Page 26 - DMGT507_SALES AND PROMOTIONS MANAGEMENT

Sales and Promotions Management

Notes
Recently, a leading FMCG company in the household insecticides business could not find
any distributors to service its key wholesale market in Begum Bazar for nearly three
months, leading to a significant sharp drop. The company simply couldn’t get any
distributors to buy the economics of the business.

The other fall-out is that the distributor will stop extending credit in the market, resulting
in retailers not picking up stocks. Gaps in distribution are then inevitable.
Competing on Size
Now, for P&G, by moving to a super-stockist set-up, it could now replenish its distributors
more frequently and hence reduce their average stock-level. Not only is its system
complexity lower, it can also look at building stronger relationships with its superstockists.
By ensuring a better return on investment, P&G will now be in a position to make the
distributors invest more in their distribution infrastructure. Sources in P&G say that they
will now be able to replenish stocks every three days.
Moreover, P&G hopes to make significant cost savings through the increased throughput
available to be a superstockist. By offering him more volumes and reducing the distribution
reach (hence his cost of operations), P&G is now trying to shave off distributor margins by
a full 2 per cent. This shaving will then be channelled into building advertising. A larger
advertising kitty will undoubtedly help it to fight competitors, particularly Levers, on
mass media without being beaten on share of voice in media.

Additionally, with a limited number of distributors, P&G will also not need to invest in
C&F agents. The superstockist will be expected to invest in storage and warehousing
space, so that the stock transfer from the company can take place as soon as the stocks are
shipped into the warehouse.
In the final scheme of things, P&G has another reason for reducing the distributor’s margins.
That’s because of the peculiar distributor psychology at work. As in the earlier example, as
soon as the company is able to reduce distributor stocks from 4 weeks to around 2 weeks,
at 6 per cent margin, the distributor begins to earn almost 60 per cent of return. “That can
be the starting point of trouble”, says a senior manager.
The key is to keep the distributor’s ROI in a band between 30 per cent to 40 per cent. The
moment it falls below 30 per cent, the distributor is inclined to undercut in a bid to recover
his money. On the other hand, if ROI is as high as 60 per cent, the distributor is tempted to
aim for a higher turnover by undercutting the distributor in the next territory.
Of course, the only brand that will continue to need wide distribution cover is Vicks cough
drops. The reason is simple. Vicks competitive set is impulse-driven confectionery. But
for P&G to extend direct distribution cover for a single brand like Vicks is simply far too
costly. So it has chosen to adopt wholesale distribution for the Vicks line. “If you don’t
have a portfolio to support a massive distribution thrust in the hinterland, there is very
little point in aiming for direction distribution”, avers a senior manager with an FMCG
company.
However, for its future product launches, it is apparent that P&G has chosen to focus on
key urban markets. “Reducing cover is in line with future plans” affirms a sales manager
at P&G. The era of jostling with Lever across the length and breadth of the country is over.
Focus is P&G’s new name of the game.
Question
Analyse the changes in the sales structure of P&G. Are they better than previous system?

Source: Business Standard, Tuesday, 1st Dec. 1998

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