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Institute Of Management Technology, Nagpur

PGDM 08-10
Sales and Distribution Management

Course Facilitator: Prof Sanjeev Tripathi


Assignment 4: Distribution Network

Submitted By:

Priya Sharma (08FT051)


Navdeep Gupta (08IT024)
Gopal Krishna Garg (08FN043)
Ananya Nandi (08HR031)
Kapil Tuteja (08IT018)
N. Suryaprakash (08FT039)
Executive Summary

Distribution channels make possible the routinization of purchasing decisions which


results in a reduction of cost of marketing operations. In this report we are also required to
study the distribution network and the multiple marketing channels of the same product.
The product chosen by us for the project is LUX Soap which is one of the flagship brands
of the India’s largest FMCG Company, Hindustan Unilever Limited (HUL).

During the course of study we discovered that there are many channels for the distribution
of Lux. Also the company adopts different starategies for distributing products at the
Rural level. We would be discussing that in details in the report. The report is completed
with the telephonic interviews with the dealers at some of the stores in different parts of
India. But also a part of our report is based on the Secondary Research where we could
not find substantial Primary Data.

About the company


Hindustan Unilever Limited (abbreviated to HUL), formerly Hindustan Lever Limited, is
India's largest consumer products company and was formed in 1933 as Lever Brothers
India Limited. It is currently headquartered in Mumbai, India and its 41,000 employees
are headed by Harish Manwani, the non-executive chairman of the board. HUL is the
market leader in Indian products such as tea, soaps, detergents, as its products have
become daily household name in India. The Anglo-Dutch company Unilever owns a
majority stake in Hindustan Unilever Limited.

Hindustan Lever Limited's distribution network comprises about 4,000 redistribution


stockists, covering 6.3 million retail outlets reaching the entire urban population, and
about 250 million rural consumers. HLL is also one of India's largest exporters.

About LUX

Lux soap was first launched in 1916 as laundry soap targeted specifically at 'delicates'.
The name 'Lux' was chosen as a play on the word "luxury." Lux has been marketed in
several forms, including bar and flake and liquid (hand wash, shower gel and cream bath
soap). Lux toilet soap was introduced in 1925 as bathroom soap.
Lux stands for the promise of beauty and glamour as one of India's most trusted personal
care brands. Since its launch in India in the year 1929, Lux has offered a range of soaps in
different colours and world class fragrances. Lux is a beauty soap of film stars. Lux
recognized the need for a compelling message about beauty that would resonate with
women of today.

From the 1930s right through to the 1970s, Lux soap colours and packaging were altered
several times to reflect fashion trends. In 1958 five colours made up the range: pink,
white, blue, green and yellow. People enjoyed matching their soap with their bathroom
colours. In the early 1990s, Lux responded to the growing trend away from traditional
soap bars by launching its own range of shower gels, liquid soaps and moisturizing bars.
With icons of beauty endorsing the brand, the offerings made by Lux have always been
superior and have always led the market, setting benchmarks for competition.
Lux has beauty offerings in two of the four market segments – popular and premium,
spanning the needs of varied consumers.

Lux Toilet Soap in the popular segment has in the past years offered its consumers a
range of soaps enriched with the goodness of a variety of nourishing ingredients – rose
extracts, almond oil, milk cream, fruit extracts and honey which are known to harbour the
secrets of incredibly perfect skin.

At the upper end of the market is the premium range which continues to offer specialised
skincare to its consumers in the form of International Lux – a range of moisturising, deep
cleansing and sunscreen soaps.

To establish the presence of nourishing ingredients in the new Lux, a unique concept,
‘ingredients you can see in the soap’, was born. A novel metallic substrate packaging
beautifully showcased the ingredients and its globally accepted ingredient-linked
perfumes heightened the sensorial experience.

Each of the soaps in the range has milk cream, with the active ingredients of rose extracts,
sandal saffron, almond oil and fruit extracts. These create an experience in pampering
indulgence and luxury designed to bring out the star in every woman. This is the first time
in the Indian chapter of the brand that the beauty bar variant was being differentiated on
the basis of its ingredients rather than its perfume and colours.
Though Lux International, a premium variant of the toilet soap, launched in 1989, is
differentiated on the basis of its ingredients, the popular version, Lux Beauty Bar was
always projected as a “pure and mild” solution to soft and smooth skin.

Cutting-edge Distribution Network

HUL’s distribution network is recognized as one of its key strengths -- that which helps
reach out its products across the length and breadth of this vast country. The distribution
network of LUX is no different. The need for a strong distribution network is imperative,
since Lux has to gain the visibility and has to capture the minds of indians everywhere
It has 2000+ suppliers and associates 7,000 stockists and direct coverage in around 1
million retail outlets across India.

To meet the ever-changing needs of the consumer, LUX has set up a distribution network
that ensures availability of all their products, in all outlets, at all times. This includes,
maintaining favourable trade relations, providing innovative incentives to retailers and
organizing demand generation activities among a host of other things. It boasts of placing
a product across the country in less than 72 hrs.
The first phase of the distribution network had wholesalers placing bulk orders directly
with the company. Large retailers also placed direct orders, which comprised almost 30
per cent of the total orders collected.

Today, the goods are transferred from the factory to the company warehouses and are sent
to the distributor from there on a daily basis. From the distributor, the stock reaches the
market through daily sales. Typically, these include the salesman registering the order of
a retail outlet and delivering the goods the next day.

Recently it has changed its traditional way distribution and came out with a new strategy
of distribution. It‘s because of the change in buying pattern of the consumer due to more
disposable income. There are different channels of distribution like Modern Trade, which
covers all chains of super markets, who get the stocks directly from the company.
Wholesalers and second leg of big retail outlets called Super Value stores come under the
surveillance of the distributor along with the mass retail outlets. There is also this new
concept in the it’s distribution channel called Kiosk. Kiosk is a small shop that sells only
sachets and low priced items (below Rs.10/-). Kiosk also does not come under the
surveillance of the distributor.

In addition to the ongoing commitment to the traditional grocery trade, it is building a


special relationship with the small but fast emerging modern trade. It's scale enables it to
provide superior customer service including daily servicing, improving their range
availability whilst reducing inventories. It is using the opportunity of interfacing more
directly with consumers in this retail environment through specially designed
communication and promotions. This is building traffic into the stores while yielding high
growth for the business.

The Distribution in Rural Market:

The strategy of distribution should take into account the purchasing habit of the rural
people. While consumables are purchased in the village shop or Shandies or in bigger
villages, the consumer durables are purchased only in Mandi centers, large towns or
nearby cities. Hence the distribution centre has to take the purchasing habit of the rural
people into account, so that product may be available at the appropriate location.
In villages beyond the reach of the distribution system, the shopkeepers make their own
arrangement for the procurement. Most of them commute to the nearby town to get the
supply. But the expenses incurred resulted in the village shopkeepers charging consumers
more than the maximum retail price. Generally, the village shopkeeper invest their funds
in purchases and rarely ever get credit facilities, which if available is made available for
very short duration only. Since the quantum of purchase by the village shopkeeper is very
small, the margins are also very meager. The ultimate consumer product reflects the lack
of distribution network.

Distribution Strategies in Rural Market

1. Coverage of Villages: With improved communication facilities, it is possible to


reach distribution van to the villages. The frequency of visits may be fixed,
depending upon the off- takes or sales realization, so that the distribution cost can
be minimized, but not at the cost of cutting down or rural population. These
distribution cabs can be used for promotion works also. For villages with very less
population, the distribution can be left to the initiative of the shop keepers and
dealers in larger villages and to the shopkeepers of the small villages. The
distribution arrangement requires serious consideration by manufacturing and
marketing men, if they have to exploit the potential of the rural market

2. Use of Cooporative: Over three lakh cooporative society operate in the rural areas
for or different purposes like, marketing cooperatives, dairy corporative, farmer
service corporative societies, consumer corporative and other multipurpose
corporative. Given the number of such societies, there is at least one corporative
society of one form or another for every two or three villages. These societies are
linked to higher level of society like taluk, district or state level. Thus these
corporative have an arrangement for centralized procurement and distribution
through their respective state level federation. Such state level federation can be
motivated to procure and distribute consumables items and low level durables
items to the member societies for selling to the rural consumers

3. Utilization of Public Distribution System: The Public Distribution System


(PDS) in the country is fairly well organized. The revamped PDS places more
emphasis on reaching remote rural areas like hills and tribal areas. Effective
utilization of the PDS system should be explored by the manufacturing and
marketing men, since they already have a distribution set up.

4. Distribution to Feeder Markets / Mandi Towns: The villagers visit these town
at regular intervals not only for selling the agricultural produce but also for the
purchase of cloth, jewellery , hardware, radios, torch cells and other durables and
consumer product. Lux has established a good distribution network in the
identified feeder market and mandi towns. From the feeder market and mandi
town, the stockiest or wholesaler arranges for distribution to the village shop in the
interior places.
Comparative analysis
Rural:
For rural India, HUL has established a single distribution channel by consolidating
categories. In a significant move, with long-term benefits, HUL has mounted an initiative,
Project Streamline, to further increase its rural reach with the help of rural sub-stockists.
As a result, the distribution network directly covers about 50,000 villages, reaching about
250 million consumers.
Consolidation has to be done in the rural setup as the road and transport facilities are not
very good hence one channel is used.

Urban
An IT-powered system has been implemented to supply stocks to redistribution stockists
on a continuous replenishment basis. The objective is to catalyse HUL’s growth by
ensuring that the right product is available at the right place in right quantities, in the most
cost-effective manner. For this, stockists have been connected with the company through
an Internet-based network, called RSNet, for online interaction on orders, dispatches,
information sharing and monitoring. RS Net covers about 80% of the company's turnover.
In the urban setup there is no consolidation as there is fast communication and available
transport and road facilities.

Evolution of the Distribution Model

To meet the ever-changing needs of the consumer, LUX (HUL) has set up a distribution
network that ensures availability of all their products, in all outlets, at all items. This
includes, maintaining favorable trade relations, providing, innovative incentives to
retailers and organizing demand generation activities among host of other things.
It has followed a strategy of building its distribution channels in a transitional manner;
and in different successive phases of the evolution of its distribution system, has
penetrated well into the rural market.

Phase I
The first phase of its distribution network had wholesalers placing bulk orders directly
with the company. Large retailers also place direct orders, which comprised almost 30
percent of the total orders collected.
The company salesman grouped all these orders and placed an indent with the Head
Office. Goods were sent to these markets, with the company salesman as the consignee.
The salesman then collected and distributed the products to the respective wholesalers,
against cash payment, and the money was remitted to the company.

Phase II
The focus of the second phase, which spanned the decades of the 40s, was to provide
desired products and quality service to the company’s customers. In order to achieve this,
one wholesaler in each market was appointed as a “Registered Wholesaler,” a stock point
for the company’s products in that market. The company salesman still covered the
market, canvassing for orders from the rest of the trade. He would then distribute stocks
from the Registered Wholesaler through distribution units maintained by the company.
The Registered Wholesaler was given a margin of 1 per cent to cover the cost of
warehousing and financing the stocks held by him. The Registered Wholesaler system,
therefore, increased the distribution reach of the company to a larger number of
customers.

Phase III
The highlight of the third phase was the concept of “Redistribution Stockist” (RS) who
replaced the Registered Wholesalers. The Redistribution Stockist was required to provide
the distribution units to the company salesman. The Redistribution Stockist financed his
stocks and provided warehousing facilities to store them. The Redistribution Stockist also
undertook demand stimulation activities on behalf of the company.
The second characteristic of this period was the changes brought in as the company
realised that the Redistribution Stockist would be able to provide customer service only if
he was serviced well. This knowledge led to the establishment of the “Company Depots”
system. This system helped in transshipment, bulk breaking, and acted as a stock
point to minimise stock-outs at the Redistribution Stockist level.
In the recent past, .significant change has been the replacement of the Company Depot by
a system of third party; the Carrying and Forwarding Agents (C&FAs). The C&FAs act
as buffer stock-points to ensure that stock-outs did not take place. The C&FA system has
also resulted in cost savings in terms of direct transportation and reduced time lag in
delivery. The most important benefit has been improved customer service to the
Redistribution Stockist.

RSNet

An IT-powered system has been implemented to supply stocks to redistribution stockists


on a continuous replenishment basis. The objective is to catalyse HUL’s growth by
ensuring that the right product is available at the right place in right quantities, in the most
cost-effective manner. For this, stockists have been connected with the company through
an Internet-based network, called RSNet, for online interaction on orders, dispatches,
information sharing and monitoring. RS Net covers about 80% of the company's turnover.
Today, the sales system gets to know every day what HUL stockists have sold to almost a
million outlets across the country. RS Net is part of Project Leap, HUL's end-to-end
supply chain, which also includes a back-end system connecting suppliers, all company
sites and stretching right up to stockists. Powered by the IT tools it has improved
customer service, while ensuring superior availability and impactful visibility at retail
points.

Rural Areas and Tier 2 Cities

Lux has high penetration in the urban and semi urban areas. However, it has only 19.8%
penetration in the rural areas. The rural market has great untapped potential, which is not
concentrated on till now. Consumers are becoming more and more aware and undergoing
a surge in disposable income. This huge opportunity can be explored by Lux. It already
has a strong distribution channel in almost all regions. What is needed here is a change in
the communication strategy to reach out to the rural customers. The various channels of
communication should be made more appealing to this rural segment of customers.

Over the past two decades, the company has built a remarkable distribution system that
moves its soaps to every corner of India. Now it has started to leverage that valuable
infrastructure to expand its reach to a huge and overlooked group of consumers: the rural
poor.

For rural India, HUL has established a single distribution channel by consolidating
categories. In a significant move, with long-term benefits, HUL has mounted an initiative,
Project Streamline, to further increase its rural reach with the help of rural sub-stockists.
As a result, the distribution network directly covers about 50,000 villages, reaching about
250 million consumers.