Defying Conventional Logic : Media before Distribution

I have always believed that among the four Ps of marketing "Placement" is a unique challenge in India, and companies which have been able to crack it are the ones which have managed to succeed......

And the emphasis is also on how well one is able to align distribution with overall marketing strategy. Though seems very logical I will give an interesting question which confronts many marketing managers, Should media come before distribution, which means that should the Ads hit the TV first and then you go ahead and distribute your products. The conventional logic says that the distribution or placement has to happen before the media hits the TV, as you would not want consumers to go to the shop and ask for the product and the retailer says it is not available.

But there are a few companies which defy this logic like Darshan Patel,  of Vini Cosmetics, who made Fogg deodorant available after almost a month of Advertising on the TV. The retailers kept on asking for the product as people were coming and asking from them. The unfulfilled demand meant Fogg could afford to reduce the trade margins.

But can all companies do that , I think for most companies the conventional route is safer, and one should also have the confidence in your product adopt this strategy....

Channels Shift

In the early ecom days people said it is traditional channels which will be threatened  the most, it was predicted that they will be replaced by ecom channels.  The utopian world of no intermediaries in between the consumer and the manufacturer.  That was in the early 2000. But the way the market played out in the next 15 years was very different,  first came the burst and then the second life,  and in the second life with a wave of new ecom firms booming the dire predictions for the middle man  are back. But this time it is not just in thin air, the first signs of what could happen in the future can be seen with many firms using only ecom sites to sell their products with no physical  presence. With the Moto Gs and Mi3s being sold only thru flipkart. 

Will it mean the end game of traditional channels, beginning of the end....

Interview with D Shivakumar, PepsiCo CEO

Recently had an opportunity to listen to him at a conference and would rate him very high on his understanding of the Indian market. In the conference he spoke more about telecom  market where he has substantial experience.

In this interview he shares his view on the foods business, lots of food for thought....

Rural Retail

Mobile rural retailer in MP...

FDI in Retail - Kirana Stores

The debate on allowing FDI in retail is something which is up for discussion, so thought I should also pitch in with my thoughts. There are many dimensions and stakeholders here, the farmer/producers, the consumers, the kirana stores and of course the international retailers who are waiting to enter the Indian market.

I will start with focusing on the kirana stores or the small mom-n-pop retailers, which I have certain familiarity because my own research work. We are known as a country of shopkeepers, because of the high retail density and the sheer number of shops. In fact in the last five years I have been observing the large number of new small kirana stores which have come up in just the 3 km stretch before my residence. ( if one were to hazard a guess based on these 3 kms the growth of kirana stores in India, it might be in the high 30s). In India setting up a retail store is considered to be the easiest way to help settle down a young guy. So the concern is that if the bigger international retailers were to come in then probably these smaller retailers would be wiped-out, estimated between 10-15 million. If that were to happen then obviously it would become a major issue. But then the percentage of organized retail even in countries where they have been for long is not 100%, infact the percentage varies in countries like Japan , Malayisia and Thailiand they are from the high sixties to 40%.

And to tell the retail in India has not evolved in the last twenty would be very wrong, our own home grown retailers Like Big Bazaar, Reliance retail, Spencers have been there for quite some time, and have we seen small retailers close shop because of them? Infact I have personally seen these Kirana store respond by upgrade their shops and increasing their service levels.

By saying that the Kirana stores would disappear would be saying that exist because of an inefficiency in the market and the moment it is removed by bringing in more efficient larger retailers, the smaller inefficient ones would disappear. The reality is that the smaller retailers exist because they provide value by providing location convenience, smaller assortments and personalized services. And yes some of them would get impacted, those who are not able to respond to the changes. Have we not seen the STD booths disappear after mobiles came in, but then the STD booths have morphed into some other kind of retail store. I firmly believe that the retail scene would evolve very rapidly and change in the form of entry of larger organized retailers is inevitable and would happen.

In my next post I will look into the other stakeholders in the retail business and how would they be impacted...

Rural Distribution : The Next Game Changer

Growth - But Sustainable ??

Every company wants to grow, and post liberalization we have seen companies grow at rates which were unheard of earlier. Airtel, LG, Nokia, Hyndai are examples of this fast growth..

The news is that HUL has set a target of 50,000 crores by 2015, link to the story. To put the target in perspective, it took the company 75 years to touch 20,000 crores and now wants to reach 50k. According to the news paper article these kind of target are called BHAGs, or Big Hairy Audacious Goals, in multinational parlance. Those which provide a sense of larger purpose and propels the organization to move at a faster pace.

My take on the audacious goals is that , though it might help push the company beyond the typical growth targets of 10-12% and be happy,, to look beyond and stretch their resources to meet these targets, it will also create a lot of pressure in the system ( distribution channels and sales personnel) which needs to be handled well. Even if an inorganic way of growth will not be an easy one.

But yes from an outside observer it will be interesting to see how things evolve ....

Distribution Equity and the leverage it provides

The other day I had a discussion with one of my friend who has been both a manager and later on a distributor for one of the top food companies in India, and he spoke about the concept of "Distribution Equity"(DE) which he said is as strong as Brand equity if not stronger..

The concept of DE is one which has not been studied much, though at the operational level it is a very strong concept and distribution driven companies realise it's utility. As with brand equity, this equity also provides firm with a substantial edge in the marketplace, and the strength is by virtue of its distribution channels. The difference would be that brand equity is in a consumer's mind versus distribution equity is embedded in the marketplace. Both the equities talk about the benefits both in the present as well as in the future.

The current manifestation of the concept of DE in the field can be seen in the ease of launch of new products, because companies which have a very strong distribution channel find it much easier to launch new products,as they can piggy ride the existing well established products. It is logical for products in the same category, like a soft drink company leveraging its existing distribution to launch a new flavor of variant or pushing a new variant. But some companies have used their channel strength to even enter into totally new categories , like ITC which has leveraged its channels strength and equity to enter new markets like snacks, and even FMCG.

Companies like AMUL have been leveraging this strength for quite long to test launch new products , and based on the acceptance they decide to launch the product nationally with adequate marketing support. If not , the product is given a quiet burial. So their channel strength provides them a low risk option for trying out new products.

I think this concept of DE is more significant in markets like India, where the complexity in distribution channels is very high and your channel strength might be as critical for your success as your other marketing elements. And the concept deserves more attention than it has been receiving till now..

Wholesalers in India..Necessary Evil?

Last few weeks have been busy looking at issues related to distribution channels in India, thought will share something out of that.

The post today talks about a very old intermediary in the distribution channels in India, the wholesaler. In an era of the Big Bazaars, Reliance freshes and Spencers many of us would want to believe that the days of the wholesaler are numbered and end is not very far. But this is far from truth , and the death for the wholesaler as an intermediary has been predicted for a very long time even in developed countries but they continues to thrive....

Wholesaler is an intermediary who buys goods for resale usually from company distributors or stockists. He buys from various companies and stocks all major brands in the category in which he operates. He has the ownership of the goods he sells and the operations are run like a typical store where the resellers (could be retailer's themselves or bulk buying individual customers) who come to him with an elaborate list and buy. To answer the question why he survives as an intermediary, he is willing to provide smaller lots of goods, provide credit if needed and is a one stop shop for all the brands in that category....

Many companies deal with them as a necessary evil, in an ideal situation they would like to avoid them totally , but the fact is that inspite of the negatives like loss of control, and lack of transparency, they have an important role to play in Indian distribution channels. They are the ones who provide substantial reach for various companies (though the degree of dependence wholesale varies across product categories, like very high in FMCG high volume and low value products) especially in rural markets. In my own research I have found that rural retailers more than three-quarters of the time rely on the wholesaler for their purchases.

Though some companies of late have started realizing their importance and started working with them pro-actively to engage with them. Companies like HUL have very specific wholesaler-activation plans to push their products through the wholesale channel. And a recent example shared with me was how some companies have been working with the boys who work at the wholesalers, by providing them with very small incentives like taking them out for a pizza treat and other small incentives and have got positive results out of that....

One could conclude that as much as the unorganized nature of Indian retail is going to part of the reality in marketing in India , so would be the reliance on wholesaler....