INDIAN INSTITUTE OF MANAGEMENT

AMRITSAR

SDM
Under the Guidance of
Prof. Swapan Deep Arora
Project Report
TOPIC: ITC

Submitted by
GROUP: 1 - Section B

SHAHRUKH KHAN (MBA07048)

ARPIT RAJPOOT (MBA07072)
KARTIK MATHUR (MBA07140)
ABHISHEK MODHAVE (MBA07180)
MOHIT (MBA07214)
ABOUT ITC

The Imperial Tobacco Company, as the name suggests was primarily a company selling
tobacco products since its establishment in 1910. The nature of tobacco business is such that
in order to capture a considerable market share, one would need to have a distribution
network to reach every corner in the target region. It eventually diversified into multiple
business avenues such as FMCG, specialty papers, packaging, IT, hospitality etc. The scope
of this project is to primarily study the sales and distribution of the FMCG business of ITC.

The overall Sales and Distribution strategy is in line with ITC’s vision and mission which is
as follows:

 Vision

Sustain ITC’s position as one of India’s most valuable corporations through world-class
performance, creating growing value for the Indian economy and the Company’s
stakeholders.

 Mission

To enhance the wealth-generating capability of the enterprise in a globalizing environment,

delivering superior and sustainable stakeholder value

SALES AND DISTRIBUTION STRATEGY

 What to sell?

A short line policy to scale up proven megabrands, leveraging adjacencies through horizontal
brand extensions and nurturing new platforms with innovative differentiated products.

 How to sell?

A short line policy to scale up proven megabrands, leveraging adjacencies through horizontal
brand extensions and nurturing new platforms with innovative differentiated products.

 Who to sell?

Focus on selling to consumer via a combination of whole seller and retailer channels by
evaluating sales volume potential and distribution costs to optimize net profitability.
SALESFORCE STRUCTURE

National
Manager

Regional
Manager

Branch
Manager

ASM ASM
(specific for a (product category
product category) wise)

Area Executive Area Executive

(4-5 per product (4-5 per product
category) category)

Distributors Distributors
(6-7 in number) (6-7 in number

Sales Executives Sales Executives

 Format Description

ITC follows a sales format of a line organization with respect to product categories. The
national manager supervises the sales and distribution of the entire geography allotted to
him/her through the team of regional managers via direct reporting. Each regional manager is
assigned a specific region based on the geographic segmentation. A branch manager,
supervises a team of area sales managers who have 4-5 area executives reporting to them per
product category. These executives liaise with distributors, typically 6-7 in number who have
various sales executives that are tasked with selling to their end consumers.

 Rationale for Salesforce structure

ITC’s objective is to cover maximum retail outlets directly through its distributors so that it
can achieve maximum product push. Here ASMs act as link between ITC and its distributors.
The region in which a particular distributor operates is decided by ITC to primarily to
optimize its customer reach while minimizing its overall distribution cost.

DISTRIBUTION MODEL
The distribution channel plays a significant role in the positioning of the product, as it is the
means by which the product can reach the end consumers. For this reason, the selection of a
distribution channel is crucial to the development of a competitive advantage for businesses of
all sizes. The proper distribution channel ensures that customers in different parts of the country
or the world can purchase  products and receive the appropriate level of service. To choose the
optimal distribution channel,  its location and reach, skills and resources, management costs, and
level of control should be evaluated

ITC, which operates in the Foods, Personal Care, Cigarettes and Cigars, Branded Apparel,
Education & Stationery Products, Incense Sticks, Safety Matches, Hotels, Paperboards &
Specialty Papers, Packaging, Agri-Business, and Information Technology categories, has come
a long way since its humble beginnings. Cigarettes, the category in which ITC is still the
country's dominant player, have been the most significant indicator of ITC's growth. The
company has been able to maintain its market leadership due to its unwavering commitment to
creating value for consumers through substantial investments in developing and introducing
innovative product designs, ensuring consistent and superior quality, cutting-edge
manufacturing technology, and superior marketing and distribution.

It has two separate distributors: one for the sale of cigarettes, personal care products, and
groceries, and the other for stationery items like class notebooks because they are seasonal
goods. Each Distributor serves around 1500 stores.

OMNI CHANNEL STRATEGY

The amount of intermediaries between the factory and the consumer determines the number of
levels. ITC heavily utilizes one- and two-tier distribution channels. One Level channel is
followed along the distribution to modern retail outlets such as More supermarkets, Dmart,
Metro cash and carry, etc., where goods are supplied directly from the warehouse to their
locations in bulk.

Along the general trade outlets, a Two-Level channel system is used to transfer goods from a
distributor to a retailer or wholesaler. In certain markets, a stockist or sub-dealer is added to the
distribution channel to create a third distribution level. ITC engages all of these channel levels in
an effective manner, synchronized in their data base and ERP system, and has its own
application platform for the same.
 This is an example of Two level Distribution Channel

The flow of goods from the manufacturing stage to the selling stage is depicted in the graph
above.

After the goods are manufactured, they are sent to C&F for storage, and from there they are
distributed to distributors in various parts of the city for sale to various outlets, such as
convenience stores, wholesalers, bakeries, supermarkets, etc.

Let me take an example of Banglore City. There are approximately sixteen ITC distributors in
Bangalore. The same distributor supplies retail outlets with all products, including food,
personal care items, and cigarettes. There are salespeople who collect orders from the various
retail locations, and the orders are delivered the following day using delivery vehicles. A
salesperson's monthly salary is set. There are approximately 350-380 loyalty outlets that account
for approximately fifty percent of the company's total revenue in this market.

SINGLE CHANNEL DISTRIBUTION CHANNEL

With increased competition in the FMCG industry, companies are seeking to increase sales by
promoting their products at modern trade outlets, which are gaining market share and evolving
at a faster rate. Consequently, ITC now focuses on the competitive sale of its products via
modern retail outlets such as D-marts, Big Bazaar, Metro Cash and Carry, More supermarkets,
etc.

DISTRIBUTORS
General Profile of ITC Distributors:

 Exclusive distributor (no other brands carried); exclusive territory for each distributor up
to 4-5 KM
 Stocks all ITC FMCG items
 Presence of ITC IT system that classifies retailers & wholesalers
 Selection standards (for the distributors) : Investment capacity, market standing, and
market service capacity

Economics

 The profit margin for a distributor of food and personal care goods is 3%, whereas the
margin for smokes is only 1.45%.
 ROI for distributors often ranges between 25 % and 30 %. ITC does not provide any
form of credit to the distributor; nevertheless, the distributor does provide credit to
wholesalers and retailers.
 At first, the distributor is responsible for distribution expenditures such as salary for
salespeople and van fuel costs, among other things, but the corporation eventually
reimburses the distributor for these costs.

Responsibilities

 The process of distributing to retail and wholesale customers

 Achieving the yearly goals that have been set by the ASM

WHOLESALERS

General Profile of ITC Wholesalers:

 Wholesalers that are not limited in any way in their capacity to sell a wide variety of
product lines and brands are known as independent wholesalers
 There are several wholesalers in a specific area, and none of them have exclusive rights
 ITC products can capture a larger portion of the market with the help of wholesalers

Economics

 Wholesalers that are not limited in any way in their capacity to sell a wide variety of
product lines and brands are known as independent wholesalers.
  There are several wholesalers in a specific area, and none of them have exclusive rights.
 ITC products can capture a larger portion of the market with the help of wholesalers.

Responsibilities

 Wholesalers supply products to retailers, but as independent, non-exclusive

businesses, they have no obligation to achieve a certain level of sales
 Sales at the whole seller level are primarily driven by the products' pull

RETAILERS

General Profile of ITC Wholesalers:

 Beedi shops, mom-and-pop shops, and so on

 They engage in personal selling and product display.
 They calculate consumer demand and provide wholesaler and manufacturer information
about the same
 Mitigate risk by assuming ownership of the product & Offer storage, advance ordering
and delivery acceptance.

Economics

 Depending on product category, gross margins vary between 9 & 15%

 Payment method: - Cash, Cheque, Online transaction
 Display and promotional schemes
 ITC uses FIFO method to reduce the wastage of goods due to expiry

Responsibilities

 Maintaining accurate inventory levels, proper display of ITC products, and end-user
product knowledge

Retailers must return expired or damaged products within six months after the date of expire.

PERFORMANCE EVALUATION METRICS

Any organization's foundation should be built on performance measurement, which may

assist guarantee:

 The organization's best practices are recognized and made more widespread.
 Processes are compared to the effectiveness of external organizations.
  Effective and efficient resource management is practiced.
 The strategic plan is in alignment with the strategic actions.

Performance evaluation for Sales Personnel: The figure illustrates the three stages that it
goes through. The evaluation of the sales staff will consider both their profile and their
contribution to the company. Due to the widespread acceptance of ITC's methodologies, their
performance evaluations are consistently good.

Below are some of the metrics related to sales personnel:

1. Monthly Target
a) Monthly Sales
b) Visibility Target
2. Performance of branch
a) Sales Volume of each product category
b) Market share growth rate

Performance evaluation for wholesale distributors:

1. The compensation received by WD depends upon the target achieved by them

2. Targets under consideration:
a) Monthly sales target
b) Product wise sales target
c) Category wise
 Control mechanism:

 The performance and work of WD employees is evaluated by company's officials

weekly.
 Their daily sales order is monitored by Area Executive
 The salesmen are given a geographical territory which does not consider sales
potential Salesmen has to cover 30 outlets each day.
 They are given a beat plan for each day, if a WD employee is not performing then the
company can sack him.

Performance is measured on following broad parameters:

1.) Distribution Health (Outlet coverage, availability, visibility levels, etc)

2.) Business Health (Sales Performance benchmarked to relevant Circle)

ISSUES AND RECOMMENDATIONS

1. IMPACT DUE TO EMERGENCE OF THE MODERN TRADE FORMAT

Issues
• India is gaining a dominance of modern trade channels – they drop prices of certain
products quite low
• Parallel channels in terms of cash and carry stores and distributors both offering
similar products to the retailers results in price cutting by both the channel members.
However, these channels differ in offering services to the retailer such as pick-up,
credit terms, returns etc.
• Retailers demand lower prices from the distributors in order to compete with modern
trade channels
• Distributors are not able to meet sales targets due to the emergence of the modern
trade channels
Recommendations
• Effectively monitor the modern trade channels ensuring that they do not drop the
prices below a certain level
• Company should ensure that the additional benefits given to modern trade stores like
liquidation budget should be used only when it is absolutely necessary
• In order the avoid the channel conflict ITC should come up with some SKUs specific
to certain store formats
Implementation Issues and Solutions
• Detailed monitoring of schemes like liquidation budget, promotional budget etc. is
difficult; as such ITC can utilize its IT systems effectively for monitoring the behavior
of Modern trade channels

2. ISSUES WITH PERSONAL CARE CATEGORY

Issues
• The personal care category does not enjoy similar market reception like cigarettes and
foods
• Persistent pressure from the company on channel members to meet their targets
• Lack of branding support by the company as informed by distributors and retailers
• Company reduces prices to push products in this category but this causes some
retailers with old unsold stock to bear losses to match prices with other retailers
Recommendations
 • The company should maintain the prices steady in this category as frequent price
fluctuations hamper every channel member’s performance
• Instead of pushing the products in this category efforts should be concentrated
towards creating a pull for the products
• Selective stocking of products should be done according to the category of the retailer
Implementation Issues and Solutions
• Categorization of retailers for selective stocking is a major challenge
• Database of the retailers to be utilized in selection of retailers for selective stocking of
the personal care products

3. FREQUENT NEW PRODUCT LAUNCHES

Issues
• ITC launches new products very frequently in the market to remain competitive. At
times these new products are not well accepted by the market and hence a lot of
capital of channel members is blocked
Recommendations
• Additional incentives like extended credit period or additional margins to be provided
for limited periods until the product is well accepted in the market
• ITC should spend on increasing the visibility during the new product launches
• Focus should be on creating pull for the new products rather than focusing on push
Implementation Issues and Solutions
• Providing special credit for new products is a bit challenging as ITC deals with
distributors on advance payment terms. IT systems located at the distributors to be
used for implementing the credit policy. Benefits of promotional schemes to be
passed in the same manner as sales and distribution costs
• Third party merchandisers to be employed for managing the in store visibility during
the new product launches

REFERENCES
 Srivastava. (2022, January 15). FMCG Distribution in India - HUL, Nestle, ITC |
Arpit Srivastava. Arpit Srivastava. Retrieved November 21, 2022, from
https://arpitsrivastava.com/fmcg-distribution-in-india-hul-nestle-itc/
 ITC Limited - Wikipedia. (2021, November 1). ITC Limited - Wikipedia. Retrieved
November 21, 2022, from https://en.wikipedia.org/wiki/ITC_Limited
 How Does FMCG Distributor Channels Work In India - Retail Marketing. (n.d.).
Retail Marketing. Retrieved November 21, 2022, from
https://retailmarketing.co.in/distributors/how-does-fmcg-distributor-channels-work-
in-india/
 https://www.associationforum.org/mainsite/browse/professional-practice-statements/
performance-measurement-metrics
 https://www.itcportal.com/about-itc/shareholder-value/itc-integrated-report-2020.pdf