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ASIAN Paints Distrbn PDF
ASIAN Paints Distrbn PDF
Asian Paints (AP) is the market leader in the Indian paint industry, commanding a market
share of 38 per cent in decorative paints and 33 per cent overall in the organised sector.
Its annual sales turnover exceeds Rs. 1,300 crore, way ahead of all the competitors in
the industry. In profits too, AP is far ahead. APs market leadership in the decorative
paints segments can be grasped correctly when we take note of the relative position of
the various players in the industry. Whereas AP has a market share of 38 per cent, its
nearest rival, Goodlass Nerolac, commands a share of just 14 per cent. All others have
only less than 10 per cent. Such an achievement by a company that is wholly Indian in
capital, management and technology and in an industry historically dominated by
multinationals is certainly a commendable feat.
How did AP achieve this success?
APs success is the combined result of its strong corporate and marketing strategies.
Maximum credit should, however, go to its marketing strategy. Within marketing, it was
distribution excellence that took AP to the enviable position, that it holds today in the
Indian paint industry. This case study explains APs distribution strategy.
A STORY OF DISTRIBUTION EXCELLENCE
This case study, in fact, depicts the distribution strategy adopted by AP in the early years
of its operations. The interesting point is that this strategy serves AP well even today,
when the context has somewhat changed. In the earlier years, in the decorative paint
segment, a wide product range in terms of colour and pack size was a crucial factor for
success. AP literally leapfrogged and overtook all its competitors, and offered the widest
range of products. It also created the distribution outfit that was necessary for reaching
the wide range of products to customers in every nook and corner of the country. In later
years, technology came to the rescue of the players in this regard. Customers could get
the colour of their choice through mixing at the retail outlet. With the help of an
automated machine kept at the retail outlet, paint is given the desired colour by mixing
different shades and stainers in the required proportion. The paint companies need to
maintain only half-a-dozen basic colourants with retailers; mixing can create the other
variants. The new arrangement helps the campanies to manage with a narrow range of
paints. They can reduce the number of SKUs handled and cut down inventory holding
costs.
The above shift has no doubt reduced somewhat the importance of the physical
distribution task in the business, compared to the position in the earlier years. At the
time AP entered the Indian paint business, the physical distribution and channel
management task was the most crucial one in paint marketing. This context is
elaborated in one of the sections in this case study. We can appreciate the lessons of
the case study better, if we keep in mind this contextual position. Even now, physical
distribution and channel management continue to be crucial functions in the business.
In the matter of product range too, companies are not able to totally dispense with the
need for variety in view of the many practical limitations of mixing at retail outlets. It is
no easy task to provide mixing and computers. Before we actually go into APs
distribution strategy, let us have brief profiles of the company and that of the paint
industry, so that the contextual setting of the case is clear. Let us start with the industry.
per cent of commercial vehicle OEM market. Goodlass also holds 20 per cent of the
white-goods segment.
The market shares of the five leading companies are shown in Exhibit 1
Exhibit 1 Market Shares of Five Major Players
Sr. Company
Decorative
1.
Asian Paints
38
2.
Goodlass Nerolac
14
3.
Berger Paints
9
4.
ICI Paints
9
5.
Shalimar
6
Overall
33
18
9
9
7
THE COMPANY
As already mentioned, Asian Paints is Indias largest paints company and the market
leader in decorative paints. AP manufacturers and markets a wide spectrum of coatings
and ancillaries, which include decoratives, production paints and heavy-duty coatings.
The manufacturing facilities of the company for paint products are currently spread over
four locations- Bhandup, Mumbai, which was established in 1955; Taloja, Maharashtra,
where AP established its second unit in 1980; Ankleshwar, Gujarat, where operations
started in 1981; and Patancheru, Andhra Pradesh, where manufacturing started in 1985.
Asian Paints offers the widest range of paints in terms of products and shades, as well
as pack sizes. Availability of wide range of shades is in fact, one major critical success
factor in the decorative paints business. And AP scores high in this factor. AP
manufactures and markets more than 2,800 items of paints (SKU).
PERFORMANCE
AP has been consistently turning out a good performance over the years. For more than
two decades now, it has been the market leader. Besides, the company has also
consistently proved its excellence in operating performance. Exhibit 2 gives details of
APs sales performance during the last four years. Exhibit 3 gives some other important
details of APs performance. AP has set a target of gross sales of Rs 2,100 crore by
2003. It aims to be amongst the top ten decorative paints manufacturers in the world by
2003 and among the top five by 2005.
Exhibit 2: Asian Paints-Sales Performance : 1998-2001
Sales Value (Crore)
Sales Volume (Tonne)
1998
911
116,942
1999
1,033
132,284
2000
1,221
162,110
2001
1,373
181,271
APs sound marketing has earned it strong brand equity. To quote APs 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 brand Tractor, Apcolite, Uttav, Apex and Ace are well entrenched in the market. And
APs logo, Gattu, the impish boy, with the paint tin and brush, symbolises one of the
most recognised and most prosperous mascots in Indian business! All this has earned
the company a place among the worlds leading paint manufacturers. 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 as 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 distributors.
The credit outstandings for the supplies made throughout the year were required to be
settled by the wholesale distributors only at the year-end, at Diwali time.
These distributors had neither the compulsion nor the motivation to invest in distribution
infrastructure. They were not required to move 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 n 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.
APs strategy in fact, meant the polar opposite of the established/existing pattern.
Chart 1: Elements of APs 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.
AP BYPASS 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 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 a 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.
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, semiurban and rural areas would constitute APs priority market. Prior to APs 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 semiurban 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
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
practising 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 APs competitors remained content with their
linkage with a handful of wholesale distributors, AP preferred direct contact with
hundreds of retail dealers.
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
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, centralised distribution of its products from its
factory. It had to go in for a decentralised, field-focussed 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 semiurban and rural markets.
Chart 2: Main Steps in the Implementation Process
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 how AP went about the actual management of the distribution function. The
main steps in APs implementation process are shown in Chart 32.2. 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.
AP Established 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. APs 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. AP
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 depot 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 organisation structure. AP set up a
marketing organisation 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 organisation of the company is presented in Exhibit 4. 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 centres, which cater to 55 depots. Each
depot has a branch manager for supervision of several salespersons who cater to more
than 14,500 dealers in the more than 3,500 big and small cities all over the country. 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.
Exhibit 4: APs Marketing Organisation
General Manager
(Marketing)
Sales Manager
(Trade)
Regional Sales Managers
(1) (2)
(3)
(4)
Branch Managers
or
Depot Executives (35)
Manager
(Export)
Product
Manager
(1)
Product
Manager
(2)
Product
Executives (6)
Sales Manager
(Industrial)
Product
Manager
Product
Executives (6)
Service
Representatives (4)
Sales Representatives
(Industrial Paints)
(27)
inventories necessarily means a high level of costs. Every firm has to face this costservice dilemma and work out a compromise. AP voted for a high service level and
without compromising this service level, it tried to contain the distribution costs.
Interestingly, AP succeeded in this endeavour.
When we go in to the details as to how AP actually resolved the cost-service dilemma,
four factors stand out:
in payments. It was passed on at the end of the year, provided each and every
payment throughout the year was made within the stipulated time norms.
10
(b) A cash discount of 5 per cent. This was paid for all outright cash purchases. It was
11
12