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AMUL STORY-- FROM KURIEN TO BMV

BMV, as he is commonly called in Federation, after an illustrious career in AMUL, finally called it a day, amidst high level of politics. My point of discussion is very different from what the scenario is, whether, it is right or wrong, or whether the politics is right or wrong and the larger question who is on right side or wrong side. No doubt, RS Sodhi who has taken the baton, whether permanently or temporarily is equally capable leader, with his own strengths, and no doubt, even if it is not now, but at later stage, it would have been him(RS Sodhi), who would have been natural choice.

The pertinent question at this, with 8000 crore turnover and built over foundation which is in co-operative, BMV should not have left in this unceremonious fashion. To support my point, we have history of AMUL where in BMV has driven Federation to half the size of HUL turnover. And if you dwell inside, it does not have half the expenses which HUL makes in terms of Branding, Employee salaries etc etc.

The structure of federation has withstood all the competition and changes in environment only because of three things, first is Dr Kurien, who has given it birth, Second is the brand AMUL, which has, no doubt created a niche impregnable and last but not the least, BMV, who has driven the organisation thru all these times.

The exit of Kurien(I do not want to dwell into the circumstances, under which he had exit) did not have much of effect because the leadership it had left has no flaws but it was exact carbon copy of his style of functioning, authoritative and visionary, in form of BMV.  And thus Federation was able to absorb the jolt, but this second jolt would shake the structure of federation, which may now go into the hands of people greedy for power and votebank, and the position with which RS Sodhi would veil his flag would also be weakened.

My only point is no such jolt or tremor should have occurred to federation at the time when it is going for next level. It would be no time when it can be 10000 cr organisation.

2. INDIAN RETAIL SECTOR-- FROM BOOM TO DOOM

Once, not long back, it was the blue eyed boy. The number of jobs created in this sector was more than anywhere else. Likes of Walmart were bullish on it. No corporate house in India was lagging behind to catch the bandwagon. As of now many retail stores are getting closed. The chain Subhiksha is on the brink of closure. What ails this sector. Has the Economic Recession taken the toll or the basics were not right. (Read Full Analysis)

THE LEARNING POINT

ONLY THE PARANOID SURVIVE (VIVA BOOKS)

INTEL INSIDE, this is what I would say about the book. Andrew S Groove, President CEO of Intel has worked on crisis management strategy in this book, which he calls "Inflection Point". To me he has been not very lucid in bringing in front what can be an inflection point. He has touched upon the Michel porter's - Forces model to illustrate how forces would effect business and would bring about an inflection point, which if not managed successfully would lead to devastation.

While reading this book, I strongly feel that Groove has taken much of pages in reaching to make reader understand Inflection Point. I would have expected more of strategy kind of bulk reading in the book.

Frankly even after reading book I am not able to relate the title to the whole story Groove has taken us thru. You would not believe but I still went inside my dictionary to see if Groove has some other meaning of paranoid.

He has taken the illustrations of Wal-Mart, shipping, privatisation, as instances of Infection points. I completely agree with him, but I would have expected him to analyse how the persecutory beliefs concerning perceived threats by these changes should have been dealt. And a deep more analysis of what has happened, which I think he has done only in case of bringing Intel story of exiting the memory business in front of readers.

Some Positives: definitely Groove has taken the readers thru the mental stage of the top management during time of crisis. At this time of recession this book is a must read as would give some thing to ponder to top management that whether this is or not a point of inflection for them.

Thats why I said it is INTEL INSIDE.

In all 1.4 STARS

ROLE OF TRADE MARKETING AND ACTIVATIONS

Sales & Marketing, in the context of today and yesterday have undergone lots of changes. In between a Sales and Marketing a new domain has caught its attention and that is Trade Marketing. Known by Many names -- Activations, Business Development, Promotions, etc etc, but I would always love to call it Trade Marketing and would like to keep this domain as a separate entity, though in today's context all three domains have much of intercept.

What is Trade Marketing:

Of all the definitions I liked the definition of "Wiki", it says:

Trade marketing is a discipline of marketing that relates to increasing the demand at wholesaler, retailer, or distributor level rather than at the consumer level. However, you need to continue with your Brand Management strategies to sustain the need at the consumer end. A consumer is the one who identifies and purchases a product from a retailer. To ensure that a retailer promotes your product against competitors', you must market your product to the retailers, also. Trade marketing might also include offering various tangible/intangible benefits to retailers. The alignment of sales and marketing discipline to profitability. It is used to satisfy the needs and wants of the consumers.

Why I was surprised and what made me write on this domain is, even Wiki has only definition and nothing more. And there is not much of material and bibles (Kotler) on this.

Expanding and Explaining the definition

Let us say a company is going to launch a product "XYZ", Marketing would start from whether there is a demand for this, latent demand, blue ocean, brand architecture would be compared to various competitors etc etc. Then once a product is conceptualised, the quality department would generate proto-types and will come up with final product. In the mean time marketing would develop packaging ideas, STP ideas, branding, media etc. And final product with brand architecture and Marketing launch plan would be ready.

In the present scenario unlike past, the brand/new product would be handed over to sales by a domain called trade marketing. Trade marketing would pitch from devising Launch Norms, launch schemes (trade loads or consumer promos), displays, activation programs (channel specific incentives, collateral) and consumer contact programs. Therefore, trade marketing should provide sales outlets with customer & shopper-based value creation plans.

Tools with Trade Marketing

Basic method of trade marketing is focusing on sales fundamentals, such as Distribution, Display, Promotion and Price. With data and knowledge of sales fundamentals, trade marketing develops market strategy aligned with brand strategy. In order to deliver sales volume and value, trade marketing support sales forces with well-designed fundamental enhancement plans.

In today's scenario the companies are focusing more on Weighted distribution rather than Numeric Distribution. And thus, the concept of channel specific approach has been implemented by almost all major companies. By channel specific approach, i mean is considering and catering to different distribution channels as separately with channel need based servicing and activation programs. Modern Trade is one channel considered as separate entity, another is wholesale, then cosmetic, then Hi-value outlets, mass outlets, different channels as per the industry.

Trade marketing plays major role in devising strategy to focus on different channels. Today, companies have separate trade marketing managers for separate channels and some of the companies have separate managers even with in a brand fro separate channels. Let us now discuss different programs/activations which companies are using for various channels.

1. Wholesale channel, which majorly thrives on loyalty has been put under point system by many companies (HUL, COlPAL, Marico, P & G to name a few). The wholesaler purchases from the company and he earns certain points which he can redeem as per company policy.

2. Hi-value outlets, in retail are given some %age extra on target based purchase and may be they are offered some permanent displays.

3. Chemist outlets would have assortment based purchase incentives.

4. Modern Trade has maximum of promos in package, from displays to consumer promos, to incentives etc etc.

How Trade Marketing has changed the scenario:

Previously it used to be Marketing Battles-- Branding, advertising, etc etc. Then sales people used to fight for placement and visibility of product. The advent of Trade Marketing has added ammunition to whole scenario, more ammunition you have more chances of success are there.

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Retail Sector-- What went wrong?

I was going thru an article "Lights dim in retail sector", this made me ponder what went right with Pantaloon and what did not go right with likes of Subhiksha and Reliance, though it is too early to compare Subhiksha and Reliance.

Let us start with, where the story begun.

Industry parlance uses term, Modern Trade for Organised Retail and General Trade for un-organised retail. Of-late the open format outlets, say a single self service outlet in a city with a sq ft area of 2000 would also be counted in Modern Trade or generally referred as MT. It was late 2001 that MT picked up and in major cities of south India it was rampant in year 2003-04, where as in Northern India and Western part of India it was still at nascent stage. At that time companies started taking MT as a seperate division with different sales force, different modus operandi of supply chain (from distribution catered to direct catering) and different payment terms.

Where a distributor would buy products from company on cash basis and limited credit days, MT started enjoying prolonged credit days and greater margins. More than margins, MT became a tool for various consumer offers, to increase impulse purchase. These consumer offers may differ from price offs to freebies. In early 2007 arrival of Reliance into retail and carpet bombing by Subhiksha changed the whole scenario. Retail was the new sunrise industry along with Telecom. Apart from chains like Relaince, Pantaloon, Spencers, owned by big corporate houses, middle sized chains like subhiksha, Trinetra, Vishal also started boming. Local Businessmen were not behind in grabbing the oppertunity and odd single stores and local chains also started business.

Major push was obtained by this sector with the Bharti - Walmart alliance and Birla take over of Trinetra. In between many changes occured, Adani's sold off there stores in Gujarat to Reliance, Tata's coming into supply chain of F & V thru Tata-chem-JV-Total Produce, Adani opening up supply chain venture - Adani Agrifresh etc etc. Foreign retailers were also showing more interest in Indian MT business. Metro came with its cash and carry business, French giant Carrefour scouting for partners etc etc.

Over all by begining of year 2008 the sector was no-looking back. 800 stores of Reliance, 1500 from subhiksha and many more to come. It was believed that those corporates who did not entered the business had missed the bus. REI Agro, Mahindra's, India-bulls, Cholamandalam group etc etc and who so ever not, just made an entry from wher ever possible.

Back to Basics

All this story seems very bright and beatiful till the global recession caught the air in September 2008. And the windtalkers started blown away by the wind per-se. It was not that the global slow down and liquidity crunch opened the doors abruptly. The effect was felt by most in the middle of year 2008 itself, but the over-optimism and huge plans in forefront made it ignore the giant fall.

Basically if we see, MT is nothing but another "Kirana and Sabji outlet", difference being former is run by a professionals hired by big wigs and later by a "baniya or similar". Both employee people, both bargain with companies, both anticipate more margin, and so on. But, basics, totally differ for both of them. Where the local baniya wins and professional loose is in "Costs". Where Big Bazaar won and others lost (Pantaloon’s revenue jumped 52% to Rs5,052 crore for the financial year ended June, while net profit was up by 5.1% (year-on-year) at Rs126 crore.), was in basic model.

A neighbourhood store like Subhiksha and Reliance is no different from local "Baniya or Kirana" store, both are selling same FMCG or Fresh items. Though a MT outlet used to get 5 times the turnover of local kirana at same location, its cost of operation was 50 times more than that single outlet. Some MT stores tried to give consumers more than FMCG and Fresh by putting Mobiles and Consumer Durables etc etc but they forgot the habits of Indian Consumers. The consumer would still go for buying Premium products and hi-value products from speciality store or big discount store, which the neighbourhood MT was not at all.

So on one hand pressure of Costs and then declining sales (in comparison to business model with break-even atleast), these MT outlets were unviable and here it was the liquidity crunch which hit them to completely ransack the expectations.

It is where the Big-Bazaar won, it for once clearly targetted the middle class, who would love to go to big malls and do shopping on sunday's. To increase impulse purchase it gave extreme offers and discounts (though got from Companies only) and it more than FMCG and Fresh, relied on apparels and Consumer Durables. Because, what ever one may do, FMCG margins are very thin and Fresh products ask for too much wastage costs.

Now let us just summarize the Waterloo of Retail, though it may be early to say whether it is waterloo or "just a battle lost but war to begin".

1. The supply chain or the back end built was in view of 2010 with over optimism and that increased costs to huge extent.
2. The management of these stores was lead by highly paid professionals, though it was another kirana shop.
3. Fresh fruits and vegetable were thought to be boon of this industry, but no one was able to judge the wastages and model of business(which is still with commission agents dealt thru mandis)
4. FMCG always works on thin margins.
5. Money was never in the system, it was just rotation and credit, which liquidity crunch tok to its nemisis.
6. It forgot the habits of middle class, who would still purchase kirana from "baniya" and premium and consumer durables from speciality and big stores with discounts and offers.
7. It was a like bubble of IT which crashed, both were built on over optimism rather than sound basics.

My agenda to deal with 7th point of IT-big bubble was to raise an optimism that after the crash the way IT and ITES have built them on sound basics Retail can be another comeback.

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FREE SAMPLES -- IN FMCG

One fine Morning you open the front page of your paper and you find a shampoo satchet stuck on it. Another day, while travelling you get a can of "Red bull".
All these free sampling techniques are used by companies to generate trials of their products. Mostly during the launch phase the companies use such techniques. Reason-de-etre, simple, so many shampoo's, which one to buy and big question "why?".
To go a bit deeper, one needs to give a look at two concepts:
1. Experience goods and post-experience goods.
2. Involvement level.
In economics, an experience good is a product or service where product characteristics such as quality or price are difficult to observe in advance, but these characteristics can be ascertained upon consumption. The concept is originally due to Philip Nelson, who contrasted an experience good with a search good.
Post-experience goods, also called credence goods, are goods for which it is difficult for consumers to ascertain the quality even after they have consumed them, such as vitamin supplements. Potential consumers of these goods may require third-party information, provided by private rating agencies or government bodies.
Why I am mixing Economics and Marketing. But it is true. What would a sample delivered to you will do if you after its consumption you are not able to conclude. Say, a sample of Vitamin C tablet delivered to you free of cost, would you purchase it after consuming.
Here my definition of consuming would include not only taste buds, but also hearing, smelling and seeing.
A consumer’s buying task is affected significantly by the level of purchase involvement. The level of involvement describes how important the decision is to the consumer; high involvement is usually associated with purchases that are expensive, infrequent, or risky. Buying also is affected by the degree of difference between brands in the product category. The buying task can be grouped into four categories based on whether involvement is high or low and whether brand differences are great or small.
For example, toothpaste is a high involvement category for mothers' and any decision on which toothpaste to use would depend on many factors and one factor can be a "trial".
Based on above two factors I personally feel that sampling is best suited for Experience goods of high involvement category products.

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