Page 24 - DMGT507_SALES AND PROMOTIONS MANAGEMENT

Sales and Promotions Management

Notes

Case Study P&G’s New Sales and Distribution System in India

t is a subject that is being discussed in hushed tones inside every fast moving consumer
goods (FMCG) company today. Project Golden Eye – the code name for Procter &
IGamble’s (P&G) latest initiative in rationalising its sales and distribution system –
isn’t exactly an eyewash.
On the contrary, it raises some fundamental questions about channel design and network
strategy – issues which are agitating the minds of a great many FMCG companies.
For long, Hindustan Lever’s famed distribution system was the only benchmark available.
In other words, increased reach meant increased volumes. So the more the number of
outlets you could bring under your distribution coverage, the better were your chances of
hitting critical mass.
So, almost every year, every FMCG company prided itself on setting ambitious targets to
expand its distribution cover, appoint new distributors and plumb for volume growth.
For almost a decade, P&G too strained every sinew to match the Lever juggernaut. It
pushed for growth not just in urban markets but also tried very hard to establish direct
coverage of rural markets.
But in its quest for reach, P&G, like many other FMCG companies, overlooked one critical
factor: the cost of extending distribution cover. After failing to aggressively challenge
Lever in soaps and detergents, P&G has rewritten its focus areas: laundry (Ariel), sanitary
napkin (Whisper) and Vicks. What’s more, it has junked its original strategy of promoting
top-end products.
While the process of redrawing the organisational boundaries was on, two things became
apparent. One, 85 per cent of its sales came from the top 30 towns. Two, its current volumes
did not justify a large distributor network. Even in a market like Mumbai, there were
close to six distributors.
A large distributor network meant that no single distributor had large enough volumes to
achieve an attractive return on investment. This resulted in each distributor trying to
extend its reach to push up volumes. But with P&G’s portfolio of high margin low volume
products, merely extending reach only increased the cost of servicing, not the offtake per
outlet.
Today, P&G is busy slashing its number of distributors down to one-tenth of its size and
reworking the margin structure. This has sparked off a debate among marketers whether
it makes business sense.

In many ways, P&G’s initiative raise two clear issues. One, is a large direct distribution
cover necessarily a strength for every market? Can an alternate model emerge in India
which results in large cost savings and, yet, is also effective in meeting marketing
objectives?
More, not Less
At the heart of P&G’s new system is the implicit assumption that lower reach does not lead
to significantly lower offtake. ‘My marketing objectives tell me that our brands are over-
distributed’, explains a P&G manager. If sales analysis shows that 95 per cent of Ariel or
Whisper sales comes from 70 per cent of the outlets, then it counts for very little if
distribution cover is actually reduced.

Contd...

18 LOVELY PROFESSIONAL UNIVERSITY