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THE 2,837 billion-lire (about Rs. 7,000 crores) Italian home appliances major, Merloni Elettrodomestici,
has entered into a marketing and distribution alliance with the Delhi-based M/s Unnati Appliances Ltd
(UAL), to launch a range of white goods and appliances in the domestic market.

UAL is a Rs. 10-crore company which has been marketing modular kitchens here, while Merloni
Elettrodomestici markets appliances under the brand name, Ariston. This brand is very strong in the
global market as well as in the Middle East. To start with, M/s Unnati Appliances Ltd (UAL) will market
the dishwashers in India under Ariston name.

Research indicates that consumers in India do not find the dishwashers effective in cleaning plates and
cutlery as a lot of oil is used in Indian cooking. Indian women believe that dishwashers will not be able to
scrub and rinse oily and greasy utensils the way human hands and ash or Vim could. The figures below
indicate the sluggishness of the dishwashers market growth in India. The new dishwasher that UAL is
sourcing from Merloni to be marketed under the brand name Ariston has been specially made to suit
Indian conditions although it has not been really tested. This product has found widespread acceptance
in the Middle East market amongst the non-resident Indians settled there.

However, the market for dishwashers is competitive with three strong branded manufacturers having
foreign tie ups selling their products in the Indian market. Two of these competitors are based out of
Bangalore and one out of Mumbai. They have locational advantages in the south and west of India. UAL
with its base in Delhi can definitely have an edge over the other 3 competitors in the lucrative north
India market.

The landed price of the superior model of the Ariston dishwasher at Delhi inclusive of all duties and
statutory taxes will be Rs.25,000/- At this price UAL does not make any margin. To meet their selling
expenses and to make a reasonable profit they need to retain a gross margin of at least 12% to cover
fixed costs, personnel costs and current asset costs and other variable costs before it can be offered to
the first point in the distribution chain. But the dealer-distributor network does not seem to be working
for UAL. There seemed to be a huge risk factor associated with dishwashers in general and Ariston in
particular as the dealer network did not favor the Ariston brand and kept display space for it to a
minimum. This was a challenge. UAL needed to figure out whether this step motherly treatment to
Ariston had other reasons behind it like a wafer-thin margin or other trade incentives competitors were
offering and so on.

The MRP of the dishwashers at present range from Rs.38,000/- to Rs.45,000/- inclusive of VAT (12.5%)
depending on the models available and the brand. But what UAL has realized is that there is no way it
can control price cutting from dealer to dealer, from brand to brand, making every marketing effort go
to waste if the dealer decided not to play ball with a brand. Sometime, for a mere Rs 50 benefit, a dealer
would push another brand. UAL even contemplated having exclusive stores instead of going the multi-
brand outlet route. However, the Indian tendency to compare prices extensively before purchasing a
product made it more vulnerable to have an exclusive brand outlet in the white goods segment where
most customers walked into multi-brand outlets as a matter of habit.

Delhi, Mumbai, Ahmedabad and Bangalore account for 70% of the all India dishwasher sales at the
present. UAL wants to initially market the dishwasher in these markets before going national. The total
expenses for the launch and subsequent advertising and promotion expenses during the first three years
will be picked up by Merloni. UAL will be required to provide for sales promotion expense and after-
sales service.

The total sales of dishwashers (in quantity) in the past 10 years in India are:

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UAL has to create a marketing and sales organization to sell the dishwashers. Presently, they have a
direct marketing network and showrooms to sell modular kitchens.

Justify the choice of the marketing channel(s) UAL will adopt for selling the dishwashers. Establish the
various chains in the distribution channel mentioning the margins to be retained by each channel
participant including proposed incentives if any. In the formulation of your sales strategy, would you
choose intensive distribution, extensive distribution, selective distribution or exclusive distribution?
What is the price at which a customer would be able to finally buy the product? Would the numbers
shown in (1) above be affected by the price that is set for the dishwasher? Is there any scope for direct
marketing or direct selling of the dishwashers by UAL?