Girjee was not convinced. He knew this trick all to well. The next consignment started at zero base. How could he carry such high stocks? His carrying costs were already very high. Moreover he wondered how he was to recover his money. The retailers were asking for more credit and his working capital was going through the roof. He was already under pressure from Gerrico India to stock 10 tonnes of the soaps and detergents. Gerrico nudged and pushed its six brands on him so fiercely.
Competition was fierce, advertising was frenzied and the retailers resistant. But Girjee was convinced that advertising hardly played any role. As the distributor, selling was really up to him; and these companies preened themselves over their effective advertising. What advertising? Wondered Girjee. Even if soap ‘A’ was lauded on television, Girjee pushed soap ‘B’ only because he could not carry unsold stocks. He was convinced it was his advertising pitch – and the company’s __ that really sold the soaps.
The distributor’s ire was not restricted to the extra 1 tonne he received unasked. Til had bungled even in the stocks. Girjee had asked for 10 boxes of dust tea, five each of Garden and Seven of Highway. Even the pack sizes were all wrong: nearly 60% of the tea was of the 1-kg pack against his required 35%. How was he to sell the 1kg packs of the Valley when the demand was so clearly skewed to the 0.5kg.
In the case of the fruit drinks too, he had once again received less of the mango flavoured and more of the orange and lemon, apart from the three boxes of the pineapple, which he had not asked for. Girjee’s working capital was in a mess .No doubt, he ‘managed’ to sell, but it took much longer to turn over the stocks and he was also having to extend longer credits to the retailers.
“What will I do with the pineapple flavour?’ he asked Kapoor.” It does not sell; I already have unsold stock from the last month’s lot. I need mango, Kapoor, and less of orange and lemon. But said said unfazed Kapoor: Girjee \, I have given you just five extra boxes. Every time you complain it does not sell, but you always end up selling, don’t you? And it is summer time now. The demand for drinks is sure to pick up.
Kapoor explained that the programme was sponsored by Healthy had very high television rating points (TRPs), which would help the company reach a larger audience. “ Look at the advertising, look at the reach. Do you know the TRPs on the programme sponsored by the Til’s Healthy? When so many people are watching, so many people are also impacted by the drink’s image.
But Girjee did not understand what TRP or reach audience had to do with his profile line., He understood only one equation; if his stocks did not rotate , he did not make money. Sure, hardsell worked once in a while, but it was not becoming a habit and straining his time and working capital. Why didn’t Kapoor understand this? He did not mind receiving less mango, but how was he to push four boxes of pineapple.
It was following this fracas that Girjee met Kapoor again and asked for a ‘scheme’. Especially, the distributor was asking for an incentive; decoded, it also meant some price off to the retailer. As he reasoned : The retailer ,too, has a constraint, I stock 10 different products of four different companies, but retailer is stocking close to 100 products of some 50 companies. I have to keep him enthused. So you work out a scheme.
Clearly, this was intended to increase the retailer margin at no cost to the distributor. For Girjee felt that if Til was going to push stocks onto him, then he would push the costs back on to the company. Normally, the retailer came out of the distributor’s kitty. But if Girjee had to put up with unwarranted product mixes, he would likewise, have to somehow convince the retailers to pick up slow moving stocks. And that needed an incentive.
Kapoor, however, did not have the authority to dole out schemes; he needed to check with Desai, who was not in town. A week later, a frantic Girjee was back on the line. What is happening? My money is tuck and I cannot clear the stocks. I have a consignment on its way, and I have no space in my godown.
Kapoor felt that Girjee wasn’t being proactive. He said that Valley is a new brand and it is doing well. Just extend some credits to the retailers. I will help you recover. The sales representatives knew that he was not offering enough. But he had no choice. Desai’s target’s had to be met but Kapoor agreed that a scheme would be more useful; after all, everyone used promotions for new launches.
Desai wouldn’t hear of it. He said: What do we need a scheme for? We are not entering a new product area. The retailers are already selling two of our tea brands and bot are doing well. We have fixed retailer incentive budgets, which we cannot waste away just to maintain their spirit. If you believe that only a scheme will work, what will happen to my targets? Talk positive and motivate them. This too shall pass. Another month will come, another target will be met and more stocks will have been sold.
That need not always be the case, felt Kapoor. No doubt there were targets. But the distributor, too, had a point. He was the real pulse of the market and he was putting his own money upfront. Kapoor wondered how long this ‘push’ theory would work. With the marketplace inviting more and more new products everyday, Til needed to sustain its clout through its effective handling of distributor’s needs. We must carry him along with us, if he must influence the retailer, if our product must sell.,thought Kapoor.
He then decided to make rounds of the retail outlets. KT a large retailer complained about the 1kg-pack sizes of the Valley that had been dumped on him. This product is still in the trial stage, therefore, it is easier to push 0.5kg packs. And the 1kg pack ends up occupying my shelf space, he said. I stock six other brands of tea, four of which move very fast. Your brand will just occupy space and will give me no returns.
And TM gave the example of a rival brand, S, whose stocks he turned six times in six weeks. If I had the shelf space your brand occupies for the faster moving brands, my returns will be much higher and faster. My capital is the 1200sq. ft. shelf space I have. The way I stock is the way I earn, said TM.
And that went for Healthy too. With the limited shelf life of these fruit drinks, TM was further constrained. Til’s distribution system was excellent and this enabled TM to have continuos stock of Healthy. But, for every six boxes of mango and orange he ordered, the distributor forced two boxes each of pineapple and lemon flavoured drinks saying that I too have been forced with these flavours; you have to share the burden with me. And TM was left with no choice.
Likewise with tea, Girjee forced him to take large stocks of the 1kgs packs of the Valley, despite his protests that he was unable to push the more expensive Darjeeling brand. The low volumes of sales were also explained by the fact that the consumer preferred other varieties of tea, especially tea dust.
Kapoor would not accept that pushing Til’s product was difficult for TM. He argued: You have the credit accounts of so many customers. On the first of every month you send them their monthly provisions. Along with their rice, soap and oil, can’t you throw a packet of my tea? Your selling lies in the positioning my brand effectively in their budget. How else will the trial take place?
But TM argued that pushing was not easy anymore. Advertising had become so more visible and the consumers were ordering brands, not generic products, even in the rural areas.
As if so substantiate his viewpoint, a customer walked in and asked for Silky, a toilet soap. TM bought out Maxi and said “ Silky has become old. Try this, even Shahrukh Khan uses it.” But the customer said:” Just last month you said, Silky is new and Maxi was old.” But TM who was an astute salesman said: “A product is mew for just nine days. Old is gold, am I not right Mr. Kapoor?” The sales representative smiled. Retailers are a clever lot. If TM could sell as the hour dictated, why could he not sell Valley?
TM said soaps were a product category where selling could be by the hour. “But drinks are different. If the customer asks for mango and I offer him pineapple, he won’t take it. If you make it worth my while, I can put my men on the job. Otherwise I am sorry, I cannot stock what does not sell. And the competition is already giving schemes.
That was too much for Kapoor. He said: “ You are forgetting what we have done for you. Three years ago, we provided you with a display windows. Haven’t we rented the entire window for a full year every year and also paid you in advance? And we are already giving you good schemes.”
On drinks, for instance Til gave the retailer one box of drinks free for every 10 he sold. And every retailer who sold over 500 boxes in the season was given an icebox.
The retailer then broaches the topic of display windows, Explaining that he could no longer give Til the full window for display. TM said: “there is a lot of competition in the market. After all I have only 50sq. Ft of display window and there are six other companies who want to share it.
So that was it. The retailer, too, had begun to twist his arm. Not only he was saying Til could not have exclusive hiring of display windows, he was resisting renewal of display shelves on the old terms. Til had hired 40sq. ft of space shelf periodically for its products at a stipulated rate. But TM wanted Kapoor to increase the rates. The others are giving me better rates and its high time that Til also relooked at the rentals.
Talking of Healthy, TM said: “ I don’t take your fruit drinks because you insist that if I want 10 boxes of mango, I must also take four boxes of pineapple. If I can’t have mango unconditionally, then I must rethink about stocking your brand.”
The matter was clearly getting out of hand. Kapoor met Girjee and said: “ What is this? How can people tike TM throw competition and commission at us, when we are the people who, in fact, set him up? These new players are trying to cream the, market by offering higher commission and schemes, but can they match us in volume ad image?”
The market place was changing. Explained Girjee. Now choices had increased. But the retailer shelves has not experienced a similar increase. He still has the same 1200 sq. ft said Girjeee. Therefore your pushing low demand products won’t work for long. The retailers have started gearing their product mix.
And this meant that they had subtly began to dictate what products and brands they would stock. In turn, the distributors were having to gear their product mix planning too. While the distributor was ready to take small departures in his strike, it would soon become a motivator, felt Kapoor. And he tried explaining this to Desai.
But the regional Sales Manager would not agree. He said: “ Don’t start thinking like them, Kapoor, Empathise by all means, but at the end of the day I want targets to be met. How do you do that is up to you.” Giving schemes and product mixes was all very well for Desai. But if one were to go by the distributor’s estimate of the market demand, how would the company make its launch a success?
Desai was not ready to go by distributor’s gut feel. He felt that some push was also necessary. And his sales target was not decided arbitrarily, but were based on demand estimates which, in turn was based on a very scientific study of what the market could take. Therefore, he felt, if the distributor was cribbing, it pointed out to the fact that he was not taking interest. Tell him he should take interest in the brand launch. If he does not show interest how will the product succeed? Desai asked Kapoor.
But Kapoor could see that the distribution channel was getting restive. Today Til had a market presence and could choose its distributors. But to sustain that Til needed to sympathise with its distributors on a different level; the thrust on targets was no longer viable. At every stage there were targets, but all targets led to the hapless sales representative, who perforce piled it on the distributor. But how could the distributor be held responsible to deliver it? This was not how Kapoor defined ‘partners in progress’.
Til’s attitude to pushing slower moving brands was not carrying much favour with the distributors. The retailers were certainly not very happy with the company’s policies. There were many choices today for the intermediaries and while they are valued the Til business, they were not willing to let the manufactures decide their product mix. But how was Kapoor to get his sales management to appreciate that?
Case Study Analysis-I
Need for a Culture Change (Deepak Sethi CEO of biotech division of Mayar India)
The dilemma faced by Kapoor will strike a sympathetic chord in the sales force of many FMCG ( fast moving consumer goods) companies, He is the victim of the short term oriented ‘push’ culture existing in his company.
What is this ‘push’ culture? It rears its ugly head especially when the targets are under pressure and business is way below budget. When such a situation arises, the company pushes the stock down the line in the distribution channel, hoping that supply will create its own demand through retailer push (Kapoor was dumped 3 tonnes of Valley tea on Girjee because the target had to be met).
The push strategy works when demand is weak for example, in toffees or sugar confectionery, and when the brand choices are limited, as in case of semi-urban and rural markets. In a competitive markets with strong branding choices, the consumer/retailers develop definite tastes and brand preferences. In this kind of scenario ‘push’ strategy fails. ( that is why TM the retailer tells Kapoor if the consumer asks for mango and I offer him pineapple he won’t take it.)
In the short run ‘push’ may appear to pay, but in the long run it may have detrimental effects on ‘everyone and everything’ in the system including the bottomline of the company. The distributor is an unhappy camper – saddled with non-moving and high levels of stocks. The sales force is demotivated and spends most of its time unproductively, dealing with distributor’s financial obligation and ire instead of directing its energy in the field/marketplace to stimulate the sales of its brands( not once did Kapoor discuss the width of the distribution, merchandising level or any other business activity to turn around Valley’s dismal start.)
Consumer could end up getting old stocks and the company could end up running unplanned trade schemes. All this adversely impacts the bottomline of the company. In most cases, the trade-off is just not worth it. And yet most companies adopt this style.
Til Seems to be suffering on this account. The antithesis of the ‘push; culture is the ‘pull’ culture; here the bedrock principle is ‘servicing the customer’ (retailer/wholesaler). In this strategy the tasks for the sales function is to make the right products available in optimum places in optimum quantities and to stimulate the offtake to the maximum extent possible through strong visibility and a committed retailer. The sale from the company to the distributor becomes a smooth resultant outcome of the consumer offtake-taking place in themarket.
In this culture, the company stays in tune with the consumer tastes and preferences. The trade is positively disposed towards the company and the company can demand superior service from the distributor.
The productivity of the sales forces is also much higher as all its efforts are directed at increasing the dealer base. Servicing them better and trying to make the company’s product stand out in the shop.
The company does not misuse the distributor/retailer channel by dumping stocks on to them. If there is a sale problem, it is addressed appropriately. The driving force of this kind of culture has to come from the top.
Apart from these problems, Kapoor’s cup of sorrow seems to be overflowing also due to the changes in the market place consequent to liberliasation, leading to an increase in brand awareness , choices explosion and a battle for shelf space. Thus the power in the distribution channel has moved down the supply chain from the manufacturers to the distributors to the retailer.
‘Pull’ culture has always been the right way to sell, but in the post liberalisation scenarios, it is the only way to sell.
Til needs to bring about a paradigm shift in the role of the sales function, that is, ‘pull’ oriented should replace ‘push’ orientation. Some changes required are:
- The company should have inventory norms for the distributor and all the sales to them should be on replenishment basis. Having assured the distributor a fair return on investment, it should provide high quality of service to the retailers market.
- The field productivity of the sales force is another area needing immediate attention. Value addition and waste elimination are the two key concepts here. With unproductive time saved from negotiating and dealing with distributor’s orders or finances, Kapoor should concentrate on improving merchandising/shop shout levels.(the effort should be quantified” it can be done!), increasing the width of the distribution proper retail briefing ( a committed retailer can prove to be a big asset), concept selling and getting market intelligence.
- The top management at Til has the biggest role to play in this metamorphosis. It has to both practice as well as preach the efficacy of the ‘pull’ culture. This requires courage of conviction to take a one-time drop in sales to the distributor pipeline corrects itself. However, this will ensure the long-term health of the system.
Till date in India (as also elsewhere in the world), the genuine pull-oriented sales function continue to be rare. The companies which reorient themselves-putting their faith in ‘process along with the results’ as against driving people hard for results –stand to gain a unique and much desired competitive advantage.
A quote from Stephen Covey’s First Things First aptly describes the issue at hand. “ The problem seem to come as it operates primarily from a paradigm of urgency rather than a paradigm of importance.”
Cashing In on Customer Service –Analysis II
Alec Lever Marketing, Blackburn, UK.
At last, consumers of packed goods are seeing a swing from famine to feast. For long, market demand exceeded the licensed production famine of packaged goods companies, just as it did in the case of most other companies. To allocate their scarce output they bypassed the wholesale market manipulators through selected distributors. This got their products from the antiquated factory to the sparse shop shelf with some consistency of price and availability, if not quality.
Grateful distributors like Girjee, blessed by the company with a local monopoly in its products, accepted whatever the company ‘gave’, even the odd new product every couple of years. They ‘put in the market’, confident that excess demand for anything halfway decent would make it disappear. If the supply increased, then a ‘trade load’ discount will bring into play the persuasive power of the retailer on the consumer end. Times change.
Is the Til distribution system appropriate to ensure a place for their offerings on the creaking shelves where consumers now come to feast? The structure is alright, but cultural change is apparently needed. First in the Til management’s encouragement of two way communication in its business planning process and then in a redefinition of its consumer and his needs in the whole supply chain.
What sort of culture leads to Valley’s pride fiasco? One can imagine it: I’ve never understood it.said the overhead and distribution cost conscious Til chairman on his regular rampage through the marketing department. Our factories make the products and our sales force sells them. What do you people do? Unfortunately no answer came from under the table. Why was it respect for hierarchy or their fear of their high-earned jobs? Did they know that the question was rhetorical or realise that a loud voice is a sign of deafness? Or was it simply the ignorance of the correct answer? Sir, our factories do make good products but the people who pay our wages buy brands. We help them choose ours.
Did anyone in Til stand up suggest that attractive packaging alone is not relevant differentiation for a tea brand and why so why do a me-too, or, in fact, a me-five launch of the Valley’s Pride? Was any consumer research conducted? Nobody is proposing to avoid disrupting the business with a reflex, macho reaction to the me-six Green Darjeeling Tea from TEI. TEI is a firm so insensitive to competition and consumer value drivers that it let the world know its plans to sell an unbranded commodity. It is in worse shape than Til.
Is the Valley’s Pride not getting trial because of desire to minimize the packaging cost per tonne by skewing the pack mix to 1kg and 0.56kg? Did the product manager (Til obviously has none) set the forecasts by mimicking the market leader’s establish pack mix and forget the trial size? Is Girjee looking for discounts because the television commercial is not ready or because Til wants him to push the distribution down the trade before pulling the stock off the key shelves through well targeted advertising? Are the accountants in the Head Office expecting profit from its this month and thinking of advertising cost for today, not an investment for the future?
Kapoor’s view from the sharp end will not be recognized if, even in the head office, the Til culture does no encourage managers to make their opinions heard. Although his old habits persist, Girjee is no longer a man to grovel in gratitude to Til or its representatives for having chosen him among other distributors. He is not even ‘partners in progress’. He is now a Til’s customers who increasingly has a choice of suppliers to satisfactorily service his need for capital growth. In today’s competitive market loyalty needs nourishment.
A smooth and fast turnover of cash is Girjee’s basic need. By aiming to give Girjee his benefit, Til will rediscover for itself as it sharpens its system down the supply chain. Girjee’s customers buy cartons or packets. So for whose connivance does he have to buy tonnes? Factory based Til accountants? Is this because Til’s value addition is so low that the marginal cost of an empty space on a truck is more significant than the blockage of customer cash flow? Jadhav would not mind if Til evaluated his performance on the percentage of keeping units in Girjee’s orders delivered the first time rather than his cost per tonne sold. Is Girjee cash tied up because Til’s case sizes are designed to minimize cost per tonne of finished products rather than protect and display a quickly saleable quantity? Til’s drinks margins may look much better on paper for orange and lemon than mango variants, but no sale, no margin.
Kapoor, Desai and Girjee would do well to stop spoiling each other’s happiness and get the opinions of few retailers like TM. Put some time-tested facts down on the paper: what sells, what doesn’t. What sales are lost through out-of-stock situations and how much lost profit is made up by rental display rentals. The management accountants will get the picture when it is painted in numbers. It is best to employ cash in producing brand mixes that the consumer wants to buy rather than products that are convenient for the factory to make.
