The Value of Long-term Relationships when Selling to Informal Retailers - Evidence from India

25 Pages Posted: 26 Feb 2021 Last revised: 5 May 2021

See all articles by Olumurejiwa Fatunde

Olumurejiwa Fatunde

Massachusetts Institute of Technology (MIT)

Andre Calmon

Georgia Institute of Technology - Operations Management Area; INSEAD - Technology and Operations Management

Joann F. de Zegher

Massachusetts Institute of Technology (MIT) - Management Science (MS)

Gonzalo Romero

University of Toronto - Rotman School of Management

Date Written: February 25, 2021

Abstract

Attempts to distribute durable, life-improving goods to customers at the Base of the Pyramid (BoP) – the more than three billion customers who live on less than US$2.50/day – through traditional supply chains or e-commerce have struggled to succeed at scale. One hypothesis for why distributors struggle to scale last-mile distribution is poor relationship management with small informal retailers, who are the primary source of retail purchases for BoP customers. These retailers are often embedded within communities, where local and long-term relationships are particularly important to business transactions. We provide empirical evidence for this hypothesis through an analysis of panel data from a distributor selling to 331 formal retailers and 493 informal retailers in India from April 2016-December 2019. Specifically, we study the role of long-term relationships in selling durable goods to informal retailers, by leveraging a staged natural experiment that allows us to examine the effect of a sales agent reallocation on subsequent orders placed by informal and formal retailers. Using two different quasi-experimental methods, we find that formal retailers experience an average performance decrease of at least 35.7% relative to predicted order value and then recover within three sales cycles of a sales agent reallocation; in contrast, informal retailers experience an average performance decrease of at least 70.4% relative to predicted order value, and do not experience sustained recovery within five sales cycles of a sales agent reallocation. This indicates that business relationships, and disruptions to these relationships, are particularly important when selling to retailers in informal markets.

Keywords: Base of the Pyramid (BoP), causal inference, panel data, difference-in-difference

Suggested Citation

Fatunde, Olumurejiwa and Calmon, Andre and de Zegher, Joann F. and Romero, Gonzalo, The Value of Long-term Relationships when Selling to Informal Retailers - Evidence from India (February 25, 2021). Rotman School of Management Working Paper No. 3792639, Available at SSRN: https://ssrn.com/abstract=3792639

Olumurejiwa Fatunde

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Andre Calmon

Georgia Institute of Technology - Operations Management Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

INSEAD - Technology and Operations Management ( email )

Boulevard de Constance
77 305 Fontainebleau Cedex
France

Joann F. De Zegher (Contact Author)

Massachusetts Institute of Technology (MIT) - Management Science (MS) ( email )

United States

Gonzalo Romero

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
50
Abstract Views
204
PlumX Metrics