DISTRIBUTE TO SURVIVE AND GROW
SHE (CUSTOMER) IS ALWAYS RIGHT
WHY DO YOU DIE SMALL?

By
Vikas Kalani
Assistant Professor
Aravali Institute of Management
Jodhpur (Rajasthan)
Phone : 0291-2542235, E-mail : vikas_kalani@rediffmail.com

Distribute to Survive and Grow

Are you confident that you are able to make your product available at all the places where your customers would like to buy or consume it?

If not, than be ready to perish as you might be wasting your resources, you might be losing sales and worst you might be helping your competitors increase sales as atleast one of your competitors would always be available with the retailer, and the retailer would more often than not be able to persuade the customer to buy your competitor's brand even if the customer had come with the intentions of buying your brand. The retailer would not stop at that he would add to your abrasion by adding that your competitor's brand is better than your brand. Above such incidents may make a considerable dent in your brand's image.

Allow me to analyze the issues on distribution in India from the following three angles: a). Innovations in distribution b). Mammoth size of retail network in India  c). Channels of distribution.

Innovations in Distribution: With product and price parity and the concept of brand loyalty reducing to loyalty towards a set of brands (Consideration Set) in particular product category, innovations in distribution become extremely important in deciding the winner in the market place. The best of marketing plans would not succeed if your product is not able to make it to the retailer's shelf. Distribution is truly becoming an all-pervading factor for success of any marketing plan.

For instance, one could make available soft drinks or juices and scores of other products at barber shops and beauty parlours, where both men and women invariably spend at least about half an hour in a month, or say, one could look at making available products like shampoos and oil sachets at select food stalls near beaches as people would like to consume these products on beaches. This would not only increase sales but also increase number of availability points and visibility in the market.

Mammoth size of the retail network in India: Recent studies conservatively estimate the number of retail outlets in India at a sky-scraping number of 6 million and this number is increasing steadily. This mammoth size poses a difficulty of being available at atleast in the regular outlets forget about innovations in distribution. Solution obviously lies in using intermediaries in distribution judiciously. Clustered approach in distribution should always be followed; to elaborate, it would mean that your product should be made available at all the potential (to sell) outlets in towns where you are distributing. One could decide against distributing in a (low potential) town completely. It is always preferable and economical to distribute in few towns completely than distributing in many towns partly. It would allow you to leverage each rupee of the money spent on advertising to the maximum extent. After consolidating distribution in towns selected in phase I, one could move to another cluster of towns.

Channels of distribution: To my mind there could be atleast the following six channels of distribution:
a). Indirect Channel - This is the most popular form of distribution in India; it involves distribution of goods and services through intermediaries. However, one myth should be cleared that the intermediaries would prefer product of those companies, which would offer maximum margin. This is not true. Before margins retailer generally look for three things, which I call the three S's for retailers. They are A). Survival of the company B). Service to the retailer in terms of regularity of product supply, replacements C). Sales and marketing support to ensure consumer off take. Number of companies make the mistake of offering very high margin to trade and thus not only putting themselves into trap as they are left with less money to spend on development of brand but also spoil the market by providing high margins.

b). Direct Channel -This is not yet developed to the fullest extent in India as cost of maintaining a direct channel is high. Eureka Forbes is one of the companies, which is using this channel successfully. Industrial selling generally takes place through this channel.

c). Franchising - This mode has tremendous potential but is yet to mature in India.

d). Owned Outlets - Successfully used by companies like Bata, this gives the advantages of better control but this control comes at the cost of very high investment in real estate. This channel's growth would be only to a limited extent, as it requires a lot investment in real estate.

e). Direct Response - Would mean selling through mailer, TV, Net. Contribution of sales through Direct Response is low and to my mind would continue to remain low atleast for the next 10 years. This would be used more as a medium for information and actual sales continue to take place more through the above four channels.

f). Multilevel Marketing (MLM) - Another channel that is showing great potential is MLM. Recently companies like Hindustan Lever Limited have also ventured into MLM. The issue in MLM is of trust. People are skeptical about products sold through MLM because number of companies using this channel have duped their customers.

One of the rare points on which India is unanimous is that competition is increasing rapidly perhaps at a rate faster than the rate of growth in population. More and more people are fighting for the same share of the rupee from the consumer's pocket. This would not allow any laziness in the process of Sales and Distribution.

By the next decade, distribution would emerge from the backbenches of marketing discipline to become a highly specialised area of expertise, critical to success of any brand.

Happy Sales and Distributing for survival and growth.

She (Customer) is Always Right

Last ten years have seen a great transition in Customer Service standards in India. In post liberalization India, it is clear that if a company does not succeed in keeping a smile on the customers face, it will spell disaster.

Not long ago companies used to have a complaints department. (One could imagine the attitude of people who work in complaints department) Opening up of the economy and intensification of competition has changed the scenario by replacing the complaints department with the Customer Service department.

Progressive companies give more importance to customers than to even their Board of Directors, believing in the philosophy that only the customers of the company have the power to fire anybody by spending their money elsewhere.

Focus on Customer Service has not only done well for customers but has done better for marketers. It represents a great opportunity to build brand loyalty. It offers opportunity to every one in the spectrum, from Pan Beedi outlets to multi million corporate giants.

A Pan Beedi vendor could increase his store loyalty by improving the service, which he is offering to his customers. Beauty of Customer Service is that it does not cost a fortune. The Pan Beedi vendor has to do two things a). Smile and greet his customer and b). Moment he sees his customer walking towards his shop he could take out the customers' brand of cigarette (or variety of Pan) and hand it over to the customer as soon as the customer reaches the outlet. These small things would help him build tremendous store loyalty. Customers have given their verdict  - all things being equal they would spend their money at the places where Customer Service is better. Also all things not being equal they would still spend their money at places where Customer Service is good.

Smart Corporates are grabbing this opportunity with both hands. I distinctly remember an incident, around 12 months back I returned a shirt to a garment retailer, which I had purchased from him. He asked for the bill, I insisted that I have purchased it from him and I have misplaced the bill, and requested him to pay back to me as per the price tag (sticker), he refunded my money. After a week's time I found the lost bill and much to my chagrin I realized that I had purchased that shirt from some other retailer. I revisited him to undo the earlier transaction. At that time he told me that 'At my shop the customer is always right'. He has build tremendous amount of goodwill in my heart and since then I have made all my purchases of garments from his outlet, and not only this I am spreading good word of mouth for him. A small investment from his side in Customer service is paying him rich dividends.

To effectively leverage the opportunity of providing good customer service and building goodwill, organizations must follow the following three-step process:                   

a). Study the existing Customer Service level, this should be done by conducting a survey among the customers, current and old, on various parameters like the organization's ability to perform the promised service dependably and accurately; willingness to help customers and provide prompt service; knowledge and courtesy of employees and their ability to convey trust and confidence; caring individualized attention the firm provides it customers; other relevant parameters specific to the organization.

b). After studying the existing Customer Service levels, next step would involve finding out Customer Service parameters key for success and the organization's ability to deliver them. Based on this, Customer Service standards should be set. These Customer Service standards should be implemented religiously and any variance should be monitored and corrected. Also, the employees should be trained to deliver the set Customer service standards.

c). After a period a three months another Customer Satisfaction Survey should be carried out to track changes and new Customer Service Standards should be reset, if required, and the process should continue.

Do you still think that She (Customer) is not always right?

Happy Customer Servicing and Brand Building.

Why Do You Die Small ?

Every year countless number of entrepreneurs are attracted to venture into the (Fast Moving Consumer Goods) FMCG industry, however after around 2-3 years only few of them are able to survive. Majority of them either close down or are working towards closing down.

Some of the reasons, which to my mind attract people, to venture into the FMCG industry are as under:

a). Low entry barriers. (Atleast as it may be perceived by an amateur in the industry)
b). Familiarity with the products as most of them are household products.
c). Desire aroused after learning about success of other entrepreneurs in the FMCG industry.

People who venture into the FMCG industry may be first time entrepreneurs with or without any experience in the industry or may be promoters of existing non FMCG companies looking for diversification or entrepreneurs such as manufacturers of FMCG products for some one else looking for forward integration by launching their own brand in the market or merchants and traders looking for backward integration by launching their own brand.

People who enter into the industry have either some or all of the following resources: idea, desire, money, source of manufacturing, source of distribution, work experience in FMCG industry.

As mentioned earlier majority of companies find it difficult to survive in the market place and eventually close down and with closure ruin future of its stakeholders including the employees and vendors. Having said the above I do not mean to say that it is impossible or extremely difficult to survive in the FMCG industry, time and again history has proved how number of organizations however small they may be, have succeeded in the FMCG industry.

With research and experience in the industry I have been able to analyse the following factors critical for success in the FMCG industry. Some of them are general across all the industries and some of them are specific to the FMCG industry in India. Allow me to explain the same:

Cluster I: Finance

A). Financial Muscle (Sustaining Power):

More often than not it takes a little longer than expected for a new brand to take off in the market place. It certainly requires a lot of money to stay in the market place, as expenses are very high, a number of companies give up because of inability to fund the business.

Cluster II: - Marketing

A). Integrated Brand Marketing Strategy:

This would include integration of Choice of brand offering, providing the brand offering and communicating the brand offering, using all the elements of marketing in proper proportion and proper sequence. Failing to do the above may make it very difficult for an organization to survive. However, unfortunately most entrepreneurs do not understand marketing, they think that marketing is selling the product and believe that any product which is good and well distributed would automatically sell. They do not understand that marketing is much more complex and much beyond than when they perceive. Marketing not only includes analyses of the market, discerning opportunities, formulating marketing strategies, developing specific tactics and actions, proposing a budget and establishing a set of controls but also is also responsible for driving the entire organization making it consumer oriented and market driven.

B). Sales Budgeting:

In a number of cases companies get hunted because of inability to adhere to the sales plan. Initially during launch with great fanfare and enthusiasm companies are able to build primary sales and also secondary sales by placing the product at retail counters with their relationship with trade and by scores of promises which may not be met in number of cases.

After say about two months of launch, companies realize that distributors have been made and there are no further primary sales, as goods are just not moving from the retail counters. This demotivates the sales force; they are presurrised from both the ends, by the management for more sales as well as by the market for non-movement of goods. This accentuates their enthusiasm and they start doing two things a) Making false promises and b). Start looking for another job and the sales budget goes awry. All this puts things in a mess.

C). Over or under Advertising and Promotion expenditure or wrong advertising strategy (creative as well as media):

Advertising and Promotion along with Sales and Distribution, Product and Pricing is one of the most important elements in the game of consumer product business. When the ad campaign is launched, the management, sales force and other employees of the organization are excited but the consumers are not. Consumers would rarely go out in the market place and buy brands, communication for which has not been hammered into their minds a number of times. The reason being that the buying process is not over after they buy the product from the retailer, they have to resell it to their family members as to why that particular brand was chosen amongst host of other brands available. So most consumers end up buying brands, which are of good repute in the market.

After the initial burst of advertising, the response may not be all that great. This gives birth to blame the sales guys blame the marketing and the marketing guys blame the sales guys.  In number of cases advertising continues for some more time inspite of poor show and either the sales or marketing team or both are overhauled atleast once to justify not so much success.

After some time the advertising expenditure starts pinching the promoters and the thought of exiting the business starts to creep in.

Cluster III - People

A). People: I do not need to emphasize on the importance of the quality of people in an organization. Some organizations especially start ups are not able to attract and retain the best manpower available in the industry for the following three reasons:
a). Reputation of the organization
b). Inability of meet salary expectations of good people.
c). Not so professional working environment.
High manpower turnover or substandard quality (of work) people often let the organization down.

Cluster IV: - Promoters:

A).  Attention and Focus:
Along with time, effort and money one of most important resources required from promoters of the business is attention and focus in business, failing which, it becomes difficult for the organization to survive.

B). Loss of patience:

As mentioned earlier that it may take a little longer than expected for brand to actually take off. During this period promoters of number of companies lose faith in the business and start to thing about exiting.

Cluster V - Operational Inefficiencies:

A). Operational Inefficiencies:

A new consumer product business faces a number of operational inefficiencies. I am putting down the most important of these.

a). Logistics: This is always a big problem for a startup or a small sized company. New companies end up paying much more for transportation and logistics as compared to their well-settled counterparts.

b). Margin to trade: Given the low volume, start ups always end up paying higher margins to the trade, thereby reducing profitability.

c). Cost of production is higher given the low volume.

d). Production planning is not perfect so higher inventory carrying cost.

e). Expertise is not available in proper tax planning to reduce the quantum of govt. levies such as excise and sales tax.

f). Cost of finance

g). Cost of media buying.

h). Other purchases

B).  Inventory:

High inventory always carries two problems with it.
a). High inventory carrying cost
b). Goods become short dated.

In this industry the goods getting redundant because of change in technology is not so high as the market is mature.

C).  Creditors:

Some companies build primary sales, dump goods at distributors point. Distributors on their part with or without the help of the company sales personnel place the goods at retail counters. But things are blocked when goods do not move from the retailer's shelves. Retailers do not pay the distributors and the distributors do not pay the company. This results into a killing problem of outstanding and bad debts.

D). Spreading too much without consolidating:

This would include geographical expansion as well as product portfolio expansion.

Cluster VI - Industry and Entrepreneur Fit:

Today's markets are changing at an incredible pace. With reforms taking place we are witnessing globalization at a rapid pace, also technology is changing sooner than later. This calls for a lot of expertise, specialization and speedy decision-making. A number of entrepreneurs may just not be able to fit in the industry. They may have good experience and might have succeeded in other industry/industries, however because of the following attributes specific to the FMCG industry they may just not be able to fit in it:

a). Low per unit cost of goods (as compared to consumer durables or industrial goods)

b). Managing a distribution network involving a large number of intermediaries (especially distributors and retailers)

c). Buying behaviour of consumers is based on perception about the product, which may be rational.

d). Ever increasing competition.

e). Efforts, skill and money involved in brand building.

To my mind the above mentioned reasons are the primary causes for failure of companies in the FMCG industry, ruining future of number of people and destroying billions of rupees.

Any entrepreneur venturing into the FMCG industry must keep in mind the above points before venturing and exiting from the industry.

For any clarifications, contact :
Vikas Kalani
Asst. Professor
Aravali Institute of Management
Jodhpur (Rajasthan)
Phone : 0291-2542235, E-mail : vikas_kalani@rediffmail.com

Source : E-mail

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