EXHIBITS



DBCN_HUL_ChannelAudit_Group8_SecBINTRODUCTION TO HINDUSTAN UNILEVERHindustan Unilever (HUL) is the independent Indian arm of the consumer goods giant Unilever. HUL is the market leader in Indian consumer products with presence in more than 20 categories such as soaps, tea, detergents, shampoos, beverages and ice-creams. Its products are available in more than 6 million retail outlets in this country.HUL Current Detergent Distribution Channel & Channel FlowHUL is the largest detergent/washing powder company in India (by value). The detergent market in India is composed of two categories: the hand-wash segment and the machine-wash segment1. HUL’s detergent product portfolio consists of the brands Surf Excel, Rin, Wheel, Sunlight and New Magic [Exhibit 1]. The company targets both urban and rural consumers using these products and aims to deliver products that fulfill soap and detergent requirements at different price points to maximize customer base.HUL’s distribution channel (across its product portfolio) is viewed as one of the company’s greatest competitive advantages. It utilizes a system involving carrying agents, stockists/sub-stockists, wholesalers and retailers before reaching the end consumer. The company has also taken innovative steps such as Project Shakti (a social initiative that resulted in the creation of ancillary income opportunities to over 110,000 individuals covering over 160,000 villages) to reach smaller rural villages. The distribution channel of HUL can be visualized in Exhibit 2. For its detergents, HUL utilizes the services of its more than 2500 preferred stockists, wholesalers and retailers to cover almost the entire urban population and over 250 million rural consumers. A few years ago, HUL changed its distribution system from a company based depot system to a system of multiple third party carrying and forwarding agents who act as stock keepers to ensure minimal risk of inventory stock out and improve delivery times to the retailers/wholesalers. HUL’s current distribution system is the hallmark of thorough distribution channel development where the company offers multiple incentives to channel partners including customer management and supply chain capabilities, joint business planning and in-store merchandize execution support.Channel Analysis of HUL’s current Distribution System HUL has had a very successful distribution system. The major sources of gaps are both environmental and managerial. The main environmental bounds are:Geographic Spread of consumers: According to Nielsen, there are ~9 million stores covering the over 700,000 villages in India. While the urban centers are reasonably concentrated and connected, reaching the majority of Indian consumers who reside in the rural area remains a massive challenge for any FMCG companyInfrastructural Challenges: Urban India accounts for over 63% of FMCG consumption (as of 2012) but rural India is where the growth is maximum infrastructural challenges including quality of roads, warehouse infrastructure etc prevent rapid FMCG penetrationDistribution Costs: FMCG companies need to spend regularly on transport of products to the wholesalers/retailers who deliver the product to the end consumer. This involves transportation costs from the nearest depots/carry forward agents. In order to avoid paying excessive interstate taxes, companies are forced to setup depots in far off locations increasing distribution costs since the sales volume does not always justify the costs incurredInformation Asymmetry: A consequence of lack of infrastructure is the lack of information availability. Despite recent advances, a portion of the country’s rural areas remain ignorant about detergents and instead prefer traditional methods or soaps to wash clothes. It is also very difficult to sway rural consumers due to low consumption levels and low brand awareness levelsVolatile Consumerism: With the rural market accounting for about half the company’s sales, FMCG products forms a significant share of the wallet. Product sales and service output demands depend heavily on the positivity in the consumer spending sentiment which has been volatile in recent monthsThe managerial bounds of channel gaps arise from the following:Nimbleness for smaller markets: HUL’s multilayered distribution system reduces the risk of stock outs and ensure quick product availability however, the system might not be nimble enough or cost effective for smaller markets such Control and Performance Management: HUL’s extensive distribution network is great for enhanced country coverage but some amount of control is sacrificed in terms of control and performance managementShort term managerial orientation: Development of rural markets takes time and necessitates decision making with a long term view; however, managers and distributors who are often evaluated on short term performance could often make decisions with the focus on the short termGap AnalysesThe Demand side gaps in the distribution channel of HUL Detergents could be analyzed acrossDemand Side Gaps – Urban IndiaService Output DemandLevel (High/Medium/Low)DescriptionDemand side Gap?BoundRecommendation to close gapBulk BreakingMediumAvailability of multiple SKUs of products; ability to purchase a wide range of SKUsSOS=SODSpatial ConvenienceMediumEasy availability of the product at the nearby Kirana Store/ Mall/ Retail Outlet; ease of securing product when neededYes. SOS<SOD Geographic dispersion and infrastructural challengesMake products available across different types of outlets to ensure spatial convenience for maximum amount of consumers Ensure high visibility of products where products are not clearly visible to promote perception of spatial convenienceWaiting/ Delivery timeMediumTime taken to receive the product at the point of purchase and/or time taken to receive the product when ordered onlineSOS=SODAssortment/ VarietyHighAvailability of multiple product types; more options to choose from; ability to have a wider selection of options to choose fromYes. SOS<SODIntroduce additional products targeted at customer segments presently under/over served or unservedImprove assortment perception by tweaking product attributes/positioning to appeal to broader set of consumersCustomer service & Information ProvisionLowYes. SOS<SODTrain retailers to provide information on the productConduct information sessions using social media, television and other media channelsDemand Side Gaps – Rural IndiaService Output DemandLevel (High/Medium/Low)DescriptionDemand side Gap?BoundRecommendation to close gapBulk BreakingHighAvailability of multiple SKUs of products; ability to purchase a wide range of SKUsSOS=SODSpatial ConvenienceMediumEasy availability of the product at the nearby Kirana Store/ Mall/ Retail Outlet; ease of securing product when neededYes. SOS<SOD Geographic dispersion and infrastructural challengesIncrease distribution capabilities and initiatives like Shakthi across more rural villagesWaiting/ Delivery timeLowTime taken to receive the product at the point of purchase and/or time taken to receive the product when ordered onlineSOS=SODAssortment/ VarietyMediumAvailability of multiple product types; more options to choose from; ability to have a wider selection of options to choose fromYes. SOS<SODCarefully test and introduce additional products in larger rural areasCustomer service & Information ProvisionMediumYes. SOS<SODProvide increased information about products both at the point of sale (through retailer) and through broadcasted information disseminationSupply Side Gaps – Urban IndiaFlowManufacturerDistributorRetailerCustomerGapsPossession XXXXDelay in transportation due to inter-state inspectionsOwnershipXXXXNo gapPromotionXXXXPromotional avenues and periods vary sometimes across retailersNegotiationXXXXDifferences in interstate taxes and lawsFinancingXXXCredit terms depend to an extent on the bargaining power of distributorsRiskingXXXXNo gapOrderingXXXXDelivery terms not always consistent; process varies from delivery to retailer to collection by retailer from wholesalerPaymentXXXNo GapSupply Side Gaps – Rural IndiaFlowManufacturerDistributorRetailerCustomerGapsPossession XXXXDelay in transportation due to inter-state inspectionsOwnershipXXXXNo gapPromotionXXXXPromotional avenues and periods vary sometimes across retailersNegotiationXXXXDifferences in interstate taxes and lawsFinancingXXXCredit terms depend to an extent on the bargaining power of distributorsRiskingXXXXNo gapOrderingXXXXDelivery terms not always consistent; process varies from delivery to retailer to collection by retailer from wholesalerPaymentXXXNo GapCurrent Kwality Walls Distribution Channel & Channel FlowHUL’s ice cream arm is Kwality walls. It is one of India’s market leaders in Ice cream segment. The product mix is an enviable list of portfolio comprising of Cornetto, Feast, Cassata etc. The distribution currently depends on the client it caters to largely two comprising of Institutional sales and retail sales. The Kwality Walls products are usually manufactured in the HUL facility located in Nashik, Maharashtra. It is distributed pan India from this facility. As this is a temperature sensitive product there is a requirement of cold room having temperature capability of -18’C. The transportation is done by cold storage trucks for better longevity of the products.Channel Analysis of Kwality WallsEven with a very good distribution network there are certain gaps which exists in the systemIce cream distribution at InstitutionService Output DemandLevel DescriptionDemand side Gap?BoundRecommendation to close gapBulk BreakingLowValue of individual piecesSOS = SODSpatial ConvenienceHighImportance of accessible locationSOS = SODWaiting/ Delivery timeHighDelivery time is crucial given the perishability of product SOS < SODLack of good temperature infrastructure for transportationEfficient delivery and better transport truck to minimise transportation lossesAssortment/ VarietyMediumValue of number of optionsSOS = SODCustomer serviceHighExtremely important given the competition that exist in the ice cream segmentSOS < SODDelay in delivery, product deformationBetter transportation, packaging and cold storage inventoryIce cream distribution at RetailService Output DemandLevel DescriptionDemand side Gap?BoundRecommendation to close gapBulk BreakingMediumValue of individual piecesSOS = SODSpatial ConvenienceHighImportance of accessible locationSOS = SODWaiting/ Delivery timeMediumDelivery time is crucial given the perishability of product SOS < SODLack of good temperature infrastructure for transportationEfficient delivery and better transport truck to minimise transportation lossesAssortment/ VarietyMediumValue of number of optionsSOS = SODCustomer serviceHighExtremely important given the competition that exist in the ice cream segmentSOS < SODDelay in delivery, product deformationBetter transportation, packaging and cold storage inventorySupply Side Gaps for InstitutionFlowManufacturerDistributorInstitutionGapsPossessionXXXDelay in transportation due to inter-state inspectionOwnershipXXX-PromotionXXNot consistent promotion as diff. retailer gives diff promoNegotiationXXXState and union taxes and laws are differentFinancingXXXFinancing terms differ with buying power of distributorsRiskingXX-OrderingXXX-PaymentXXXDelivery terms not always consistent; process variesfrom delivery to retailer Supply Side Gaps for RetailerFlowManufacturerDistributorRetailerCustomerGapsPossessionXXXXDelay in transportation due to inter-state inspectionOwnershipXXXX-PromotionXXXNot consistent promotion as diff. retailer gives diff promoNegotiationXXXXState and union taxes and laws are differentFinancingXXXXFinancing terms differ with buying power of distributorsRiskingXXX-OrderingXXXX-PaymentXXXDelivery terms not always consistent; process variesfrom delivery to retailer CHANNEL POWERManufacturer, Distributor, Retailer and end customer each possess channel power in varying degrees and hold the channel together.Manufacturer (HUL) and the DistributorBecause HUL as a company deals with many categories and is the largest FMCG company in India, it does hold a power over the distributor. Distributors want to handle HUL because of the guaranteed sales that HUL has for its products through constant consumer demand. Distributors get into a contract with HUL if it is a HUL distributor and will not handle competitor products in the same category. This provides HUL a legitimate power because of the position it occupies in the market. Also HUL does have the reward power for the incentive it provides for the distributor. But among both legitimate and reward power, the reward power is the most influential between manufacturer and distributor.In return, the distributor has a referent power over the manufacturer. This is because the distributor can collude with other distributors and act against the manufacturer if needed. Manufacturer (HUL) and customerThe manufacturer holds a reward power over customer because the manufacturer can influence with strong promotions and the manufacturer rolls new product formats such as sachets to drive customers to use. In return the customer has a referent power as customers can act against the manufacturer in cases when the manufacturer starts taking the customers for granted with high prices, etc.Distributor and RetailerDistributors’ daily work is surrounded around incentives. Distributors use the reward power very effectively against retailers to achieve sales targets and other marketing objectives. Distributors face tight situations such as to get rid of excessive stock, push a new brand in the market and achieve sales targets for brands. In most of these situations, the distributor uses the coercive power and also the reward power to push sales. Reward power is more effective in general and coercive power is less used.In turn, the retailer uses legitimate power because of the positional power the retailer holds if the retailer is a medium or large sized retailer within certain geography.Retailer and CustomerSince India’s retail landscape is very fragmented with 9 million retail outlets across the country, a single retail store many times doesn’t hold a lot of power. However, medium to large retailers do hold significant power in pulling regular customers and building a loyal local customer base. Retailers provide credit facilities ‘khata’ to customers and use coercive power and referent power to push new brands and other products with higher margins.In return, customers always do exercise referent power on retailers through word of mouth. Customers with very low switching costs (switching to other retailers) can press the retailer to provide more promotions and other incentives.CHANNEL CONFLICTDistributor and ManufacturerThe distributor agrees on doing his best to drive the sales for the brand, but the manufacturer perceives that the distributor is not doing enough to drive sales, leading to a perceptual conflict.Manufacturer and WholesalerWhile the wholesaler helps the manufacturer achieve great penetration by reaching deep pockets, the wholesaler also creates goal conflicts with the manufacturer because of under-cutting and bulk-breaking practices. The wholesaler buys in bulk at lower prices and passes on those benefits to the retailers, causing trouble to the distributors in respective geography.Distributor and WholesalerDistributors and wholesalers in a particular area have a direct goal conflict. Both the playes try to maximize sales by selling it to the same retailers. This is because sometimes due to sales pressure, the company (manufacturer) salesmen sell the goods to the wholesaler at cheaper prices. The wholesaler stocks this inventory and then sells it to retailers slowly.Distributor and RetailerThe company provides some incentives for BTL marketing to the retailer through the distributor. The distributor does not honestly pass on all the benefits to the retailer. Instead the distributor eats into these benefits from the manufacturer and only passes on few benefits to the retailer. This causes a direct goal conflict between distributor and retailer. The distributor tries to get the work done in lesser money or just for the few days when there is an audit by the manufacturer. The retailer doesn’t want to do promotions for lesser money.RECOMMENDATIONSManage the territory differences between wholesalers and retail distributors distinctly. The company should mark the territories to be operated in very clearly for each of the parties and under what situations can they cross territories. Enhance penetration in rural areas. Most of the rural areas still do not get a wide variety of detergents. Categories such as ice-cream are limited because of the limited refrigeration in the rural areas and the limitation on availability of power. HUL should come up with alternative mechanisms to increase category penetration in rural India with innovative programs such as Shakti amma.Develop real-time systems for channel management. The channel co-ordination has some order processing and waiting times that has scope for improvement. Developing new systems to co-ordinate information more effectively will help streamline the channel coordination.EXHIBITSExhibit -1 Some HUL Detergent BrandsExhibit -2 HUL Distribution SetupExhibit -3Exhibit 4 – Detergents Urban IndiaExhibit 5 – detergents Urban IndiaExhibit 6 – Rural India (Detergents)Exhibit 7 – Rural India (Detergents)Exhibit 8 – IceCreams Institutional Exhibit 9 – IceCreams RetailExhibit 10 – IceCreams Institutional ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download