Product Distribution & Differentiation

When we arrived in Mumbai, we were accosted by hordes of people selling multi-colored balloons, leather drums and other trinkets on the streets. While meadering along a single block it was common to be approached by three or more vendors hawking the exact same product or to pass a half-dozen shops selling identical scarves and pillow covers. This made us curious as business students: What causes these vendors to cluster together and how can a mid-block shopkeeper earn a profit if all of his customers have already had multiple chances to buy his products before reaching the doorway?

To a first-time tourist in many emerging markets (India, China, Russia) it seems that street-retail shops are a case study on the negative impacts that a lack of product differentiation and poor distribution. Merchants throughout Mumbai, Delhi, Hyderabad, Chennai, etc. all stock their shelves with virtually indistinguishable hand-chiselled stone elephant/Shiva/Ganesh carvings for tourists. Turnover at each individual store must be extremely slow, since no tourist is going to purchase a second carved elephant after he has already seen it in myriad other places. Do the shopkeepers realize that only a semi-unique product will sell? By selling the same item in multiple, proximate shops the sellers must compete for every sale, driving prices to the bone and squeezing profits for everyone. Why does it work out this way?

My hypothesis is that the vendors on the street have very little input into what they sell in their stores. Instead, they are given their wares by a local distributor (ie. cashmere pimp) who has little incentive to vary selection across his client shops. The distributor likely receives product in bulk and he is in charge of moving it as quickly as possible, while client shopkeepers pay him a fixed rate for each unit, keeping any profits from selling above that price. Thus, there is little incentive for the distributor to vary product among shops. He simply wants to sell as much as possible and adding another salesman may result in another sale, even if it squeezes the wage of that salesman to virtually nothing. (Even Vodafone seems to be in on this racket, since there seems to be a cell phone re-seller on every block even in the poorest parts of the slums.)

From a social enterprise perspective, this ensures that the small shopkeeper remains hopelessly marginalized and that any value created goes to the distributor and his higher-ups. Maybe it would be better for these salespeople if a large retailer (Wal-Mart?) were to enter the market and distribute products more rationally -- carved elephants only on every third block, with leather drums in-between? Such a retailer might even be able to restrict supply of the most over-produced items while introducing some new designs such as the intricately-carved stone figurines below:


If I'm wrong about how these items are produced/distributed, I'd love to hear how it really happens. Anyone?

The pictures that follow show some of our group as they tried to make their way back to the bus from a sightseeing stop. As we walked, nearly a dozen merchants swarmed with kitsch in-hand:
Mica learned the hard way that if you buy a postcard from one seller, his friends will know they've found a sucker and none will leave until they've sold you much, much more.

These vendors obviously know that Americans haven't been anywhere until they buy a t-shirt to prove it.