An Empirical Investigation of Unique Traits of Retailing in Emerging Economies: The Perspective of Consumer-Packaged Goods Manufacturers

Abstract: The unique features of retail sector in developing economies that have not been fully investigated by marketing scholars are: (1) distribution channels characterized by many fragmented “traditional” (mom-and-pop type) stores and professionally-managed chain stores (called ‘Modern Trade Outlets’ or MTOs); (2) government regulation mandating CPG manufacturers to print the maximum retail price (MRP) on the product package, which anchors the final retail price paid by consumers; (3) rapid urbanization resulting in large movement of population from rural to urban areas. This research uses firm-distributor sales transactions data from a well-known CPG firm in India to investigate: (1) How do the firm’s product off-take amount, off-take quantity, and profitability differ across the two channels overtime? (2) What role does MRP play in moderating these differences? (3) What role does product category heterogeneity play? and (4) Does city-size tier impact the firm’s off-takes and profitability over time? We find that off-takes in both the channels decrease with time at all levels of price. When considering all the product categories, Profitability does not meaningfully differ in the two channels and neither does it vary across MRP. We also find that heterogeneity in product category moderates the off-takes and profitability patterns. The firm can increase profitability by considering “Product Classes” arrived at by grouping product categories with similar off-takes and profitability patterns over time, and providing incentives based on these to its sales force.