Leveraging Distribution to Maximize Firm Performance in Emerging Markets

• Firms need to re-evaluate their retail distribution strategy in emerging markets.
• We study multiformat distribution in an unorganized and unstructured retail setting.
• We find that store format-specific distribution effects vary across product forms.
• Model based optimal store re-allocation leads to an average profit increase of 7.7%.
• Product form dependencies and the effects of other marketing mix are also showcased.

Despite the rise of emerging markets as lucrative destinations for business expansion, marketing literature in this area is largely anecdotal and conceptual. Further, owing to the largely unorganized retail structure in emerging markets, managers tend to make sub-optimal marketing-mix decisions by taking an aggregate view of their distribution network. In this study, we develop an econometric model to help firms develop a multichannel distribution strategy in emerging markets while accounting for (a) own-marketing mix, (b) competitive actions, (c) brand-level heterogeneity, and (d) dependencies that may arise between product offerings. The proposed model is tested on longitudinal data from a large Indian CPG manufacturer. The results indicate that firms must consider store format-specific distribution elasticities (as opposed to aggregate effects), especially in an emerging market, where the role of distribution is critical in brand success. Further, depending on the offering, price (own- and cross-) and advertising elasticities could vary even though the brand is essentially the same. Also, we find that there are significant dependencies between product forms that need to be considered when designing the marketing mix. Finally, we provide re-allocation recommendations to help managers choose the level of store format distribution in order to maximize profits. The proposed distribution re-allocation strategy resulted in an average of 7.7% increase in profits across three product forms for the focal firm.

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