trust into brand trust. They are,
therefore, eligible for distributing the products at a reasonable cost, and help simultaneously to establish
a brand recognition, where conventional channels are not applicable. Additionally, by empowering REs
to become self-sufficient, d.light could increase its social impact even further. The patronage of rural
entrepreneurs can better influence to use the products and thereby increase fostering network effects.

For d.light, REs could help to overcome those obstacles as well. However, whilst Coca-Cola and Colgate
were quite successful with using REs, Boond struggled with the challenge to motivate REs to sell large
quantities, especially when initial customer demand is low. Boond is a manufacturer and distributor of
solar lamps and water filters, and therefore more comparable to d.light than Coca-Cola or Colgate. As
discussed in section 1), the initial demand is expected to be low for d.light’s products and REs are
furthermore not the perfect choice to explain the products too. Furthermore, REs are not professionally
trained sales forces, which implies a few complications, d.light would face, if choosing REs as their
distribution channel: firstly, REs respond in a limited manner to economic incentives to grow sales and
generally struggle with long-time growth in a sustainable manner. Finally, other examples demonstrated,
that receiving payments of large sums of money, can be a difficult and expensive process, due to the
fact, that REs are often not as practiced in handling those sums.

So, to conclude, we can see that integrating REs in the distribution network, can lead to demand-side
misalignment for d.light. Whilst, this integration can help to overcome the insufficient infrastructure at
the “last-mile”, the lack of education and training of the REs does not meet the requirements of
explaining the product to customers. Furthermore, as seen in the example of Boond, a comparable
company, limited initial demand diminish the positive aspects of employing REs. Limited control and
reaction to incentives reduce the influence d.light could have to control REs in their favor.

(II) Village retailers are small and independently owned shops in rural areas, which are often
used by FMCG companies to retail their goods. Village retailers hold a potential capacity of more than
7 million shops in towns and villages in rural India. Furthermore, in contrast to the REs, shop owners
are practiced in handling both, products and money in large sums and over long distances. Firms are
consequently likely to receive their payments in a timely manner. Within the personal relationship
between customers and sellers, the shop owners of the village retailers hold a considerable power over
villagers’ product decisions and purchases. This is mainly due to the personal relationship and trust, as
well as the general owner’s knowledge of their products. Another important aspect to mention when it
comes to village retailers, is the fact, that villagers can actually buy products through credits, which
enables them to buy goods even in periods when they are low on cash. This is essential because, as
discussed above, the economic income of most farmers consist of two harvesting periods, which are
often used to pay back their credits.

So consequently, village retailers seem like a good alignment to the d.light products on a first look.
However, there are few drawbacks to mention in order to assess possible demand-side misalignments.
First and foremost, selling through village retailers increases the cost considerably due to distributing
the products to the rural outlets, which makes it pricier for rural members to access the products. The
idea of d.light is not just “doing well” in the sense of creating a profitable business, but also to “do good”
– enabling as many people as possible to access the product and thereby increasing their living quality.
It can be noted, that the reduction of access by increased prices is therefore contradictory to d.light’s
goals to “eradicate the use of kerosene”.

Other additional drawbacks, mentioned by Coughlan and Neuwirth are the facts, that consumers desire
a greater product variety available in larger cities and town on the one hand, as well as retailers were
not successful at selling new durable goods which required more explanations on the other hand.
Therefore, it might be more suited for FMCG than for durable goods such as the products of d.light.

(III) Centralized shops alleviate high costs of transporting goods the “last-mile” into the small
villages. Similar to the village retailers, large retailers could profit from their well-known and trusted
image, enabling them to sell products through a gain of trust with customers. Furthermore, related to the
centralized shops, some companies intermediately sold their products at haats, which are recurring
weekly markets with more than thousands of customers from surrounding villages. Comparable to the
haats, some companies decided to additionally expand to hypermarts, large-format stores near the major
roads. However, analogously to other static points of sale, the product is still likely needed to be
explained to interested customers. This personnel and time investments are questionable to make by
shop/retail owners. Especially due to the fact, that the d.light products tend to have lower margins than
more lucrative petroleum products, which might be favored due to little economic incentives and higher
returns.

Therefore, the misalignment could be caused by firstly, that the products will not be as explained by the
personnel as they require, resulting in a lack of understanding the product and the solution it is promising
to provide. Furthermore, Higher economic incentives for petroleum lights (higher margins) will
potentially shift the expected benefits of the shop owners away from the d.lights products to substitutes,
resulting in fewer sales and not being able to accomplish its goals.

3) Using the figures in the case can d.light have profitability while improving lightning access
to rural India

This question has to be answered within two different steps. Firstly, I examine the economics and
calculate, when d.lights reaches profitability. In a second step, I discuss the question of whether d.light
manages to improve lightning access within this window of profitability.

As the data in Exhibit 10 illustrate, d.light generates $30.69 and $9.92 of revenue for the S250 and the
S10, respectively. Subtracting the COGS and distribution cost, d.light ends up having $8.04 and $2.59
of profit for the S250 and the S10, respectively. Looking now at the fixed costs stated in the reading, we
can sum those up to calculate the sum, that needs to be covered to breakeven. With having five
employees getting paid $20,000 and twenty getting paid $6,000 per annum, plus fixed costs, we end up
having: (5 × $20,000) + (20 × $6,000) + $150,000 = $370,000, meaning that when just selling
$370,000 $370,000
S10, one need to sell $2.59
= 142,858 units, or with just selling S250 $8.04
= 46,020 units
respectively. Following the estimations, that in the worst case 0.01%, the best case 0.1% respectively,
of the 135 million rural households can be penetrated, having a range from 13,500 to 135,000
households. We see, that d.light cannot just rely on selling S10 models, but has to sell S250 as well in
order to breakeven and furthermore a minimum penetration rate of 0.034% is required (if just selling
S250s). Conclusively, profitability is possible under certain circumstances.

With having a penetration rate ranging from 0.034% to 0.1% in total to fulfill the first constraint, it is
questionable whether we can say d.light improves lightning access to rural India. Due to the small
number, the attribute “to rural India” seems certainly exaggerated and euphemistic. However, admitting
that every user’s lightning access is improved objectively and d.light is clearly contributing to that. So,
to conclude, we can say, that d.light can say, that both, they can achieve profitability and improve
lightning access to rural India.