We do a lot of case studies based on situations faced by American companies in America. Recently I had an opportunity to interact with a leading consumer products companies marketing executives regarding their sales and distribution channels.
As compared to India, the sales and distribution here is pretty simple, there are 4-6 major customers (retail chains) which give you more than 90% of your business, so all you have to worry about is those 4 or 5 customers. But the big problem here s that when you have customers only, and each one of them demands a better price form you than the other, then how do you keep all of them happy?
Luckily, there is one aspect of the American market which saves these companies, and that is the high degree of segmentation among the American consumer regarding the retail store he would go to for his purchase. Small individual buyers go to Walmart, some go to Sears or Target and small businessmen who operate mom and pop stores buy from Costco or Sam's club as do large families. Sams club and Costco have membership fees which varies from $35-$60 per year.
The simple thing which all the consumer product companies do is to ship different sizes to different sores. So a Costco or Sams club will get larger packs of the same product while a Walmart will get a much smaller pack. Sometime these packs vary in size by a very small amount but that is used as a sufficient excuse to keep a price differential between diferent retail stores. Using such a strategy, someone like Costco might sell products at a price which is 15% lower than even Walmart (yeah, you heard it right, Walmart's price can be eaten by both Costco and Sams Club). So at the same point of time, Walmart, Sams Club as well as Costco can have a labl claiming lowest price for the same product of the same brand, the trick is, it is the lowest price in that size and packaging.
In addition, there is a high link between the companies and the retail chains. There are dedicated people from a company taking orders from a particular warehouse of a particular retail chain. The IT systems of all the retail chains and their warehouses are linked with the systems of the various consumer product companies so there is never a case of a manual order being given by a retail chain. There is a pre determined reorder point and the companies automatically ship orders once the inventory falls below a particular level. Even within a store, there is a high degree of coordination between the various product companies and the retail chain regarding the placement of products and the various offers to be launched.
Organized retail in India is way behind all these developments. Not only the retail chains, but even the product companies are not ready to provide such a high level of integration. Perhaps part of the reason is the still low amount of business provided by the organizd retail as compared to the mom and pop stores. However, unless such a high degree of automation and integration is provided, costs in organized retail will not fall and perhaps the model will never really take off in India the way it exists in the West...
As compared to India, the sales and distribution here is pretty simple, there are 4-6 major customers (retail chains) which give you more than 90% of your business, so all you have to worry about is those 4 or 5 customers. But the big problem here s that when you have customers only, and each one of them demands a better price form you than the other, then how do you keep all of them happy?
Luckily, there is one aspect of the American market which saves these companies, and that is the high degree of segmentation among the American consumer regarding the retail store he would go to for his purchase. Small individual buyers go to Walmart, some go to Sears or Target and small businessmen who operate mom and pop stores buy from Costco or Sam's club as do large families. Sams club and Costco have membership fees which varies from $35-$60 per year.
The simple thing which all the consumer product companies do is to ship different sizes to different sores. So a Costco or Sams club will get larger packs of the same product while a Walmart will get a much smaller pack. Sometime these packs vary in size by a very small amount but that is used as a sufficient excuse to keep a price differential between diferent retail stores. Using such a strategy, someone like Costco might sell products at a price which is 15% lower than even Walmart (yeah, you heard it right, Walmart's price can be eaten by both Costco and Sams Club). So at the same point of time, Walmart, Sams Club as well as Costco can have a labl claiming lowest price for the same product of the same brand, the trick is, it is the lowest price in that size and packaging.
In addition, there is a high link between the companies and the retail chains. There are dedicated people from a company taking orders from a particular warehouse of a particular retail chain. The IT systems of all the retail chains and their warehouses are linked with the systems of the various consumer product companies so there is never a case of a manual order being given by a retail chain. There is a pre determined reorder point and the companies automatically ship orders once the inventory falls below a particular level. Even within a store, there is a high degree of coordination between the various product companies and the retail chain regarding the placement of products and the various offers to be launched.
Organized retail in India is way behind all these developments. Not only the retail chains, but even the product companies are not ready to provide such a high level of integration. Perhaps part of the reason is the still low amount of business provided by the organizd retail as compared to the mom and pop stores. However, unless such a high degree of automation and integration is provided, costs in organized retail will not fall and perhaps the model will never really take off in India the way it exists in the West...
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