A

Project Study Report

On

Titled STUDY OF DISTRIBUTION CHANNEL OF ASIAN PAINTS

INASIAN PAINTS

For the partial fulfillment of the Certificate ofBachelor of Business Administration

SUBMITTED TO:- SUBMITTED BY:- Ruchika thakur Surendra Singh(Faculty &Guide) BBA III YEAR

Maharishi Arvind Institute of Science and Management,

JAIPUR

2010-2011

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CERTIFICATE FROM FACULTY GUIDE

This is to certify that summer training report entitled

“STUDY OF DISTRIBUTION CHANNEL OF ASIAN PAINTSIN ASIAN PAINTS’’

Work carried out by

“SURENDRA SINGH” In the partial fulfillment of requirement

for the award of Bachelor of Business Administration (BBA)

Final year 2010-2011 affiliated to University of Rajasthan,

Jaipur.

To the best of my knowledge & belief this work is not

submitted/published elsewhere for any degree or diploma

examination.

Faculty Name: RUCHIKA THAKUR

MAISM, Jaipur.

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ACKNOWLEDGEMENT

At the outset, I would like to express my sincere and deep felt thanks to our supervisor RUCHIKA THAKUR of Maharishi Arvind Institute of Science and Management of Jaipur to take this opportunity through which I got the chance to make a report on STUDY OF DISTRIBUTION OF CHANNEL OF ASIAN PAINTS.

I would also like to convey my heartfelt thanks to our Dean Sir for his encouragement, advice and strong support in every manner to make this report up to the mark.

I am also indebted to our seniors and friends for their constant help and contribution by providing oversight and critique, in their special areas of interest that influenced this.

I am also thankful to all those people who cooperate and help to completing project. It was such a great experience to interact with people and to get their view. It will definitely help us to improve our communication skills. Gain the knowledge of various techniques of advertising prevailing to the company

Surendra singh

( BBA III YEAR)

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EXECUTIVE SUMMARY

The project work done on STUDY OF DISTRIBUTION OF CHANNEL OF ASIAN PAINTS.At asian paints, Jaipur, focuses primarily on assessing the future of the

Insurance sector in India as seen through the eyes of HDFC. Evaluating the

performance of this sector has been very difficult because of the immense

competition in this sector.

Future of a particular service depends on the performance of that service

sector and evaluation of performance of Insurance sector is very difficult

task because performance is a multidimensional contract.

It is important to recognize what good performance means. From strictly

financial perspective, the management can achieve high yield performance

primarily through providing quality service to customers.

I have prepared this report in partial fulfillment of requirement of the degree of BBA.

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DECLARATION

This is to certify that the work done on "STUDY OF DISTRIBUTION CHANNEL OF ASIAN PAINTS“ under the subject ‘Seminar on Contemporary Management Issues’ and a written report submitted by me to Maharishi Arvind Institute of Science and Management, Jaipur is in partial fulfillment of the requirement for the award of degree of BBA. This work has not been submitted anywhere else for any other degree/diploma.

Declaration by:

(Surendra singh ) BBA III YEAR

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INDEX

INTRODUCTION

RESEARCH

FINDING AND DISCUSSION

BIBLIOGAPHY

QUESTIONNAIRE

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INTRODUCTION

CHANNELS OF DISTRIBUTION

A major focus of channel of distribution is delivery. It is only through

distribution that public and private goods and services can be made available for

use or consumption. Producers of such gods and services are individually capable

of generation only the form or structural utility for their products and services.

They can organize their production capabilities in such a way that the products

they have developed can, in fact, be seen, analyzed and sold in the market. The

emergence and arrangement of a wide variety of distribution oriented institutions

and agencies, typically called intermediaries because they stand between

production on the one hand and consumption.

Intermediaries can improve the efficiency n the other, can be explained in

the following terms: of the process.

They help in the proper arrangement of routes of transactions.

They help in the searching process.

They help in the sorting process.

Marketing channels are set of interdependent organizations involved in the process

of making a product of service available for use or consumption.

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According to American Marketing Association, “A Channel of distribution, or

marketing channel, is the structure of intra-company organization units and extra-

company agents and dealers, wholesale and retail through which is a commodity,

product or service is marketed.”

According to Phillip Kotler, “ Every producer seeks to link together the set of

marketing intermediaries that best. Fulfill the firm’s objectives. This set of

marketing intermediaries is called the marketing channel (also trade channel of

channel of distribution).”

According to William J Stanton,” A channel of distribution for a product is the

route taken by the title to the goods as they move from the producer to the ultimate

consumers or industrial user.”

FUNCTION OF CHANNELS OF DISTRIBUTION:

INFORMATION: Middlemen have a role in providing information about

the market to the manufacturer. Developments like changes in consumer

demography, psychography, media habits and the entry of a new competitor

or a new brand and changes in customers preferences are some of the

information that all manufacturers want. Since these middlemen are present

in the market place and close to the customer they can provide this

information at no additional cost.

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PRICE STABILITY: Maintained price stability in the market is another

function a middlemen performs. Many a time the middlemen absorb as

increase in the price of the products and continue to charge the customer the

same old price. This is because of the intra-middlemen competition. The

middleman also maintains price stability by keeping his overheads low.

PRIMITON: Promoting the products in his territory is another function a

middleman performs. Many of them design their own sales incentive

programmes, aimed at building customers traffic at the other outlets.

FINANCING: Middlemen finance manufacturers operation by providing

the necessary working capital in the form of advance payments for goods

and services. The payment is in advance even through the manufacturer may

extend credit, because it has to be made even before the products are bought,

consumed and paid for by the ultimate customer.

TITLE: Most middlemen take the title to the goods, services and trade in

their own name. This helps in diffusing the risks between the manufacturer

and middlemen. This also enabled middleman to be in physical possession

of the goods, which in turn enables them to meet customer demand at vary

moment it arises.

HELP IN PRODUCTION FUNTION: The producer can concentrate on

the production function leaving the marketing problem to middlemen who

specialize in the profession. Their services can best utilized for selling the

production where the rate of return would be greater.

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MATCHING DEMAND AND SUPPLY: The chief function of

intermediaries is to assemble the goods from many producers in such a

manner that a customer can affect purchases with ease. According to Wroe

Alderson, “The goal of marketing is the matching of segments of supply

and demand.”

PRICING: In pricing a product, the producer should invite the suggestions

from the middlemen who are very close to the ultimate users and know what

they can pay for the product. Pricing may be different for different markets

or products depending upon the channel of distribution.

MARKETING FLOWS IN CHANNELS OF

DISTRIBUTION:

A flow is a set of function performed in sequence by channel

members. In the flow process, producers, wholesalers, retailers and

consumers are linked. The functions that need to be necessarily performed in

a channel system include transfer of ownership through transportation, order

processing, inventory carrying, storage, sorting negotiations and promotions.

The same function in a give channel system, may be performed at more than

one level and, in such a case, the workload for the function would need to be

shared between channel members.

A channel symbolizes the path for the movement of title, possession and

payment for goods and services.

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CHANNEL LEVELS:

The producer and the final customer are part of every channel. We will use

the number of intermediary levels to designate the length of a channel.

CHANNELS OF DISTRIBUTION FOR CONSUMER GOODS :

As we know that a channel of distribution is the combination of

middlemen that a company uses to move is product to the ultimate

consumer. For the consumer products, four channels are widely used

as shown in figure below.

ZERO-LEVEL CHANNEL : A Zero-level channel (also called a

direct-marketing channel) consists of a manufacturer selling directly

to the final customer. The major examples are door-to-door sales,

home parties, mail order, telemarketing, TV selling, internet selling,

and manufacturer-owned stores. Eureka Forbes representatives sell

vacuum cleaners door-to-door.

ONE-LEVEL CHANNEL : A one-level channel consists one selling

intermediaries, such as a retailer.

TWO-LEVEL CHANNEL: A two-level channel contains two

intermediaries. In the meatpacking industry, wholesalers and a

retailer.

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THREE-LEVEL CHANNEL: A three-level channel consists three

intermediaries. In the meatpacking industry, wholesalers sell to

jobbers, who sell to small retailers. Longer marketing channels can be

found. In Japan, food distribution may involve as many as six levels.

From the producer’s point of view, obtaining information about end

users and exercising control becomes more difficult as the number of

channel levels increases.

0-level 1-level 2-level 3-level

Consumer Marketing Channels

Manufacturer Manufacturer Manufacturer Manufacturer

Wholesaler

Jobber

Retailer

Consumer

Wholesaler

Retailer

ConsumerConsumeConsumer

Retailer

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CHANNEL OF DISTRIBUTION FOR SERVICES: The intangible

nature of services creates special distribution requirements. There are

only two common channels for services.

Product of services

Distribution Channels for Services

CHANNELS OF DISTRIBUTION FOR INDUSTRIAL

PRODUCTS: Figure below Shows channels commonly used is

industrial marketing. An industrial-goods manufacturer can use its

sales force to sell directly to industrial customers. It can sell to

industrial distributors, who sell to the industrial customers, or it can

sell through manufacturer’s representatives or its own sales branches

directly to industrial customers, or indirectly to industrial customers

through industrial distributors. 1-1-2-level marketing channels are

quite common in industrial marketing channels.

Agents

Ultimate consumers or business users

Zer

o le

vel (

dir

ect)

On

e le

vel

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0-level 1-level 2-level 3-level

Industrial Marketing Channels

ManufacturerManufacturer ManufacturManufacturer

Manufacturerrepresentative

Manufacturerrepresentative

Industrial distributor

Industrial customer

Industrial customer

Industrial customer

Industrial customer

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TYPES OF INTERMEDIARIES

SOLE-SELLING AGENT/MARKETER: when a manufacturer

prefers to stay out of the marketing and distribution task, he appoints a

suitable agency as his sole-selling agent/marketer and entrusts the

marketing job with him. A ‘sole-selling agent’ or a ‘marketer’ is

usually a large marketing intermediary with large resources and

extensive territory of operation. He will be having his own network of

distrinutors/stokists/wholesalers, semi-wholesalers and retailers. He

takes care of most of the marketing and distribution functions on

behalf of the manufacturer. Obviously, a sole-selling agent/marketer

will earn a large margin/commission compared to other types of

intermediaries.

C & F AGENTS (CFAs): In many cases, manufacturers employ

carrying and forwarding agent, often referred to as C & F Agents, or

CFAs. The CFAs can be describe as special category wholesalers.

They supply stocks on behalf of the manufacturer to the wholesale

sector or the retail sector. Their function is distribution. Their

distinguishing characteristic is that they do not resell products, but act

as the agent/representative of the manufacturer. They act so behalf of

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the manufacturer and as his extended arm. In essence, they are

manufacturer’s branches.

WHOLESALER/STOKIST/DISTRIBUTOR: A ‘wholesaler’ or

‘stokist’ or ‘distributor’ also a large operator but not on a level

comparable with a marketer of sole selling agent, in size, resources,

and territory of operation. The wholesaler/stokist/distributor operates

under the marketer-soleselling agent, where such an arrangement is

used by the manufacturer.

SEMI-WHOLESALERS: Semi-wholeseller are intermediaries who

buy product either from producers or wholesellers in bulk, break the

bulk or resell the goods (mostly) to retailers in assortment needed by

them. Like the wholesalers, semi-wholesellers too perform the various

wholesaling functions that are part of the distribution process. In some

cases, they may also perform the retailing functions. Their strength is

‘specialization by region’. They assist the producer in reaching a large

number of retailers efficiently.

RETAILER/DEALER: retailers sell to the household/ultimate

consumers. They are at the bottom of the distribution hierarchy,

working under wholesalers/stokists/distributors/semi-whosalers,as the

case may be. In cases where the company operates a single-tier

distribution system, they operate directly under the company. The

retailers are also sometimes referred to as dealers of authorized

representatives. They operate in a relatively smaller territory or at a

specific location; they do not normally perform stock-holding and

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sub-distribution functions. The stocks they keep are operational stocks

necessary for immediate sale at the retail outlet.

VALUE-ADDED RESELLERS: they are intermediaries that buy the

basic product from producers and add value to it or, depending on the

nature of the product, modify it and then resell it of final customers.

MERCHANTS: They are intermediaries that assume that ownership

of the goods that they sell to customers or other intermediaries.

Marchants usually take physical possession of the goods that they sell.

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STEPS INVOLVED IN DESIGNING A

CHANNEL SYSTEM

Formulating the Channel Objectives

Identifying Channel Functions

Linking Channel Design to product characteristics

Evaluation of the Distribution Environment

Evaluation of Competitor’s Channel Design

Matching the Channel Design to Company Resources

Evaluation the Alternatives and Selecting the Best

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INTENSITY OF DISTRIBUTION

(MARKET COVERAGE)

The nature and intensity of competition in the industry will determine the

distribution pattern adopted by a firm. Some firms may adopt an intensive

distribution strategy and be indifferent to multiple brand outlets. Here, these

firms aim at getting the highest share from such outlets. Other firms may

have the policy of exclusive distribution-insisting that the intermediary deal

in no other brand.

INTENSIVE DISTRIBUTION: intensive distribution is a form of

distribution in which the manufacturer distributes his products through

as many outlets as possible. This type of distribution is used for those

products that are characterized by low involvement of the customer

and where customers look for location convenience. Products like

chocolates, biscuits, shaving blades, soaps and detergents are

distributed in this manner, so that they are easily available to the

customers at their nearest locations.

EXCLUSIVE DISTRIBUTION: exclusive distribution is a form of

distribution in which there are al limited number of intermediaries

between the producer and the customer. Producers who want to

deliver the maximum services quality to the customers opt for this

type of distribution network. By limiting the number of distribution

outlets. An exclusive distribution producer can control the quality

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levels at these outlets. An exclusive distribution arrangement also

helps the producers ensure that the distributors do not sell competing

products along with the producer’s products. Products that are

marketed through the exclusive distribution process have a higher

brand value and are naturally priced higher. Automobiles, apparels

and this accessories are sold though exclusive distributorship.

SELECTIVE DISTRIBUTION: this form of distribution falls

somewhere in between the two extremes of exclusive and intensive

distribution. In this from of distribution, although the manufacturer

does not use all the available marketing channels, he uses more then

one-distribution channel. As the manufacturer uses a relatively fewer

number of distribution channels, he can maintain good relations with

the channel members and as a result, expect an increased marketing

effort from them. Branded menswear like color plus, arrow, zodiac,

lee and so on are available at exclusive showrooms as well as

thorough other distribution channels. Similarly, in the branded

suitcase or luggage market, VIP, aristocrat, samsonite, etc, sell their

products at exclusive showrooms as well as at other retail outlets.

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“RESEARCH”

DISTRIBUTION STRATEGY

-THE CASE OF ASIAN PAINTS

Asian Paints is India's largest paint company and the third largest

paint company in Asia today, with a turnover of Rs 36.7 billion

(around USD 851 million). The company has an enviable reputation

in the corporate world for professionalism, fast track growth, and

building shareholder equity. Asian Paints operates in 21 countries and

has 29 paint manufacturing facilities in the world servicing consumers

in over 65 countries. Besides Asian Paints, the group operates around

the world through its subsidiaries Berger International Limited, Apco

Coatings, SCIB Paints and Taubmans.

Forbes Global magazine USA ranked Asian Paints among the 200

Best Small Companies in the World for 2002 and 2003 and presented

the 'Best under a Billion' award, to the company. Asian Paints is the

only paint company in the world to receive this recognition. One of

the country's leading business magazine "Business Today" in Feb

2001 ranked Asian Paints as the Ninth Best Employer in India. A

survey carried out by 'Economic Times' in January 2000, ranked

Asian Paints as the Fourth most admired company across industries in

India.

The company has come a long way since its small beginnings in 1942.

Four friends who were willing to take on the world's biggest, most

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famous paint companies operating in India at that time set it up as a

partnership firm. Over the course of 25 years Asian Paints became a

corporate force and Indi's leading paints company. Driven by its

strong consumer-focus and innovative spirit, the company has been

the market leader in paints since 1968. Today it is double the size of

any other paint company in India. Asian Paints manufactures a wide

range of paints for Decorative and Industrial use.

Vertical integration has seen it diversify into products such as Phthalic

Anhydride and Pentaerythritol, which are used in the paint

manufacturing process. Asian Paints along with PPG Inc, USA, one of

the largest automotive coatings manufacturer in the world has begun a

50:50 joint venture, Asian PPG Industries to service the increasing

requirements of the Indian automotive coatings market. Another

wholly owned subsidiary, Asian Paints Industrial Coatings Limited

has been set up to cater to the powder coatings market which is one of

the fastest growing segments in the industrial coatings market. This

wholly owned subsidiary of Asian Paints has entered into a tie-up

with Canada-based Protech Chemicals which is one of the top ten

powder coatings companies in the world for technological know-how

in the area of powder coatings.

INTERNATIONAL OPERATIONS

Asian Paints operates in 22 countries across the world. It has

manufacturing facilities in each of these countries and is the largest

paint company in ten overseas markets. Asian Paints operates in five

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regions across the world viz. South Asia, South East Asia, South

Pacific, Middle East and Caribbean region through the five corporate

brands viz. Asian Paints, Berger International, SCIB Paints, Apco

Coatings and Taubmans. In ten markets, it operates through its

subsidiary, Berger International Limited; in Egypt through SCIB

Paints; in five markets in the South Pacific it operates through Apco

Coatings and in Fiji and Samoa it also operates through Taubmans.

The countries that Asian Paints has presence are as follows:

South Asia  : Bangladesh, Nepal, and Sri Lanka

South East Asia  : China, Malaysia, Singapore and Thailand

Caribbean Islands  : Barbados, Jamaica, Trinidad and Tobago

Middle East  : Bahrain, Egypt, Oman and United Arab Emirates

South Pacific  : Australia, Fiji, Solomon Islands, Samoa Islands,

Tonga and Vanuatu

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 organized sector. Its annual sales turnover

exceeds Rs 36.7 billion (around USD 851 million), way ahead of all

the competitors in the industry. In profits too, AP is far ahead.

AP’s market leadership in the decorative paints segment 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

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percent, its nearest rival, Good lass Nerolac, commands a share of just

14 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?

AP’s 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 AP’s 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 product to

customers in every nook and corner of the country.

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In latter 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

companies to manage with a narrow range of paints. They can reduce

the number of SKU’s 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 this 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 machines and computers.

Before we actually go into AP’s 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.

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THE INDIAN PAINT INDUSTRY

The paint of India is 100 years old. Its beginning can be traced to the

setting up of a factory by Shalimar Paints in Kolkata in 1902. Till the

advent of World War II, the industry consisted of just a few foreign

companies, and some small, indigenous producers. The war led to a

temporary stoppage of imports leading to many more local

entrepreneurs setting up manufacturing facilities. Nevertheless,

foreign companies continued to dominate the industry. Even now,

they remain active contestants, though their foreign shareholdings

stand reduced, with two of them having become totally Indian.

Currently, the industry has a sales turnover of about Rs 3,600

crore. In terms of volume, it corresponds to 5 lakh tones. The industry

is composed of two sectors, the organized and the unorganized. The

organized sector controls 70 per cent of the total market. The

remaining 30 percent is in the hands of the unorganized sector,

consisting of 2000 odd small-scale units.

The industry is not capital intensive. It is however working

capital intensive. The demand for paints is fairly price-elastic and is

linked to economic and industrial growth. Demand is somewhat

seasonal in nature-low during monsoon months, high during festival

seasons.

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The Main Segments

The industry comprises two main segments—application-wise—

decorative/architectural paints and industrial paints. The

decorative/architectural paint segment accounts for 70 percent of the

total paint market while in the industrial paint segment accounts for

the remaining 30 per cent. The industry is, however, expected to

undergo a structural shift towards industrial paints in the next few

years, when its share is expected to go up to 50 per cent in line with

the global trend. Industrial paints thus holds greater growth potential

in the coming years. Actually with the decorative segment gradually

bottoming out, companies are already increasing their focus on

industrial paints. Industrial paints are technology intensive.

The industrial paints segment can be further classified into

automotive paints, marine, powder coatings, high performance

coatings, and others. Original equipment manufacturers (OEM) of

products such as automobiles, furniture and while goods such as

refrigerators are prime consumers of industrial paint. The automobile

industry accounts for 50 per cent of the industrial paint market. A

good part of the demand is from shipping and heavy industry, Navy

being the largest customer in shipping.

The Main Players

Asian Paints, Goodlass Nerolac, ICI (India), Berger, Jenson &

Nicholson and Shalimar are the leading companies in the organized in

28

the organized sector. The top six manufacturers account for about 80

per cent of the market in the organized sector in value terms. AP is the

industry leader, with an overall market share of 33 per cent in the

organized sector. Threat of global competition is minimal in the

industry.

AP dominates the decorative segment, with a 38 per cent market

share. Goodlass, a Tata

Market Shares of Five Major Players

Company Market share (%)

Decorative Industrial Overall

1. Asian Paints 38 15 33

2. Goodlass Nerolac 14 41 18

3. Berger Paints 9 10 9

4. ICI Paints 9 9 9

5. Shalimar 6 8 7

company, is number two with a 14 per cent market share. Berger and

ICI have 9 per cent and 8 per cent shares, respectively, in this segment

followed by Shalimar, with 6 per cent.

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Goodlass dominates the industrial paints segment, with 41 per cent

market share. AP is a poor second here, with a 15 per cent market

share. Berger, ICI, and Shalimar are the other substantive players in

the sector, with 10 per cent, 9 per cent and 8 per cent shares,

respectively.

The dominance of Goodlass in industrial paints is largely the result of

its technical association with the Japanese paint major, Kansai Paints,

which has a 29.5 per cent equity stake in the company. Goodlass has a

lion’s share of 70 per cent in the OEM passenger car segment, 40 per

cent share of two-wheeler OEM market and 20 per cent of

commercial vehicle OEM market. Goodlass also holds 20 per cent to

the white-goods segment.

THE COMPANY

As already mentioned, Asian Paints is India’s largest paints company

and the market leader in decorative paints. AP manufactures and

markets a wide spectrum of coatings and ancillaries, which include

decorative, 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; Ankelshwar, Gujrat, where operations started in

1981; and Patancheru, Andhra Pradesh, where manufacturing started

in 1985.

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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 then 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 1 gives details of AP’s sales performance during the last four

years.

Exhibit 1 gives some other important details of AP’s 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 1. Asian Paints-Select Performance: 200-2006

2003 2004 2005 2006

Sales Value (Crore ) 911 1,033 1,221 1,373Sales Vaolume (Tonne) 116,942 132,284 162,110 181,271

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Exhibit 2. Asian Paints-Select Performance: (FY 2000)

AP’s operating profits stood at Rs 191 crore in Fy 2000, an increase of 37.7 per cent over the previous year. Operating profits have grown at a CAGR of 13 per cent in last five years, much higher than the sales growth of 8.6 per cent.

The profit before tax (PBT) stood at Rs 143 crore, an increase of Rs 49 crore over the previous year, PBT has grown as a CAGR of 12.35 per cent in last five years.

The net profit stood at Rs 97 crore as compared to Rs 77 crore the previous year, higher by 26.6 per cent. Net profit has grown at a CAGR of 12.7 per cent in last five years.

Return on net worth (RONW) improved form 25.2 per cent in FY 1999 to 27.1 per cent in FY 2000. RONW has remained close to 25-26 per cent in last five years.

Return on Capital Employed (ROCE) improved from 26.6 per cent in FY 2003 to 35.9 per cent in FY 2004

AP’s sound marketing has earned it strong brand equity. To quote

AP’s 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 brands Tractor, Apcolite, Utsav, Apex and Ace are well entrenched

in the market. And AP’s logo, ‘Gattu’, the impish boy, with the paint

32

tin and brush, symbolizes one of the most recognized and most

prosperous mascots in Indian business!

All this has earned the company a place among the world’s leading

paint manufactures. 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 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 distribution. The credit

outstanding for the supplies made throughout the year were required

to be settled by the wholesales distributors only at the year-end, at

Diwali time.

These distributors had neither the compulsion nor the motivation to

invest in distributions infrastructure. They were not required to move

33

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 in 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. AP’s strategy, in fact, meant

the polar opposite of the established/existing pattern.

Chart presents the elements of AP’s distribution strategy. We shall see

the details in the page that follow.

AP Bypasses 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

34

Chart Elements of AP’s 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

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 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.

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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, semi-urban and rural areas would

constitute AP’s priority market. Prior to AP’s 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 semi-urban

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

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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 practicing 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 AP’s

competitors remained content with their linkage with a handful of

wholesale distributors, AP preferred direct contact with hundreds of

retail dealers.

AP Goes in for an Open-Door Dealer Policy

AP followed an open-door policy in the matter of adding retail dealers

to its network. The prevailing trend in those days was to limit the

number of dealers to the barest minimum. AP broke this trend and

chose to use practically everyone in the trade, who was willing to

function as its dealer. It was a combined result to the policy of going

directly to retailers and the policy of open door to dealership that AP’s

dealer network swelled rapidly. Even after achieving stability and

maturity in distribution, AP continued to follow a policy of

continuous expansion of dealer network. By 1990, AP was having a

7,000 strong dealer network. By the year 2000, the number had

swelled to 12,000. And even now, on an average, AP is adding 200 to

250 new dealers every year.

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AP Votes for Nationwide Marketing/Distribution

AP took yet another important and strategic decision in the

realm of distribution. Those days, nationwide distribution/marketing

was not the standard practice in the paint business. On the one side,

there were the 1,000 odd small paint companies who, as a class,

believed in marketing their paints in limited territories in and around

their point of production. On the other side were the big companies,

who as a class, believed in limiting their distribution to the big cities.

In contrast to both these existing practices. AP voted for a nationwide

distribution/marketing. It wanted to have an active presence

throughout the country, in the geographical zones, states and

territories.

THE IMPLICATION OF AP’S DISTRIBUTION STRATEGY

AP’s distribution strategy described in the preceding paragraphs had

its associated implications. AP had to take due note of them and face

them squarely.

Going to Individual Consumers Implied Wide Product Range and

Complex Distribution

Had AP concentrated on the bulk buyer segment. It could have

managed with a limited product range, at least, in the initial years.

But, AP’s decision to turn to the individual consumers necessarily

meant a wide product range. In the nature of things, the individual

consumer segment involves a very wide choice in terms of products,

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materials, shades and pack sizes. On top of this, AP believed in

making products based on the preferences of consumers. It gathered

feedback from the consumers and turned out products, shades and

pack sizes on the basis of such feedback. This policy resulted in a

further burgeoning of the product range.

Smaller Packs Proliferated the Product Depth Further

At the time of AP’s entry, paint companies were supplying paints in

containers of 500 ml or larger. AP saw that there was a felt need in the

market for paints in smaller packs. All end uses did not require a large

quantity. Moreover, it was common practice for consumers to buy

paint initially in a larger quantity and supplement it with small size

purchase to complete the job. AP decided to harness the business

opportunity and started supplying its paints in small packs-in 200 ml

and 50 ml packs. This proliferation in pack sizes also contributed to

AP’s growing product range. AP was by now manufacturing and

marketing as many as 2,000 distinct items of paints, none of which

was strictly a substitute for the other.

Wide Product Range Implied Distribution

The policy of having the widest range of products, colurs and pack

sizes had its implication on AP’s distribution. When 2,000 different

items had to be made available 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

39

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, centralized distribution of

its products form its factory. It had to go in for a decentralized, field-

focused 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 semi-urban and rural markets.

Going Retail Implied Deep Involvement in Channel Management

Through its decision to go retail, AP was getting deeply involved in

physical distribution and

40

Chart Main Steps in the Implementation Process

AP’s created a large network of dealers.

It established a network of company depots to service the dealers.

It created a marketing organization that matched its distribution.

It successfully resolved the cost-service conflict in distribution.

(i) A strong commitment to distribution cost control without compromising service level. (ii) Effective inventory management (iii) Effective control of credit outstanding (iv) IT initiatives in distribution cost control

Channel management. In the system chosen by AP, the physical distribution cum channel management task was far more demanding, compared to the wholesaler-oriented system practiced by the other paint companies. While, for companies that embraced the wholesaler-oriented system, it was enough to service a handful of distributors, AP had to service a network of thousand of retail dealers. Having taken the decision to go retail, AP necessarily had to create and service a vast dealer network. It also had to create the physical distribution facilities required for servicing such a large network.

National Marketing Necessitated Nationwide Organisation

Extend of marketing territory and complexity of distribution organization are interrelated. The moment AP voted for nationwide marketing, it was getting into intensive as well as extensive physical distribution and channel management. AP thus had to create a nationwide distribution-cum-marketing organization.

DISTRIBUTION BECOMES AP’S SHOWCASE FUNCTION

AP’s strategies made distribution the most important elements of its marketing mix. And, AP give to distributions all the inputs that were demanded by it. In fact, the rest of this case study is essentially a description of how AP managed its distribution activities-how it chalked out its distribution programmes, how it implemented them,

41

what problem 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 low AP went about the actual management of the distribution function. The main steps in AP’s implementation process are shown in Chart 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.

42

43

AP Establishes 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. AP’s 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. As shown in Exhibit 32.4 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 depots 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 organization structure. AP set up a marketing organization 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 organization of the company is presented in Exhibit 32.5. 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 centers, which cater to 55 depots. Each depot has a branch manager for supervision of several salesperson who cater to more than 14,500 dealers in the more that 3,500 big and small cities all over the country.

44

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 5 AP’s Marketing Organisation

General Manager(Marketing)

Sales Manager Manager Sales Manager

(Trade) (Export) (Industrial)

Product Product Product Manager Manager Manager (1) (2)

Product Product Executive (6) Executive (6)

ServiceRepresentatives (4)

Regional Sales Managers (1) (2) (3) (4)

Zonal Manager (4)

Branch Managers OrDepot Executive (35)

Sales Supervisors (13)

Sales Repersentatives (168) Sales Representatives (Industrial Paints) (27)

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AP Successfully Resolves the Cost-Service Conflict in Distribution

Managing the cost-service conflict was the main challenge that AP

faced in the implementation of its distribution strategy. AP met this

challenge successfully.

We have seen that AP has over 15,000 dealers in 3,500 towns in India.

AP caters to all of them directly. As a result, for AP, the distribution

task gets tremendously extended and distribution cost becomes a

significant business parameter.

Demand for decorative paints is characterized by seasonality. Demand

drops during monsoons and picks up around a month-and-a-half

before the festive season. Major part of the sales take place in the

second half of the financial year. Manufacturers have to array huge

inventories during the lean period. As a result, distribution cost

becomes all the more significant.

Naturally, distribution cost emerged as a major hurdle that AP had to

cross. The strategy It went in for a very high service level in

distribution. Service level is measured in terms of the number of stock

keeping units (SKUs) available in stock as a percentage of the number

of SKUs that should have been in stock. AP’s service level is more

than 85 per cent whereas that of other large paint companies falls

between 50 and 60 per cent. This meant a further rise in AP’s physical

distribution costs. AP had to resolve this cost-service conflict.

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In the chapter on Physical Distribution and Logistics Management, we

had seen that a cost-service dilemma is inherent in any physical

distribution situation. A high service level in physical distribution- in

transportation, warehousing order processing and inventories-

necessarily means a high level of costs. Every firm has to face this

cost-service 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

endeavor.

When we go in to the details as to how AP actually resolved the cost-

service dilemma, four factors started out:

A strong commitment to distribution cost control, without

compromising service level

Effective inventory management

Effective control of credit outstanding

IT initiatives in support of distribution cost control

Strong Commitment to Distribution Cost Control

While following a totally customer-oriented distribution strategy, AP

could not afford to ignore the cost angle. AP was in no position to

pass on any additional costs to the consumers. AP’s marketing

philosophy demand that the consumer price of its paint should be on

the lower side, so as to suit the pockets of the average Indian.

47

Moreover, AP’s business growth demand more and more investment

in manufacturing and distribution. AP had to find the resources. This

apart, the intensity of competition had also been on increase.

Naturally, profitability was coming under greater strain in these

circumstance. AP had to control its distribution costs in order to

maintain its profitability and market leadership. The question was how

to control the costs without sacrificing the service level.

Effective Inventory Management

Effective inventory management is the first major component of AP’s

strategy on distribution cost control. And, AP achieved high

efficiency in this regard. Actually, in inventory cost, AP took the

lowest position in the industry. AP’s average inventory level equals

only 28 days sales, while the industry average is 51 days sales. This

right away provided a 45 cent edge in inventory costs to AP compared

to its competitors. AP’s stock of finished goods was just 7 per cent of

its net sales while for the other in the industry it was nearly twice that

level. What is particularly striking in this achievement is that AP

offered customers and dealers a high level of service in product

delivery compared to its competitors and yet kept the inventory costs

down by 45 per cent compared to the competitors.

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Control of Credit Outstanding

Large credit outstanding, running beyond two months or more, was

natural concomitant of the distribution strategy chosen by AP. The

dealers are required to maintain stocks of all the SKUs that are on

demand in the territory. It pushes up inventory levels at the outlets.

They need credit. AP allowed 15-21 days credit for dealers located in

the major towns and 22-30 days credit for dealers in upcountry

regions.

AP had to pull of a smart credit control strategy for survival. It

resolved the thorny problem through an innovative dealer incentive

scheme. AP stipulated that each of its dealers should pay for the

supplies within a specified time norm and offered them an attractive

incentive scheme for doing so. It consisted of two components:

(a) A special discount of 3.5 per cent. This was referred to as the discount

for perfection 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.

(b) A cash discount of 5 per cent. This was paid for all outright cash

purchases. It was given whenever payments were received within 24

hours of the supply/invoice. In respect of outstation accounts, the

payments should have been made in advance by draft in order to be

eligible for the discount.

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The scheme was a grand success. AP’s credit outstanding always

stood below 25 days, while the outstanding of the other major

companies were in the range of 40 days and above. Systematic

computerization also helped AP maintain the credit outstanding within

limits.

IT Initiatives in Distribution Cost Control

AP’s IT initiatives in respect of distribution-inventory control and

control of credit outstanding, in particular-helped it no control

distribution costs without lowering the service level. AP went in for a

fully computerized distribution system. AP did this not only with an

eye on distribution cost control, but also for the sake of distribution

effectiveness per se. But for such an approach, AP’s distribution

management would have gone haywire. Here was a situation where

2,000 different items of paints, manufactured at four different plants,

had to be distributed to 15,000 dealers in 35,00 towns spread all over

the country. Through 55 depots. AP accomplished this, maintaining

the average service level at 85 per cent, a clear 25 per cent above that

of competition. The IT initiatives also ensured prompt billing,

accurate customer accounting and effective control of credit

outstanding.

Computerization also enabled AP to process recent sales data for the

100 fastest moving SKUs. This analysis was used to project sales of

specific products, which helped plan production and raw material

purchases. With computerization, AP was able to analyse past trends

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to arrive at a 90 per cent accurate sales forecast. Corrections were

made every month between the sales projection and actual sales.

Production was thus evened out month-to-month. Sales statistics were

maintained, classified by product, month, salesman, branch, region

and dealer. Such computerized planning and control of production,

sales and inventories helped AP cut distribution costs without

compromising on the high level of service sought by it in physical

distribution.

AP later hired from the Department of Telecommunications, satellite

time and got all its offices in the country networked. They transmit

data daily to the corporate had office in Mumbai, which uses it for

sales and production planning. AP has consistently improved its IT

systems over the years. It has linked all its factories and 55 depots

through V-SAT terminals, and derived big benefits in terms of

streamlined distribution. More recently, AP has implemented supply

chain management software from i2 technologies. AP plans to

upgrade its communication infrastructure through VSAT leased lines

and ISDN lines all over India. It is also implementing an ERP solution

from SAP to be completed in 2001.

AP Acquires a Competitive Advantage Through Its Inventory

Management and Credit Control

One can grasp the full import of AP’s success in this sphere only

when due not is taken of the fact that AP has achieved the lowest

distribution cost as well as the highest differentiated position in the

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industry. AP’s ‘Apcolite’, the largest selling brand of paint in the

country, is available in different shades and in eight different pack

sizes. Being in the business of ‘colours’, AP utilized colour to achieve

differentiation, and none of its competitors could match AP in this

aspect. Simultaneously, AP also achieved the lowest cost position in

the industry. Normally, when a firm consciously opts for the

differentiation route with a wide product line, it automatically point

towards higher inventory levels and consequently higher inventory

and other costs. But AP, through its effective distribution

management, inventory management and control of credit

outstanding, in particular, managed to retain its inventory size and

inventory costs at the lowest possible level.

AP actually saved so much on inventory carrying costs that it almost

earned its promotion budget through these savings. This is again

praiseworthy because AP spends as much as per cent of its sales on

promotion, the highest in the industry. It has to spend so much in

order to maintain its differentiation advantage. But strikingly, it has

kept its total marketing costs the lowest in the industry. The two

factors together-the lowest cost position as well as the highest

differentiation position-has conferred a significant competitive

advantage on AP.

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CONCULSION

LEADERSHIP THROUGH DISTRIBUTION EXCELLENCE

The story of Asian Paints is a story of distribution excellence. AP

achieved an enviable leadership position through the distribution

route. While AP did not ignore any of the other function of marketing,

it was by mastering the distribution function that AP gained a distinct

and powerful competitive advantage. AP’s distribution strategy was

truly innovative; it broke new ground in every aspect of distribution.

In the final analysis, excellence in distribution led the company to

marketing and corporate excellence.

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BIBLIOGRAPHY

“Widening the Net.” Business India Intelligence, Auguest 2001,p2,2p.

Anand, M “Diary of Sales Associate.” Business World. 21 October, 2002

Brown James R, Fern Edward F., “Conflict in Management Channels:

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Distribution & Consumer Research, April92, Vol. Issue 2, p121, 12p

Moriarty, Rowland T and Moran, Ursula “Managing Hybrid Marketing

Systems.” Harvard Business Review, November/December 1990,

Vol. 68 Issue.

“Marketing Management” by Kotler / keller 2005 Edition.

“Marketing Management” ICFAI Center for Management Research

“Marketing Management” Planning, Implimentation & Control by V S

Ramaswamy / S Nmakumari

www. asianpaints .com

www.mouthshut.com/product-reviews/ Asian _ Paints _Royale_Luxury_Emulsion-

en.wikipedia.org/wiki/Asian_Paints –

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paint-retailing-in-india-that-was.aspx

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QUESTIONAIR

CUSTOMER SATISFACTION SURVEY

1. At which place would you like to purchase paint for your home?

A) Shop near at your homeB) Paint market of your cityC) Authorized DealerD) Hardware Market Ans. ( )

2. Which type of Paint you plan for painting of your home?A) Plastic paintB) DistemperC) Oil based PaintD) Water Based Paint Ans. ( )

3. When you Purchase paint for your home which thing you prefer?A) BrandB) QualityC) PriceD) Availability of product Ans. ( )

4. Do you know about ASIAN PAINTS? If yes, how you know?A) As a BrandB) Through TelevisionC) Through Print MediaD) Word of mouth Ans. ( )

5. Which Brand comes to your mind while you start thinking for the painting of your home?

A) Asian PaintsB) NerolacC) BergerD) Shalimar Ans. ( )

6. Where do you rate a Asian Paints on a Rating Scale of Pen?A) 1-5 BestB) 5-10 AverageC) 10-15 Poor Ans. ( )