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INDORE (MP)
A PROJECT REPORT ON
Under Guidance
Academic Guide Industrial
Guide
Dr. N.K.Totla
Mr. Manish Shrivastav
Sr. Lecturer Regional Manager
Institute of management Studies (Indore)
Devi Ahilya University Asian Paints
Completed By
Darpan Bhatt
MBA (Marketing Management)
5
2009-11
CERTIFICATE
Dr. N.K.TOTALA
Research Guide
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ACKNOWLEDGEMENT
DARPAN BHATT
MBA (M.M.)
5
DECLARATION
DARPAN BHATT
MBA (M.M.) SEC B
ROLL NO-43433
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TABLE OF CONTENT
INTRODUCTION 6
Company Profile 10
Channel Conflict 40
RESEARCH METHODOLOGY 42
Observation 50
Recommendations 51
Conclusion 53
REFERENCES 54
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Marketing Channel Conflict
Introduction:
Channel conflict is a state of opposition, or disorder, among the
organization comprising a marketing channel. If the two parties recognize
that they are mutually dependent, a healthy relationship can persist. If the
two parties perceive that they are mutually independent, a healthy
relationship can also exist. Problems arise when one entity perceives that
they are more dependent on the other than vice versa. As conflict can have
an unfavorable effect on channel member performance, channel managers
must make conscious efforts to detect and resolve it. So we can say that
Channel conflict occurs when one member of a channel views its upstream
or downstream partner as an opponent. The key is interdependency.
Discussion:
It is very important to recognize the true level of conflict that an
organization faces in a channel relationship. The best way is to gather four
kinds of information. Those are describing below.
Step 1:
Counting up the issue- A channel manager needs to consider all the major
issues that can create or might be causes of beginning a conflict. For
example for a car dealer, one study uncovers 15 issues of relevance to
dealers in their relationship with their manufacturer, including inventories,
delivery of cars, the size of the dealers stuff, promotion etc.
Step-2:
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Step-3:
Step-4:
Adding their products over all the N issues forms an index of conflict.
These estimates can be compared across dealers to see where the most
serious conflict occurs and why.
3. The two parties are not very far apart on the issue(low intensity)
b. Domain Conflict: conflict that arises due to the disagreement over the
domain of action and responsibility.
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situations. Conflict can serve to keep channel members from becoming too
inactive or lacking in creativity. This same conflict can also motivate
members to adapt, grow, and seize new opportunities. From the
manufacturer’s perspective, multi-channel distribution strategies can be
beneficial in a number of ways. Firstly, it does allow the manufacturer to gain
much-needed insight into end-consumer’s needs and shopping patterns.
Secondly, manufacturers with broad product lines can benefit because it is
unlikely that a single channel type will be optimal for all products. Finally,
manufacturers with a multi-channel distribution strategy can focus more on
precisely targeting markets and improving their overall competitiveness.
Manufacturers and their channel partners must deepen their relationships
and cooperation. These new types of relationships may take one of three
forms (Matta, Mehta 2001):
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Channel Conflict through new age distribution
channels (E- business)
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business-to-business application to provide information to customers and
process orders can cut down errors and save time and money, as well as
increase productivity among the sales staff (Kalin 1998). Many feel that it is
ultimately the lure of greater profits that create the desire to sell direct to
consumers. However, with that increased profit potential, comes the
increased risk of losing reseller relationships (Bartholomew 2000). The
expanding role of the Internet has created opportunities for easy and
extensive access to customers. Additionally, the economics of materials
delivery has been revolutionized by the logistical networks of third-party
shippers such as FedEx and UPS (Agrawal, Tsay 2002). “The type and
magnitude of channel conflict in the ecommerce marketplace depends on
the nature of the industry and the individual company. Companies that don’t
own or closely control their offline distribution channels risk damaging
sometimes decades-old relationships and revenue streams. However,
companies that control their own channels risk cannibalizing revenues with
online stores,” (Matta, Mehta 2001). In their 2002 study, Agrawal and Tsay
have set forth the following motivations, which have led many manufacturing
firms to start selling direct:
(2) Direct control of pricing and distribution can lead to higher profit margins,
(3) Resellers can use their power to extract various concessions from the
manufacturers,
The desire for power may be the most direct cause of channel conflict.
According to Coupey (2001), a hallmark of power is that it relies heavily on
perception. In other words, any channel member may alter their behavior to
the extent of the power that they perceive the other party to hold.
Negotiations among manufacturers, distributors, and retailers are often
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about the power struggle. The influence that a manufacturer holds over its
channel depends on how prominent its products are in the channel’s
business (Kaneshige 2001). A well-known, large-scale manufacturer with a
diversified channel strategy, such as Microsoft, may have more perceived
power because they drive so much business. On other occasions, however, it
may be the distributors who have more influence, which is often the case
with manufacturers of niche products like tools and component parts. At the
retail level, there are giants like Wal-Mart and The Home Depot, which often
have the last word over many manufacturers. They believe that once their
suppliers sell online, they become competitors (Bartholomew 2000). The
Home Depot even sent a letter to more than 1000 of its suppliers in May
1999, which influenced suppliers such as Rubbermaid to stop selling online
(Agrawal, Tsay 2002) (Bartholomew 2000). One can see how these
negotiations might become somewhat complicated. The Internet, however,
has mostly given rise to more powerful consumers. These shoppers know
what they want, when and where they want it, and they are more than
willing to circumvent retailers to get it (Matta, Mehta 2001). The Internet has
created a new set of expectations for the consumer that must now be met,
regardless of what channels are employed. A redefined customer experience,
where the shops are never closed, prices are transparent, and
personalization is emerging is fast becoming the standard. Companies with
no physical storefronts and lower overhead are claiming market share from
established businesses. The technology itself allows all business processes to
function more quickly than ever before. There is also the growing potential
for “mass customization” of merchandise. Existing channels may struggle to
meet these new expectations or risk being replaced (Matta, Mehta 2001).
While any channel member may own perceived power, manufacturers are
usually the ones who are faced with the most decisions that can create, or
curb, channel conflict.
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company is how to manage the customer relationships with its production
strategies,” (McDonald 1999). According to panelists at a 2002 vendor
channel roundtable, just by defining the competitive playing field and some
rules for channel participation, suppliers can minimize sales conflicts with
their channel partners (Burke 2002). Consider the Gibson Guitar Company. In
1997, they learned about channel conflict the hard way by offering their
guitars for sale on their website at 10 percent below list price. Dealers
became irate, and the company ended the online sales effort after only a
month. They listened hard to the complaints from their network of dealers
and decided to compromise. Now, instead of selling guitars online, they only
offer strings and other accessories. They have also added their parts catalog
to the web site to sell items that were previously available only to dealers
and repair shops, which is an excellent way to meet those customers’ needs.
Walter Carter, the web site manager for Gibson, felt that their biggest
mistake was failing to inform the dealers that they were planning to sell their
guitars online (Kalin 1998).
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online consumers are likely to visit a manufacturer’s web site when
researching a product to buy. Forty-two percent of those consumers visit the
manufacturer’s web site after deciding what to buy, but not where to buy.
Online consumers are empowered with information and are not hesitant to
move on to a competitor’s product offering if they do not find the information
and options they are looking for. Manufacturers and their channel partners
must deepen their relationships and cooperation—when the manufacture
chooses not to compete directly—to service and satisfy empowered
consumers by sharing.
These new types of relationships may take one of three forms (Matta, Mehta
2001):
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Developed by Accenture Consulting, the Channel Conflict Strategy Matrix
analyzes the “forces and opportunities for change” in a given industry and
identifies “optimal change strategies” that a company may use to minimize
channel conflict. When using the Matrix, it is important to understand that
Market Power is defined as “a function of where power resides—with the
supplier or with the channel” and that Channel Value is “a measure of how
much worth the channel adds for the customer, beyond what the
manufacturer provides”.
Once a company performs the exercise that determines Market Power and
Channel Value for each channel, they can then use the Matrix as a
“framework for strategic thinking”. This strategic look at each channel can
(1) point out the safest and most effective combination of the Matrix and (2)
show where to fight and where to mediate and/or avoid channel conflicts
(Bendix, et. al. n.d.). Competing directly with the channel is advisable when
the Market Power resides with the suppliers and the channel adds little or no
distinct value to the sales proposition. Through the use of technology, the
airlines have been able to lower the cost of commissions to travel agents
significantly by investing in electronic ticketing and Internet travel sites.
Forward integrating with the channel is best when Market Power rests with
the traditional distribution channel even though the channel adds little or no
value to the transaction. Suppliers should consider “invading” the channel in
order to increase its “capacity for value creation”. This can often be
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accomplished by creating an innovative offering that the regular channel
cannot duplicate; without the ability to duplicate an offering, channel conflict
may be forestalled for the foreseeable future. Suppliers must take the lead of
their distribution channels when the value is high but Market Power is low.
This situation is often caused by channel fragmentation and must be
overcome by a strong leader so that the channel achieves its aims. When the
traditional channel’s Market Power and value to the channel are high, a
situation exists that has the highest potential for hostility and conflict.
Members of the channel often see themselves as equal to their suppliers and
demand that those same suppliers take full advantage of every opportunity
to cooperate with the channel to maximize the total value created. This may
be done by creating a new customer segment that does not conflict with the
traditional channels or by limiting the number of products sold online
(Bendix, et. al. n.d.)
1. by not pricing products on their web site below the resale price of their
partners.
6. By using a unique brand name for products offered on their web site.
7. The earlier the products offered on their web site are in the demand
lifecycle.
10. The more they make use of super ordinate (over-reaching) goals.
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These methods for minimizing channel conflict are, at best, idealistic and, at
worst, impossible to implement given the pressure that companies are under
to create e-business strategies that have a positive return on investment.
The fact cannot be denied, however, that these propositions would have the
desired effect of minimizing channel conflict between manufacturers and
their partners. The shrewd manufacturer will make use of the propositions
that make the most sense for their given business situation.
Asian Paints is India's largest paint company and ranked among the top ten
Decorative coatings companies in the world with a turnover of INR 66.80
billion. Asian Paints along with its subsidiaries have operations in 17
countries across the world with 23 paint manufacturing facilities, servicing
consumers in 65 countries through Berger International, SCIB Paints – Egypt,
Asian Paints, Apco Coatings and Taubmans.
Vision
Asian Paints aims to become one of the top five Decorative coatings
companies world-wide by leveraging its expertise in the higher growth
emerging markets. Simultaneously, the company intends to build long term
value in the Industrial coatings business through alliances with established
global partners.
Group Subsidiaries
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Apco Coatings is a subsidiary of Asian Paints in the South Pacific islands.
Asian Paints operates in Australia, Fiji, Tonga, Solomon Islands and Vanuatu
under the brand name of Apco Coatings.
Asian Paints Industrial Coatings Limited has been set up to cater to the
powder coatings market which is one of the fastest growing segments in the
industrial coatings market.
Few companies can claim of a history of consistent growth for over two and a
half centuries, a presence in over 35 countries and an impact on the lives of
over a billion people. Berger does that with elan. Ever since it was founded in
England in 1760 by Lewis Berger, who perfected a new process for making
Prussian blue the color of most military uniforms then, Berger has never
looked back.
Over the years Berger expanded its operations across oceans, to cover
numerous geographies. In 1994, Berger units were brought under the single
umbrella of the holding company 'Berger International Limited (BIL)' with
headquarters in Singapore, which was also listed on the Singapore stock
exchange. In November 2002, BIL became a part of the Asian Paints Group.
Today, the name of Berger is synonymous with quality and innovation. BIL
has presence across three regions viz. Middle East, Caribbean and South
East Asia. In the Caribbean region, Berger is a household name. And
considering that the company celebrated 50 successful years in the region
recently, this is not surprising.
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Council and Africa. In South East Asia Berger enjoys a fine reputation and has
operations in Singapore and Thailand.
Founded in 1979, SCIB Paints today is a reputed name and ranks amongst
the top five paint companies in Egypt. SCIB Paints became a part of the
Asian Paints group in August 2002
Asian PPG Industries Limited, a joint venture between Asian Paints (India)
Limited and PPG Industries, Inc. USA with 50:50 equity sharing was
established in March 1997 with the objective of providing solutions to the
paint requirements of Indian Automobile manufacturers. The joint venture
brought together two leading companies with strengths in technology,
manufacturing and customer insight.
Taubmans Paints Fiji, the fourth largest paint company in Fiji, became a part
of the Asian Paints family in September 2003. Taubmans Paints is the
dominant player in the project sales segment in the country and is a leader
in the neighboring Samoa Islands. It has two manufacturing facilities, one in
Suva (Fiji) and the other in Samoa.
Supply Chain
Asian Paints has harnessed the powers of state-of-the-art supply chain
system using cutting edge technology to integrate all its plants, regional
distribution centers, outside processing centers and branches in India. All the
company's paints plants in India, two chemical plants, 18 processing centers,
350 raw material and intermediate goods suppliers, 140 packing material
vendors, 6 regional distribution centers, 72 depots are integrated.
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The supply chain runs through a wide spectrum of functions right from
materials planning to procurement to primary distribution. It has played a
pivotal role in improving operational efficiencies and creating agile
procurement, production and delivery systems. It has also enhanced the
flexibility of operations, lowered output time and reduced delivery costs,
while improving customer-servicing levels and profitability.
The Supply Chain Management is backed by IT efforts that help the company
in demand forecasting, deriving optimal plant, depot and SKU combinations,
streamlining vendor relationships, reducing procurement costs and
scheduling production processes for individual factories.
Types of Channel
Four Channels through which marketers can reach customers
Channel 1 Channel 2 Channel 3
Channel 4
Manufacturer Manufacturer Manufacturer
Manufacturer
Agent
Wholesaler
Wholesaler
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What is understood by direct Vs. Indirect Channel
The direct-sales channel will grow at the rate of 100 per cent since the base
is small. Direct sales channel in 3 ways: InfoTech, telecom and financial
services industries
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DISTRIBUTION STRUCTURE OF ASIAN PAINTS
FORMAL STRUCTURE
INFORMAL STRUCTURE
Note: Wholesalers are not a part of the formal structure of Asian paints
distribution network. They make bulk purchases from the distributors directly
thereby leveraging on the margins.
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The indirect channel is, by default and by necessity, the primary channel for
most Indian companies. It is, probably, the most cost-effective way of
reaching a large country with over 3,700 towns and close to 6 lakh villages.
This is set to emerge as the fastest-growing channel of this millennium. The
best part of a franchise arrangement is that the company offering the
product or service does not have to invest in real estate. Besides, the
franchisee often takes care of the local promotional expenditure. This
symbiotic relationship is a win-win situation for the company and the
franchisee and will be the basis of successful channel strategies in this
millennium. Although on-line revenues in India will not be significant for
sometime to come, all companies should maintain a selling-presence on the
Net. The likes of ITC, HLL, Indian Oil, and Amul have to combine to create
innovative channels of distribution. Logistics management provides a
powerful means of enhancing customer value. Why is it so important to
optimize the supply chain? Inefficiencies in the supply chain lead to higher
inventories at all points. This adds costs related to wastage, blocked funds,
and the risk of holding obsolete products. Today, the need is for long-term
relationships, where both manufacturer and supplier can look for mutually
beneficial solutions. Most investments in design and technology in this
industry give returns only over a long period of time, sometimes as long as
the lifecycle of the product.
OWNERSHIP TRANSFER
Stocks manufactured at the factories and co-packers reach the C&f through
mother Godowns. The stocks stored at C&f is the property of Asian paints.
Encashment of stocks are done through Invoicing to Cash Distributors C&f as
per the guidelines given to them. They also receive and store support
materials like give aways, stickers and complementary items etc.
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– Causes of Channels Conflicts–
Along with the rising use of Internet this Marketing Channel is added with
new shorter ways to the end-user. At the same time these new opportunities
let conflicts in the Channel Canal rise.
Manufacturer End-user
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• Goal incompatibility – Though channel members share the common
goal of maximising their joint effectiveness, each is a separate legal
entity.
• Each has its own employees, owners and interest groups who help
shape goals and strategies, some of which may not be totally
compatible with those of other channel members.
• Even when they have a strong desire to cooperate, conflict can result
from different perceptions of the facts.
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Horizontal Channel Conflicts –
By emergence of new upcoming stores and retailers, hence which have the
same type of firm and same level of distribution network, the horizontal
channel conflict increases between operating organizations. Along with the
increasing channel conflict, support of retailers for a product often deceases.
Also often seen are retailers pushing themselves under an acceptable level
of price as a result of indirect or direct competition. The horizontal channel
conflict is the most common conflict between members. To see it as an
advantage, the horizontal Channel Conflict leads to a healthy competition,
where the best members restrain on the market and a locally well divided
network develops itself.
A Multi Channel Conflict occurs, when more and more channel members try
to sell the same product to a finite number of customers. This happens these
days also like the vertical-conflict with the emergence use of the Internet
and e-market places. Multi Channel Conflicts are conflicts between B2B
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sellers like pefa.com, reverse auctions like freemarkets.com, B2C operators
like Amazon.com, C2B auctions like by Priceline.com or C2C selling’s by
Ebay.com. Manufacturers face a huge band bride of different possibilities and
channel choices to sell product for a specific customer’s clientele. Each
member has a different range of channel cost-structure which leads to
conflicts as more members take part to sell the same product selling. This is
supposed to be the most complicated case where a lot of varies conflicts
occur and where the roots and reasons are hard to figure out.
Each member of a Channel Canal fears new upcoming members selling the
same product for a cheaper price. To say it in other words: With new and
more Channel members a channel competition appears, which dumps the
price of the product and so is an advantage for the end user. It forces
channel members to be innovative and to serve the best service coming
along with the best price and quality to the costumer. Members, who can’t
compete, have higher costs and a longer structure will automatically
disappear. A higher productivity in the channel is the result. Therefore it is
an objective to manage the channel conflicts on a certain status, that it
won’t escalate to a destructive level, but lead to a competition situation.
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different channels can modify industry structures. All in all a delicate balance
must be maintained between moving too quickly and unleashing destructive
channel conflict versus clinging too long to declining distribution networks.
In the second diagram shows that a higher conflict level has no effect on the
channel efficiency. The third diagram shows an interesting case, where a
conflict in the first step leads to a higher efficiency, but reaching a special
point of escalation it leads to a decreased efficiency. Last but not least more
conflicts can also result to more efficiency, as it is good to always justify the
own existence on the market by becoming better in service and quality.
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DESCRIPTION OF CHANNEL PARTNERS
I. C&F Agent
These agents have infrastructural and transportation facilities and are the
responsible for the transfer of goods. No sale takes place at this level. These
C&F agents get monthly emoluments from the company for their service.
II. WSS
The company appoints various wholesale stockiest who are a very important
link between the C&f Agents and the retailers. The number of this stockiest is
not fixed and varies according to the sales potential and geographic size of
the region.
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Primary sale takes place at the Wholesale stockiest. Hence their selection,
motivation and evaluation become very important to the company.
TYPES OF WSS
The company has divided the WSS on the basis of their sales value and sales
potential. The various categories of WSS are
1. CLASS A : These stockiest are the ones who have a sales potential
above
III. RETAILER
The WSS sell the goods to the retailers who in turn sell it to the end
consumers. The retailers are classified in terms of their dales potential in the
following manner-
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Class C –Between Rs 10,000-5,000
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SALES STRUCTURE: ASIAN PAINTS INDUSTRIES
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ASIAN PAINTS Industries Ltd. is internally divided into four broad product
usage based divisions. They are:
1. Ancillaries
2. Automotives
3. Decorative paints
4. Industrial
These divisions are looked after by their independent National Sales Heads
responsible for their respective divisions. Below these heads, their entire
division is divided into zones headed by the Regional Sales Managers who
are next in the sales hierarchy.
In our concerned division, i.e. Decorative paints; the entire country is divided
into 6 zones headed by respective RSMs. Next in line are the Area Sales
Managers who report directly to the RSMs. FE division has an ASM per eight
territories. Under them are the Territory Sales In charge who act as an
interface between the company, distributors and retailers. Every WSS has
one TSI looking after their order and requirements. To supplement the TSI
and ensuring closer monitoring of the retailers needs and payments, the
distributors themselves recruit sales representatives called Interim Sales
Representatives ( ISRs). One distributor normally has 2-3 ISRs depending on
the expanse and value of his territory.
SELECTION OF WSS
Criteria are:-
1) Capital Investment :
This is dependent not only on the present required turnovers but also on
the estimated future capital investments that will be required by the
distributor (based on company’s growth plans in the area). Amounts
required vary from area to area and markets to markets.
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2) Relevant Experience
d) Storage Godown
However, there are no set guidelines for the above criteria with the same
being variable with market condition and turnover expected of a WSS. Every
new WSS furnishes the Company with basic information in a format specified
by the Company called a WSS Appointment Form (Annexure) which had
details about his shop registration number, type of delivery vehicle,
computer configuration etc.
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INCENTIVES TO THE WSS
1) Margin
MARGIN LAYOUT
C&F to WSS
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• WSS B buys the product at 108.65 from the C&F agent
WSS TO RETAILER
AT THE RETAILER
• The MRP is 127 and the actual selling price varies across retailers.
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The basic logic of giving higher margins to lower class WSS is that as the
business of the stockiest is lower in terms of value, he may not be able to
make up for his infrastructural costs which are accrued in storing and
transportation.
2) Certificates
The company consistently comes up with schemes for its wholesale stockiest
and dealers to enable them to enjoy better margins and thus motivate them
to sell more.
One such scheme is “Kabhi gift Kabhi trip” offer for the dealers.
Workability:
Broadly, the whole scheme period is divided into three quarters namely,
April-June, July-September, and October-December. Every quarter has a pre-
specified target in kgs which when achieved by the dealer fetches him 1
point.
• Purchase Points
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On a purchase of 1 kg, the dealers get one pt.
This is specific on pack quantities. For eg, packs of 2kg and below,
between 5kg and 10 kg and above 20 kgs. These pack specific quantities
fetch him 2pts each.
• Others
These points and the target achievement points are added up for all quarters
and thus the grand total is reached.
This final point achieved by the dealers makes him fall in one of the gift/ trip
slab in the gift chart if the points are greater than 3000.
The gifts range from watches to DVD players, from trips to Goa to even
Singapore, Patty etc.
EVALUATION
Once a distributor is appointed, the company generally does not take away
business from him, except when the underperformance has been observed
over long periods. While evaluating his performance, his targets performance
is studied relative to that of other distributors in the nearby area (because
growth patterns may by regions). Also, if a WSS is found guilty of Stock
inflow, he is terminated. If a retailer has not been paying his credit for long
periods, he is discontinued from the channel.Also, if a WSS is found guilty of
Stock inflow, he is terminated.
TRAINING PROGRAMMES
WHOLESALE STOKIESTS :
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The WSS prove to a very important channel partner for the
company as they forward the goods to the retailers and make them aware
about the same. Hence, product awareness becomes a mandate for this level
so as to completely understand the product utility and application. Also the
company has some policies which the small distributors may find difficult to
understand and thus falter in implementation.
RETAILERS :
The company arranges meets and knowledge shows for them to make them
aware of the products and also to know about their requirements and
necessities.
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At the month end the distributor can negotiate these targets in the range of
+/- 10%.However; we see that the ASIAN PAINTS products have much
seasonal and cyclic variation, due to the very nature of the product and their
usage. Lot of forecasting is done on the suggestions of the WSS, as they are
very experienced in these variations.
As shown above, from the month of Jan to March, there is a demand for
paint related products due to festivals like Id and Holi, when people paint
their houses. In April, with the start of the financial year, many new schemes
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are introduced. Generally all the products sell during this period. Products
like ASIAN PAINTS SH and ASIAN PAINTS SR 900, sell well during these few
months. As July approaches, sales take a dip. Due to monsoon, there is no
painting of houses. The month of July experiences a slump in demand.
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CHANNEL CONFLICTS
A. UNDERCUTTING
As in most fast moving goods, ASIAN PAINTS also faces some channel
conflicts. The problem of undercutting is also present. Although the
wholesalers are not a formal route to distribution by the company, they are
very much a part of the distribution structure. The presence of a huge
wholesale market leads to obvious channel conflicts. In addition to this, the
various margins given to the different categories of WSS leads to stock
inflows. The various channel conflicts faced by the company today are-
WHOLESELLERS
The wholesalers in this market are a very active link in the distribution of
ASIAN PAINTS products and area involved in bulk purchase from the WSS.Let
us take the same price point of 112.30, which the WSS gives to the retailers
as well as the wholesalers. The wholesaler sells the product to the retailer at
lesser than 112.30, the price which the WSS offers them. There are primarily
two reasons for this undercutting-
I. The wholesaler wants the retailer to buy the other non branded
products too, at which he charges heavy premium. This more than
offsets his loss in selling the ASIAN PAINTS product below purchase
price.
II. The wholesaler also avails the benefits of discount in various primary
schemes meant for volume retailers, as the wholesaler buy in Bulk.The
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Company offers bulk discount and gold jewelry at various volume
slabs. By availing these regular schemes, the wholesalers are able to
make up any losses from selling at lower than cost price. Eg;
SLAB SCHEME
>50 Kg 2 g Silver
RETAILERS
At the retailer level also there are variations in price and undercutting. The
major reasons for undercutting at the retailer level are-
B. STOCK INFLOW
Many times, a class B or C WSS of different territory sells his product in the
area charging lesser price because the company offers him more margins, in
order to support his infrastructural costs. As explained in sect, the class C
WSS gets 4% margins by company. Hence in order to increase sales, he at
times goes to other territories and sells at lower price than the class A WSS
available there.
Eg:
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Class C 107.82 112.3 110 116
WSS
In this way, two retailers in the same area end up selling at different prices as the
product bought by one retailer has been supplied by a different WSS of different
territory.
RESEARCH METHODOLOGY
The Methodology:
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The methodology which will be used for carrying out the report will be used
as follows:-
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ASIAN PAINTS WSS SURVEY: INDORE
Name of WSS: M/S Asian Paints Ltd
TYPE A WSS
Experience: 3 years
Asian Paints Ltd is one of the prominent wholesale suppliers in INDORE area.
Apart from ASIAN PAINTS, he also keeps the products of him following
companies-
1. Airtel
2. Amul
3. Godrej
As we can see, none of the other products are competing with ASIAN
PAINTS products.
The Infrastructure
Asian Paints Ltd are Type A was, hence they have a very good infrastructural
facilities. The facilities available at Asian Paints Ltd are-
a. A 20 by 10 sqr feet front office with two telephone lines and one
Fax machine.
c. A huge godown
e. 2 Hand Rickshaws
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Sales Staff
Asian Paints Ltd have one ISR (Interim Sales Representative) , working for
ASIAN PAINTS products. In addition, Mr Bansal himself along with his younger
brother work as sales executives.
Retailers Covered
Asian Paints Ltd covers around 150 Retailers. The various kinds of
distributors falling in his area are-
1. Class A - 10 To 15
The class A retailers is catered by Mr. Ankur Bansal himself. Around two
times a Week he visits these retailers and takes their orders.
2. Class B – 35
Class B WSS is visited by the ISR and Mr. Bansal’s brothers, again
3. Class C – 100
The class C retailers are catered by ISR. Around two times a week he visits
these Retailers and takes their orders.
Credit Policy
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The WSS sells the goods at credit to the retailers for a 20 day perioud.The
retailer has to pay within the limited period or the 1% cash discount which is
offered by the company, is not given to the retailer. As already explained,
out of 2%CD (Cash Discount) given to the retailers, 1% is given at the time of
delivery and 1%if the retailer pays back within 20 days.
In case the payment is not made in 20 days, an interest n the money @4%is
charged by the WSS.
If the retailer does not pay by the end of the month, the remaining goods are
confiscated by the WSS, as a accompany policy. This, however, has never
happen at Asian Paints Ltd.
Lead Period
The lead periods in providing stocks to the dealers differs from the SKU and
quantity ordered; some SKU’s are delivered correspondingly with taking
order but some are sent from the warehouses. A higher quantity ordered has
to be replenished from the warehouse.
Stock Policy:
The stock is formalized by the company; the dealer can negotiate on 3-4 end
days, the stock policy is formed for the month.
Return Policy
The company follows a policy of return when the product has not been sold
for six months, is damaged or has defects. The replenishment is done with
cash and happens at the end of every six months.
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Return on Investments
The company does not give any guarantee to the distributor with regard to
returns on his investment which is in line with the market credentials of the
company; the distributor has invested Rs. 3 lakhs as security money and
around 30 lakhs in the infrastructure.
Promotion Policy
The trade promotions are mostly secondary schemes, which are primarily for
the retailers. These schemes are notified to the WSS around 7 of every
month and then are passed down to the retailers.
DUMPING
Another issue, which the WSS told us, was the case of dumping by the ASM
under pressures of meeting targets in certain months.
He said that it is a tacit understanding between the company and him that at
times he shall keep more stock than required in order to meet the targets of
ASM.He says it is a bit of problem, but most of the business is run by
relation, which cannot be spoilt.
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ASIAN PAINTS RETAIL SURVEY: INDORE
This retailer is a hardware store who deals primarily in paints, warnishes and
plywood. He buys his ASIAN PAINTS products from an authorized WSS in this
area at the price fixed by the company.
The sales representative visits him once in a week .The delivery of the
demand is done the next day only. He prefers WSS rather than the
wholesaler in his area because he can return the unsold goods to him.
Whereas the wholesaler gives him at a discount, he will never return the
goods unsold.
UNDERCUTTING
This retailer sales the ASIAN PAINTS SH at below his cost price from the
WSS.The reason for doing so is that he primarily deals in unbranded goods
like plywood,mica,paints etc.Hence two main benefits are derived by doing
undercutting-
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RETAILER 2: Dave Paints
The retailer is a hardware shop, who keeps many ranges of ASIAN PAINTS
products. Also he keeps a range of hardware products. Rather than buying
the Class A WSS in his area, he buys from the wholesaler, Agrawal and Sons.
Since he buys in bulk, the discounts given by the wholesalers gives him large
margins. The price points which is offered by the WSS and Wholesaler is
This huge difference forces the retailer to buy from the wholesaler. This
retailer also buys the non branded products from the same wholesaler. Since
he buys from the wholesaler at a lower price, he charges lesser to the
consumer, thus resulting in undercutting.
This retailer is a paint shop which keeps a whole range of ASIAN PAINTS
products. This shop buys from Sharma Traders, a Class C WSS, who
encroaches in the territory of Asian Paints Ltd (Class A WSS).
This type of stock inflow results in the undercutting at the retailer level.
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OBSERVATIONS
They pushed the product into the retail channel and once sold at the
retailer’s end, repeat purchases followed. Henceforth the official route set in,
the distributor could ensure repeat sales by building upon the previous
successful sales of éclairs by the retailer.
In 2010 the company had launched a contest “Khulja Sim Sim - Supper
awards for super achievers” similar to “Proud to be Asian Paints”.
4. The company dumps huge stocks of slow moving SKUs to achieve targets,
but in the long run, it results into dissatisfaction of distributor and losses for
the company.
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5. The selection of Distributors is a very crucial decision for the company.
A lot of time and effort is spent to train them. Also, they are not
frequently changed.
RECOMMENDATIONS
At, ASIAN PAINTS, for FE division we suggest a split among the range of
adhesives for sticking and those used for binding in paints. Then again, to
provide almost focus, we suggest that separate WSS for the two unlike the
same handling the entire range and not being able to concentrate on all
SKUs.
Let’s say, P1: is the range of Hardware adhesives (for sticking plywood’s,
mica etc)
Then, P1a, P1b, P1c etc are the different SKUs in hardware.
Then, P2a, P2b, P2c etc are the different SKUs in paint adhesives.
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• Now 3 salesmen, 6 beats each, 1/3rd the products
(one split group)
Now, as the WSS for hardware and paints are different, the ISRs under them
also concentrate on separate SKUs. Thus their beat frequency would increase
as the products range has largely reduced resulting in more focus and higher
no. of visits to dealers.
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3. “ASIAN PAINTS SHOPPE”:
Since ASIAN PAINTS has strong brand equity even among children and
stationary consumers, it can open up shops specifically for selling home
consumption products. This may not drive sales but will be a right step in
distribution to do brand building.
Conclusions
“While retailers and manufacturers cautiously cross from channel conflict
into the demilitarized zone of channel cooperation, consumers readily move
between the different camps, sometimes even visiting manufacturer’s sites
more than retailer sites.” These two camps must do the following if they
hope to survive in today’s business environment:
(1) Satisfy mutual needs, (2) reduce redundancy, and (3) share costs.
Why must manufactures and retailers come together and work with each
other? “Coexisting with retailers online, manufacturers will sell less than
their retail channel partners,” However, manufacturers will “influence sales”
by affecting both on- and offline retail sales
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