A Project Study Report On Titled STUDY OF DISTRIBUTION CHANNEL OF ASIAN PAINTS IN ASIAN PAINTS For the partial fulfillment of the Certificate of Bachelor of Business Administration SUBMITTED TO:- SUBMITTED BY:- Ruchika thakur Surendra Singh (Faculty &Guide) BBA III YEAR
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A
Project Study Report
On
Titled STUDY OF DISTRIBUTION CHANNEL OF ASIAN PAINTS
INASIAN PAINTS
For the partial fulfillment of the Certificate ofBachelor of Business Administration
SUBMITTED TO:- SUBMITTED BY:- Ruchika thakur Surendra Singh(Faculty &Guide) BBA III YEAR
Maharishi Arvind Institute of Science and Management,
JAIPUR
2010-2011
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CERTIFICATE FROM FACULTY GUIDE
This is to certify that summer training report entitled
“STUDY OF DISTRIBUTION CHANNEL OF ASIAN PAINTSIN ASIAN PAINTS’’
Work carried out by
“SURENDRA SINGH” In the partial fulfillment of requirement
for the award of Bachelor of Business Administration (BBA)
Final year 2010-2011 affiliated to University of Rajasthan,
Jaipur.
To the best of my knowledge & belief this work is not
submitted/published elsewhere for any degree or diploma
examination.
Faculty Name: RUCHIKA THAKUR
MAISM, Jaipur.
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ACKNOWLEDGEMENT
At the outset, I would like to express my sincere and deep felt thanks to our supervisor RUCHIKA THAKUR of Maharishi Arvind Institute of Science and Management of Jaipur to take this opportunity through which I got the chance to make a report on STUDY OF DISTRIBUTION OF CHANNEL OF ASIAN PAINTS.
I would also like to convey my heartfelt thanks to our Dean Sir for his encouragement, advice and strong support in every manner to make this report up to the mark.
I am also indebted to our seniors and friends for their constant help and contribution by providing oversight and critique, in their special areas of interest that influenced this.
I am also thankful to all those people who cooperate and help to completing project. It was such a great experience to interact with people and to get their view. It will definitely help us to improve our communication skills. Gain the knowledge of various techniques of advertising prevailing to the company
Surendra singh
( BBA III YEAR)
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EXECUTIVE SUMMARY
The project work done on STUDY OF DISTRIBUTION OF CHANNEL OF ASIAN PAINTS.At asian paints, Jaipur, focuses primarily on assessing the future of the
Insurance sector in India as seen through the eyes of HDFC. Evaluating the
performance of this sector has been very difficult because of the immense
competition in this sector.
Future of a particular service depends on the performance of that service
sector and evaluation of performance of Insurance sector is very difficult
task because performance is a multidimensional contract.
It is important to recognize what good performance means. From strictly
financial perspective, the management can achieve high yield performance
primarily through providing quality service to customers.
I have prepared this report in partial fulfillment of requirement of the degree of BBA.
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DECLARATION
This is to certify that the work done on "STUDY OF DISTRIBUTION CHANNEL OF ASIAN PAINTS“ under the subject ‘Seminar on Contemporary Management Issues’ and a written report submitted by me to Maharishi Arvind Institute of Science and Management, Jaipur is in partial fulfillment of the requirement for the award of degree of BBA. This work has not been submitted anywhere else for any other degree/diploma.
Declaration by:
(Surendra singh ) BBA III YEAR
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INDEX
INTRODUCTION
RESEARCH
FINDING AND DISCUSSION
BIBLIOGAPHY
QUESTIONNAIRE
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INTRODUCTION
CHANNELS OF DISTRIBUTION
A major focus of channel of distribution is delivery. It is only through
distribution that public and private goods and services can be made available for
use or consumption. Producers of such gods and services are individually capable
of generation only the form or structural utility for their products and services.
They can organize their production capabilities in such a way that the products
they have developed can, in fact, be seen, analyzed and sold in the market. The
emergence and arrangement of a wide variety of distribution oriented institutions
and agencies, typically called intermediaries because they stand between
production on the one hand and consumption.
Intermediaries can improve the efficiency n the other, can be explained in
the following terms: of the process.
They help in the proper arrangement of routes of transactions.
They help in the searching process.
They help in the sorting process.
Marketing channels are set of interdependent organizations involved in the process
of making a product of service available for use or consumption.
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According to American Marketing Association, “A Channel of distribution, or
marketing channel, is the structure of intra-company organization units and extra-
company agents and dealers, wholesale and retail through which is a commodity,
product or service is marketed.”
According to Phillip Kotler, “ Every producer seeks to link together the set of
marketing intermediaries that best. Fulfill the firm’s objectives. This set of
marketing intermediaries is called the marketing channel (also trade channel of
channel of distribution).”
According to William J Stanton,” A channel of distribution for a product is the
route taken by the title to the goods as they move from the producer to the ultimate
consumers or industrial user.”
FUNCTION OF CHANNELS OF DISTRIBUTION:
INFORMATION: Middlemen have a role in providing information about
the market to the manufacturer. Developments like changes in consumer
demography, psychography, media habits and the entry of a new competitor
or a new brand and changes in customers preferences are some of the
information that all manufacturers want. Since these middlemen are present
in the market place and close to the customer they can provide this
information at no additional cost.
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PRICE STABILITY: Maintained price stability in the market is another
function a middlemen performs. Many a time the middlemen absorb as
increase in the price of the products and continue to charge the customer the
same old price. This is because of the intra-middlemen competition. The
middleman also maintains price stability by keeping his overheads low.
PRIMITON: Promoting the products in his territory is another function a
middleman performs. Many of them design their own sales incentive
programmes, aimed at building customers traffic at the other outlets.
FINANCING: Middlemen finance manufacturers operation by providing
the necessary working capital in the form of advance payments for goods
and services. The payment is in advance even through the manufacturer may
extend credit, because it has to be made even before the products are bought,
consumed and paid for by the ultimate customer.
TITLE: Most middlemen take the title to the goods, services and trade in
their own name. This helps in diffusing the risks between the manufacturer
and middlemen. This also enabled middleman to be in physical possession
of the goods, which in turn enables them to meet customer demand at vary
moment it arises.
HELP IN PRODUCTION FUNTION: The producer can concentrate on
the production function leaving the marketing problem to middlemen who
specialize in the profession. Their services can best utilized for selling the
production where the rate of return would be greater.
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MATCHING DEMAND AND SUPPLY: The chief function of
intermediaries is to assemble the goods from many producers in such a
manner that a customer can affect purchases with ease. According to Wroe
Alderson, “The goal of marketing is the matching of segments of supply
and demand.”
PRICING: In pricing a product, the producer should invite the suggestions
from the middlemen who are very close to the ultimate users and know what
they can pay for the product. Pricing may be different for different markets
or products depending upon the channel of distribution.
MARKETING FLOWS IN CHANNELS OF
DISTRIBUTION:
A flow is a set of function performed in sequence by channel
members. In the flow process, producers, wholesalers, retailers and
consumers are linked. The functions that need to be necessarily performed in
a channel system include transfer of ownership through transportation, order
processing, inventory carrying, storage, sorting negotiations and promotions.
The same function in a give channel system, may be performed at more than
one level and, in such a case, the workload for the function would need to be
shared between channel members.
A channel symbolizes the path for the movement of title, possession and
payment for goods and services.
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CHANNEL LEVELS:
The producer and the final customer are part of every channel. We will use
the number of intermediary levels to designate the length of a channel.
CHANNELS OF DISTRIBUTION FOR CONSUMER GOODS :
As we know that a channel of distribution is the combination of
middlemen that a company uses to move is product to the ultimate
consumer. For the consumer products, four channels are widely used
as shown in figure below.
ZERO-LEVEL CHANNEL : A Zero-level channel (also called a
direct-marketing channel) consists of a manufacturer selling directly
to the final customer. The major examples are door-to-door sales,
home parties, mail order, telemarketing, TV selling, internet selling,
and manufacturer-owned stores. Eureka Forbes representatives sell
vacuum cleaners door-to-door.
ONE-LEVEL CHANNEL : A one-level channel consists one selling
intermediaries, such as a retailer.
TWO-LEVEL CHANNEL: A two-level channel contains two
intermediaries. In the meatpacking industry, wholesalers and a
retailer.
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THREE-LEVEL CHANNEL: A three-level channel consists three
intermediaries. In the meatpacking industry, wholesalers sell to
jobbers, who sell to small retailers. Longer marketing channels can be
found. In Japan, food distribution may involve as many as six levels.
From the producer’s point of view, obtaining information about end
users and exercising control becomes more difficult as the number of
Exhibit 2. Asian Paints-Select Performance: (FY 2000)
AP’s operating profits stood at Rs 191 crore in Fy 2000, an increase of 37.7 per cent over the previous year. Operating profits have grown at a CAGR of 13 per cent in last five years, much higher than the sales growth of 8.6 per cent.
The profit before tax (PBT) stood at Rs 143 crore, an increase of Rs 49 crore over the previous year, PBT has grown as a CAGR of 12.35 per cent in last five years.
The net profit stood at Rs 97 crore as compared to Rs 77 crore the previous year, higher by 26.6 per cent. Net profit has grown at a CAGR of 12.7 per cent in last five years.
Return on net worth (RONW) improved form 25.2 per cent in FY 1999 to 27.1 per cent in FY 2000. RONW has remained close to 25-26 per cent in last five years.
Return on Capital Employed (ROCE) improved from 26.6 per cent in FY 2003 to 35.9 per cent in FY 2004
AP’s sound marketing has earned it strong brand equity. To quote
AP’s managing director:
‘We have been able to build strong brand equity for our products by
focusing on features that are appreciated by customers, ensuring that
our products are of high and consistent quality, offering a wide range
of shades and packs, and ensuring that our products are available
wherever and whenever required, by building a strong distribution
system.’
Its brands Tractor, Apcolite, Utsav, Apex and Ace are well entrenched
in the market. And AP’s logo, ‘Gattu’, the impish boy, with the paint
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tin and brush, symbolizes one of the most recognized and most
prosperous mascots in Indian business!
All this has earned the company a place among the world’s leading
paint manufactures. AP is the winner of the 1995 corporate
performance award by the Economic Times and Harvard Business
School Association of India. It actually received the award twice
within a decade.
AP STRIKES A NEW PATH IN DISTRIBUTION
At the time AP entered the Indian paint business, distribution was the
most crucial task for any new entrant. Both physical distribution and
channel management posed formidable challenges. The foreign
companies and their wholesale distributors dominated the business.
The foreign companies appointed a few traders as their wholesale
distributors and allowed them to perpetuate a situation of monopoly.
Each distributor was assigned a large territory and was given the right
to operate the exclusive channel of the company in the assigned
territory. The trade terms were also very liberal. The companies also
extended virtually unlimited credit to the distribution. The credit
outstanding for the supplies made throughout the year were required
to be settled by the wholesales distributors only at the year-end, at
Diwali time.
These distributors had neither the compulsion nor the motivation to
invest in distributions infrastructure. They were not required to move
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out to semi-urban and rural areas. They concentrated on big cities
where they could make the sales without much investment in
distribution infrastructure and market development. Also, they were
shutting the doors on any new paint company seeking an entry into the
business. In other words, these distributors controlled the paint
business and were making it impossible for a new paint company to
enter and establish itself in the business.
AP sized up the scenario correctly and formulated a unique
distribution strategy. In the normal course, a firm entering the industry
in this scenario would have opted for the low risk strategy of gaining a
limited access to the wholesale traders and be satisfied with a small
share of the existing business. But AP went in for a strategy that
differed totally from the existing pattern. AP’s strategy, in fact, meant
the polar opposite of the established/existing pattern.
Chart presents the elements of AP’s distribution strategy. We shall see
the details in the page that follow.
AP Bypasses the Bulk Buyer Segment and Goes to Individual
Consumers
Bulk buyer segment was the major segment of the paint business in
the earlier days and any
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Chart Elements of AP’s Distribution Strategy
AP bypassed the bulk buyer segment and went to individual
consumers of paints.
AP went slow on urban areas and concentrated on semi-urban and
rural areas.
AP went retail
AP went in for an open-door dealer policy
AP voted for nationwide marketing/distribution
Paint Company needed a share of this major segment for sheer
survival. Though this segment was dominated totally by foreign
companies and their wholesale distributors, a new entrant to the
business like AP would normally have rushed to this segment and
tried to garner a share of it. AP, however, had a totally different game
plan. Seeing that this segment was not a growth segment, though it
was certainly the major segment at that point of time, AP decided to
ignore this segment for the present and go to individual consumers.
And that was crucial decision. It influenced every subsequent decision
AP took in the realm of distribution. Over time, AP proved to the
paint industry that there existed a large and bottomless segment in the
paint business of India, outside the bulk buyer segment, comprising of
individual consumers.
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AP Goes to Semi-Urban and Rural Areas
Along with the decision to go to individual consumer segment leaving
aside the bulk buyer segment, AP also decided that within the
individual consumer segment, semi-urban and rural areas would
constitute AP’s priority market. Prior to AP’s entry, the paint business
was by and large concentrated in the urban areas. All the major paint
companies and their wholesale distributors were content with the
market that was available in the urban areas. In contrast, AP clearly
saw that a large market for paints was emerging in the semi-urban and
rural areas, and felt it wise to tap this market. AP also understood that
a new entrant like AP had also a compulsion to go to the semi-urban
and rural areas. The major companies and their wholesale distributors
were not giving any worthwhile opening in the big cities for new
entrants. AP found it difficult to attract the wholesalers in the cities to
deal in its products. It had to necessarily turn to the semi-urban and
rural areas for support. AP wisely decided against committing all its
resources on a head on collision with the foreign companies and their
big wholesale distributors in the urban areas.
AP Goes Retail
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Going directly to retail dealers was the next major strategic decision
of AP in the realm of marketing and distribution. Here too, AP totally
broke with the prevailing distribution practice. As mentioned earlier,
the foreign companies, who were the main players, were practicing a
wholesale distributor-dependant marketing system. AP did not see any
great merit in the system. It totally bypassed the well-entrenched
wholesale distributors and went directly to the retailers. While AP’s
competitors remained content with their linkage with a handful of
wholesale distributors, AP preferred direct contact with hundreds of
retail dealers.
AP Goes in for an Open-Door Dealer Policy
AP followed an open-door policy in the matter of adding retail dealers
to its network. The prevailing trend in those days was to limit the
number of dealers to the barest minimum. AP broke this trend and
chose to use practically everyone in the trade, who was willing to
function as its dealer. It was a combined result to the policy of going
directly to retailers and the policy of open door to dealership that AP’s
dealer network swelled rapidly. Even after achieving stability and
maturity in distribution, AP continued to follow a policy of
continuous expansion of dealer network. By 1990, AP was having a
7,000 strong dealer network. By the year 2000, the number had
swelled to 12,000. And even now, on an average, AP is adding 200 to
250 new dealers every year.
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AP Votes for Nationwide Marketing/Distribution
AP took yet another important and strategic decision in the
realm of distribution. Those days, nationwide distribution/marketing
was not the standard practice in the paint business. On the one side,
there were the 1,000 odd small paint companies who, as a class,
believed in marketing their paints in limited territories in and around
their point of production. On the other side were the big companies,
who as a class, believed in limiting their distribution to the big cities.
In contrast to both these existing practices. AP voted for a nationwide
distribution/marketing. It wanted to have an active presence
throughout the country, in the geographical zones, states and
territories.
THE IMPLICATION OF AP’S DISTRIBUTION STRATEGY
AP’s distribution strategy described in the preceding paragraphs had
its associated implications. AP had to take due note of them and face
them squarely.
Going to Individual Consumers Implied Wide Product Range and
Complex Distribution
Had AP concentrated on the bulk buyer segment. It could have
managed with a limited product range, at least, in the initial years.
But, AP’s decision to turn to the individual consumers necessarily
meant a wide product range. In the nature of things, the individual
consumer segment involves a very wide choice in terms of products,
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materials, shades and pack sizes. On top of this, AP believed in
making products based on the preferences of consumers. It gathered
feedback from the consumers and turned out products, shades and
pack sizes on the basis of such feedback. This policy resulted in a
further burgeoning of the product range.
Smaller Packs Proliferated the Product Depth Further
At the time of AP’s entry, paint companies were supplying paints in
containers of 500 ml or larger. AP saw that there was a felt need in the
market for paints in smaller packs. All end uses did not require a large
quantity. Moreover, it was common practice for consumers to buy
paint initially in a larger quantity and supplement it with small size
purchase to complete the job. AP decided to harness the business
opportunity and started supplying its paints in small packs-in 200 ml
and 50 ml packs. This proliferation in pack sizes also contributed to
AP’s growing product range. AP was by now manufacturing and
marketing as many as 2,000 distinct items of paints, none of which
was strictly a substitute for the other.
Wide Product Range Implied Distribution
The policy of having the widest range of products, colurs and pack
sizes had its implication on AP’s distribution. When 2,000 different
items had to be made available to the consumers, it automatically
meant that the company had to be prepared for high inventory holding
in its various depots/retail outlets. Accounting and sales arrangements
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had also to be provided for on a matching level. Naturally, distribution
was becoming more complex and expensive for AP.
Going to Semi-Urban/Rural Markets Further Enlarged
Distribution
The decision to go to the semi-urban and rural markets instead of
confining to the urban markets also meant enlargement of the
distribution function. AP had to go in for more dealers in order to
serve the scattered semi-urban and rural market. The decision also
meant that AP could not opt for a simple, centralized distribution of
its products form its factory. It had to go in for a decentralized, field-
focused distribution, with a network of depots located all over the
country/marketing territory. Without such extensive and intensive
distribution network, it would not have been possible for AP to cover
the semi-urban and rural markets.
Going Retail Implied Deep Involvement in Channel Management
Through its decision to go retail, AP was getting deeply involved in
physical distribution and
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Chart Main Steps in the Implementation Process
AP’s created a large network of dealers.
It established a network of company depots to service the dealers.
It created a marketing organization that matched its distribution.
It successfully resolved the cost-service conflict in distribution.
(i) A strong commitment to distribution cost control without compromising service level. (ii) Effective inventory management (iii) Effective control of credit outstanding (iv) IT initiatives in distribution cost control
Channel management. In the system chosen by AP, the physical distribution cum channel management task was far more demanding, compared to the wholesaler-oriented system practiced by the other paint companies. While, for companies that embraced the wholesaler-oriented system, it was enough to service a handful of distributors, AP had to service a network of thousand of retail dealers. Having taken the decision to go retail, AP necessarily had to create and service a vast dealer network. It also had to create the physical distribution facilities required for servicing such a large network.
National Marketing Necessitated Nationwide Organisation
Extend of marketing territory and complexity of distribution organization are interrelated. The moment AP voted for nationwide marketing, it was getting into intensive as well as extensive physical distribution and channel management. AP thus had to create a nationwide distribution-cum-marketing organization.
DISTRIBUTION BECOMES AP’S SHOWCASE FUNCTION
AP’s strategies made distribution the most important elements of its marketing mix. And, AP give to distributions all the inputs that were demanded by it. In fact, the rest of this case study is essentially a description of how AP managed its distribution activities-how it chalked out its distribution programmes, how it implemented them,
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what problem it encountered in this task, how it tackled them and how through distribution success, it achieved marketing and corporate success.
THE IMPLEMENTATION PROCESS
We shall see low AP went about the actual management of the distribution function. The main steps in AP’s implementation process are shown in Chart 2. Let us see the details.
AP Creates a Large Network of Dealers
An extensive network of dealers, and a matching physical distribution infrastructure play a crucial role in the decorative paints segment. This is essential for ensuring easy accessibility of the product to customers. In this, Asian Paints scored over its competitors with a massive network of 15,000 dealers spread over 3,500 towns across the country. AP has the largest distribution network among all the players. Goodlass has a network of 8,000 dealers.
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AP Establishes a Network of Company Depots
AP established a large chain of company operated depots/stock points throughout its vast marketing territory, from where the retail dealers could conveniently pick up their requirements. AP’s basic strategies explained in the earlier sections necessitated a liberal approach in the matter of stock points/depots. It also meant that the depots had to be company operated. After all, AP did not have any wholesale distributors to whom the responsibility for operating the stock points could possibly have been assigned. As shown in Exhibit 32.4 established a network of 30 company-run depots, spread through out the country and serviced its retailers from them. The number of depots varied from city to city. For example, Bangalore had just one depots while Mumbai had four depots. The depots typically supplied to about 200-300 dealers.
AP Creates a Marketing Organisation that Matched its Distribution Intensity
Effective control of the large number of depots, each having substantial stocks of 2,000 odd distinct items necessitated a matching marketing organization structure. AP set up a marketing organization consisting of four regional sales offices, 35 branch sales offices and a large number of sales supervisors and sales representatives spread all over the country. The marketing organization of the company is presented in Exhibit 32.5. It can be seen from the chart that a very extensive structure has been created in the consumer division. It is primarily meant for taking care of the massive distribution task involved in this sector. Each branch sales office has its own depots and the various items are stocked in the depots under the control of the concerned branches. The branches service the dealers and customers in their territories.
These are supported by six regional distribution centers, which cater to 55 depots. Each depot has a branch manager for supervision of several salesperson who cater to more than 14,500 dealers in the more that 3,500 big and small cities all over the country.
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AP faced many challenges. Of these, the cost-service dilemma was no doubt, the most important one. And, that is the aspect in which we are mainly interested in this case study.