MANAGEMENT CASE I

describes a real-life situation faced, a decision or action taken by an individual manager or by an organization at the strategic, functional or operational level

Mehta Soya: A Promotional Conundrum

Pramod Khandelwal and Syed Reza Salis Naqvi

tart working on your plan now; it needs to be promising! said Ramnathan Shenoy, GM, Marketing & Sales (North Zone), Mehta Soya Industries Ltd. (MSIL) to Arnab Dasgupta, who had just joined as Head (North Zone) of Popular product division of the Company. Dasgupta had over a decade of experience in marketing and sales. Hardly a week into his new role, he was entrusted the challenging task of strategizing the expansion of the Popular product line. The target was clear: To achieve a market share of 25 percent or more in the Delhi region within two years. MSIL ranked among the top 5 FMCG companies in the edible/non-edible oil segment and clocked a revenue of over ` 20,000 crore per annum. Driven by a high volume-low margin strategy, MSIL had all along targeted lower income group segments, restaurants, and hotels. Its growth had largely hinged on the 15 kg/litre tin pack. However, it had recently ventured into the consumer pack category (1 lt, 500 ml, 200 ml pouches) that was growing at a CAGR of 25-30 percent, targeting the middle and upper middle class segments. In these segments, edible oils were recognized to be a high involvement product and thus, brand perceptions and referrals strongly influenced consumer purchase decisions. Dasgupta recognized that the target consumers of MSIL were hardly aware of the Popular brands of the company. Naturally, increasing awareness about the Popular brand was his first concern. As he reflected on his past experience, myriad variables danced through his mind. Gathering his thoughts, he could sense a few plausible options. MSIL could focus on Above the Line (ATL) promotions like advertisements on television and newspaper. Alternatively, it could pursue Below the Line (BTL) approaches for generating target consumer awareness. Another option was to leverage MSILs relationships with channel partners through trade promotions, channelfriendly policies, and regular interactions. Past experience had made him wary of mixing approaches and losing focus. There were constraints like time, money, and bargaining power of the channels in the industry. ATL and BTL promotions could generate quick awareness but sustainability was an issue, owing to intense market competition. Developing channel relationships needed quality sales force and time. Though the window of opportunity was attractive, local players were flooding the market. Arnab had three days to present a thorough analysis and plan before the MSIL management.

KEY WORDS Edible Oil Industry Below the Line (BTL) Promotions Above the Line (ATL) Promotions Brand Awareness Distribution and Logistics Channel-friendly Policies

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EDIBLE OIL INDUSTRY IN INDIA

The demand for edible oils in India showed a steady growth with a CAGR of 4.43 percent over the period 200120111. The growth had been driven by the improvement in per capita consumption, which was attributed to rising income levels and living standards. However, the per capita consumption level of India (at 13.9 kg/year for 2010-112) was lower than the global average (at 24 kg/ year3). In India, the edible oil market continued to be underpenetrated and with the positive macro and demographic fundamentals, it had a favourable demand growth outlook over the medium to long term period. In terms of volume, palm oil, soyabean oil, and mustard oil were the three largest consumed edible oils in India with shares of 46 percent, 16 percent and 14 percent respectively in 20104. Given the high price consciousness and varied taste preferences among Indian consumers, the Indian Credit Rating Agency (ICRA) expected these oils to account for bulk of the edible oil consumption in the country5. There was a significant gap between the demand and supply of edible oil because of limited availability of oil seeds and shifting of acreage to other crops in the domestic market. The gap was met through imports that accounted for almost 45-50 percent of the total oil consumption. Due to this high reliance on imports, edible oil prices in India were also affected by the movement of international edible oil prices. The Indian edible oil industry was highly fragmented in the year 2011. There were a large number of participants in the organized and unorganized sectors. The kirana (mom & pop) stores dominated the retailing of edible oil, accounting for almost 70 percent of its annual sales6. This resulted in severe competition and wafer-thin profit margins. Further, the profitability of market participants had also been vulnerable to risks emanating from weak harvests, commodity price volatility, and foreign exchange movements. In 2011, amongst the major edible oils consumed, Palm oil was traded largely as a commodity. It was sold mostly in loose form, packaged sales accounting only for 15-20
1, 2

percent of the total sales. On the other hand, Sunflower and Soya oil had a significantly higher proportion of packaged sales estimated at around 70 percent and 55 percent of the total sales respectively. Collectively, the packaged oil segment enjoyed roughly 30 percent of the total market. However, although the edible oil industry had been growing at a CAGR7 of only 6 percent in the last five years, the consumer pack segment was growing at an impressive CAGR of 22 percent8. The major participants in the organized sector, viz., MSIL, Aadhar Dilma Ltd. (ADL), and Centa Oils Ltd. (COL) had a strong presence in the branded packaged segment. Their respective packaged sales accounted for 38 percent, 58 percent, and 60 percent of the total edible oil sold. Moreover, a few mid-sized, regional edible oil companies such as Mint Oils and Medha Oils were also striving to establish themselves in the market, where MSIL had an 18 percent market share.

MEHTA SOYA INDUSTRIES LTD. (MSIL) The Inception

In early 1960s, Mr. Sharan Mehta began creating awareness amongst the farmers about the potential of soya crop in the state of Gujarat (India). His efforts to introduce and encourage soyabean cultivation on a commercial scale resulted in a sort of a green revolution in the state. The Mehta family was in the business of commodities trading and subsequently entered the business of ginning and oil milling. The familys efforts along with other stakeholders resulted in a soya revolution in Gujarat. By 2011, the state was considered as the soya bowl of the country, contributing 60 percent (approximately) of the total production in the country.

Company Background
Mehta Soya Industries Ltd. (MSIL) was headquartered at Gandhinagar (Gujarat). The 40-year old MSIL was the flagship company of the Mehta and Sons Group and was among the top five FMCG players in the edible/non-edible oil industry. MSIL was the leading manufacturer of high quality edible oils, vanaspati, bakery fats, and soya foods. In addi7 8

Source: Report on Indian Edible Oil Industry: Key Trends and Credit Implications, ICRA, 2011.

3, 4, 6

Report by Edible Oil industry body, Source: Report on Indian Edible Oil Industry: Key Trends and Credit Implications, ICRA, 2011. Indian Edible Oils Industry: Key Trends and Credit Implications, ICRA 2011 2011.

Compounded annual growth rate Report by Edible Oil industry body, Source: Report on Indian Edible Oil Industry: Key Trends and Credit Implications, ICRA, 2011.

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tion, it was the highest exporter of soya meal and lecithin from India. MSIL had three divisions, viz., Popular, Premium, and Specialty, defined by the products handled by the divisions. The Popular division offered a range of edible oil products branded as Moksh (Mustard oil), Swaad (Palmolein), and Safal (Soyabean oil). The Premium division dealt with products under the brand name Vishesh, while the Specialty division offered products such as bakery fats and Vanaspati (See Exhibit 1). In 2011, MSIL held a market share of 21 percent in the edible/non-edible oil industry (See Exhibit 2a) and sales approximated ` 20,000 crore. The sales distribution figures among various product categories are given in Exhibit 2b.

the lower income group and slums. Safal was priced below the competitors products and the quality was perceived at par to compete against other products in the market. In line with Swaad, Safals 1 lt SKU was launched in the year 2010 but the awareness among the consumers was low. The product was sold through local kirana, general stores, and wholesale outlets. Premium The Vishesh brand under the Premium product line had good consumer awareness and was sold at a premium price to the consumers. It had an established presence among the channel partners and sold as 500 ml, 1 lt, 2 lt, and 5 lt SKUs. Specialty The Specialty division products such as Vanaspati and bakery fats were sold in 5 kg, 10 kg, and 15 kg SKUs. These were sold primarily to bakeries in areas of East Delhi and West Delhi.

MSILs Product Portfolio

Popular Moksh. The mustard oil was sold under the brand name, Moksh. It had different SKUs of 200ml, 500ml, 1 lt, 2 lt, 5 lt, and 15 lt. The Moksh brand was priced lower than the largest player in the market, and also, the largest selling brand in West Delhi. The demand was seasonal and due to low pricing strategy, the profit margin on the product was low. Swaad. Swaad, the palm oil, had SKUs of 1 lt pouch, 15 lt Tin, and 15 kg Tin. It dominated the sales in the North Delhi region. The 1 lt SKU was launched in the year 2010 and it marked MSILs entry into the household consumer pack segment in the palm oil category. Prior to the introduction of consumer pack, the sale of Palm oil took place in bulk form to local restaurants/dhabas in 15 lt and 15 kg tin containers. It was also sold in loose form by local shops to consumers below poverty line. Palm oil constituted 50 percent of the total sales in the Popular category. Since, the 1 lt variant was introduced in 2010, its foothold in the market was not strong and thus, the consumer awareness of the product was insufficient leading to expected low returns. Thus, increasing the brand awareness of Swaad was a major task for the management. Safal. Safal was the refined Soyabean oil sold in the popular category with SKUs of 1 lt, 5 lt and 15 lt/kg. The Soyabean oil had a good market share in the Eastern region of Delhi and, sales were dominated by people from

Distribution Network of MSIL

MSIL had a nationwide presence and its operations were sub-divided into five zones, viz., Northern, Eastern, Central, Western, and Southern zones, and each zone had a central hub. The Northern zone had Delhi as the central hub and the Marketing and Sales office was located at Gurgaon, which handled the popular products of the company. MSIL had an extensive distribution network which was built over the years by its dedicated sales personnel. It catered nationally with 110 Company depots, over 3,300 distributors, 6.80 lakh retail stores, and a sales force of around 300 personnel. Thus, MSIL had attempted to penetrate deep along with its foray into new markets. Exhibit 3 shows the number of channel partners in the Delhi region in the year 2011. In 2010, MSIL roped in the Area Sales Manager (ASM), Prashant Parikh, who had considerable experience in the edible oil industry. He built the core sales team which worked hard to increase the monthly average sales from 4,000-5,000 standard packs9 of Soyabean oil in 2010 to 20,000 standard packs in the Delhi region by 2011. The growth was attributed to the persistence and diligence of Mr. Prashant who had 12 years of experience in the industry and a well-established cordial relationship with
9

1 standard pack is equivalent to 12 pouches of 1 lt SKU MEHTA SOYA: A PROMOTIONAL CONUNDRUM

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the channel partners. The sales team at MSIL Delhi hub comprised 11 sales people and 1 ASM compared to a team of 50 sales people and an ASM for the largest competitor in the Delhi region. The logistics and transportation at MSIL was outsourced to a third party vendor named Vaahan. It boasted of a fleet of mini trucks and vans to cater to the MSILs Inbound and Outbound logistics (Exhibit 4). Eighty five percent of MSILs raw material requirements were met through imports from international market (Indonesia and Malaysia) while the remaining 15 percent was met from domestic markets like Madhya Pradesh, Rajasthan, Gujarat, and Maharashtra.

CONCERNS
There had been a continuous increase in the number of complaints from its distributors and retailers regarding leakage of oil from the packed pouches and containers for which MSIL had no compensation policy. In contrast, competitors provided compensation for both transit damages as well as damages to packed goods at channel partners premises. Moreover, the margins on the sale of popular products were very low; so, the channel partners motivation to sell the MSIL products was less. Further, the distributors were vexed at the fact that MSIL also supplied to wholesalers and retail outlets directly from its depot thereby reducing the distributors control. Also, the rates of oil fluctuated on a day-to-day basis and hence, the price of stock purchased by wholesalers at times tended to be higher. Owing to this, the distributors were not able to make profits through their dealership on days when prices went up resulting in strained relationship. At times, channel partners faced a serious problem of timely supply of the product during high demand situations. For example, on one of the occasions, a big retail outlet demanded 500 standard packs of Palm oil and as MSIL was unable to supply it on time, the order went to its competitor. Although MSIL was a big name in the fast growing consumer packaged segment, it failed to leverage its position among the channel partners due to lack of channelfriendly policies. Its product awareness among middle and upper middle income groups was minimal in comparison to competitors products which had instant recall and connect with the consumers. The marketing department of MSIL was not active in devising market campaigns to expand the reach of popular products and was in turn heavily dependent on the sales team for the increased product sales/volumes. The need to position MSIL in the Popular category necessitated a full-fledged awareness levels for the consumers in the new target segment. In the meeting with MSIL management, the General Manager, Mr. Ramnathan Shenoy, briefed the newly recruited Arnab Dasgupta about the current market scenario and entrusted him with the task of attaining 25 percent market share (from 18% market share in Delhi region) for popular products in the packaged segment. In the concluding remarks, he said, Start working on your plan now; it needs to be promising! Arnab suddenly

Distribution of Popular Products

MSIL had 16 factories for the production of oil across India. The quantity of oil production varied monthly and hence, extensive forecasting and planning was required. The packaged oil was brought from factories to depots, which were handled by C&F (Carry & Forward) agents. The Delhi hub had one depot which supplied material to its channel partners, viz., distributors, wholesalers, and malls. The logistics and transportation from the depot was handled by the agency named Vaahan. MSIL had both exclusive dealers as well as bulk dealers in major locations to serve the four regions of Delhi. Apart from distributors, the company also supplied to wholesalers and big retail outlets such as Reliance, Big Bazaar, etc. The rates of oil were characterized by variation on an everyday basis in the market and hence the rates were different for oil purchased by a wholesaler and a distributor on a particular day. In addition, the channel partners sold competitors products where they received good margins and incentives and, therefore they did not push MSIL products in the market. Competitors such as ADL and COL had both exclusive distributors as well as bulk distributors who were given incentives and schemes on a regular basis. The Popular division sales force of MSIL in Delhi consisted of only 11 sales personnel compared to 50 sales personnel working for the closest competitor (for an equivalent number of channel partners). This resulted in overutilization of the sales force for whom complete market coverage on a daily basis was not feasible. Thus, the sales executives at MSIL visited a distributor only once a week or in many cases contacted only through phone.
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found himself in a quandary. He reflected on his past experience and myriad variables danced through his mind. Gathering his thoughts, he could discern a few plausible options which were as follows:

Alternatives
1) MSIL could focus on ATL promotion for increasing awareness among the consumers for the packaged segment of the Popular product line. ATL promotions comprised communication media that broadcast and published for mass audiences, e.g., television, radio, cinema, print, etc. Competitors like ADL and COL had numerous advertisements on national television channels like Zee, Sony, and Star Plus10. The impact of ATL promotions was long-term in nature and useful in generating brand awareness of a product among the consumers in the market. The advertisements on television and other media were considered impactful for brand recall and top-of-mind awareness resulting in purchase of the respective brand by the consumers. Exhibit 5 shows the rates of various ATL channels for the Delhi region in 2011. 2) In an attempt to meet the sales target and increasing the volumes, BTL promotion could be a feasible solution. BTL promotions were defined as an immediate or delayed incentive to purchase, expressed in cash or in kind and were efficient and cost-effective for targeting a limited and specific group of users. BTL communication provided MSIL the ability to tailor their messaging to the target segment in a more personal manner but the reach was limited by the availability and accessibility of the product at all locations. Further, BTL promotions were short-term in nature and the increase in sales may not continue over future periods. The impact of BTL promotions in generating brand image and awareness was always considered less impactful than the ATL promotions. Exhibit 6 shows various BTL activities and the expected cost of carrying each activity.

3) Arnab thought that leveraging MSILs relationship with channel partners could result in building brand awareness and positioning of its product in the market. Most of the sales took place at wholesale/retail outlets and big retail stores, and edible oil was considered to be a high involvement product. As per primary research by authors in the year 2011 (See Exhibit 7), it was estimated that majority of the customers consulted shopkeepers/retailers before deciding to purchase a brand of oil and based their decision on quality, taste, and price. Arnab thought that if channel partners were given incentives for referring MSIL products to the customers, it would definitely make a significant impact on the sales and brand awareness of their product line. The research study also concluded that out of 100 retailers/wholesalers surveyed, 35 percent referred or pushed products to consumers while 55 percent took a neutral stance11. Arnab saw a huge opportunity in incentivizing retailers to push the products and increase awareness and volume. It was contemplated as a good option for increasing brand awareness among consumers who tended to be loyal to a particular store or shop. Various schemes (see Exhibit 8)12 such as holiday tours, monetary benefits, gold prizes, etc., could be launched for channel partners who attained the targets every month/ quarter, thus, motivating them to push MSIL products instead of that of competitors. But the challenge was the existing relationship of MSIL with its channels and the need for a well-strategized plan to venture into the area. Arnab had an approved budget of ` 4 crore to be spent in two years and had three days to submit a detailed plan with thorough analysis before the MSIL management. He thought it was the window of opportunity where his mettle could be proven and which could provide growth avenues for the organization.

10

Top 3 Channels in terms of Viewership, 2011 Source: http://www. indiantelevision.com/tvr

11,12

Based on primary research by the authors MEHTA SOYA: A PROMOTIONAL CONUNDRUM

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Exhibit 1: MSIL Product Portfolio

Products/ SKUs Popular Moksh (Mustard Oil) 50 bottles (1 Carton) 24 bottles (1 Carton) 12 Pouch (1 Carton) 12 Pouch (1 Carton) 12 Pouch (1 Carton) 12 Pouch (1 Carton) 24 bottles (1 Carton) 12 Pouch (1 Carton) 6 Pcs. (Bottle/ Jar in 1 Carton) 4 Jars (1 Carton) 4 Pcs. (Jar/Bottle in 1 Carton) 4 Jars (1 Carton) 4 Jars (1 Carton) 4 Jars (1 Carton) 6 Pcs. (Bottle/Jar in 1 Carton) 4 Pcs. (Jar/Bottle in 1 Carton) 1 Jar (1 Carton) Jar & Tin Jar & Tin Jar & Tin Tin 200 ml 500 ml 1 lt 2 lt 5 lt 15 lt 15 Kg

Swaad (Palm Oil) Safal (RefinedSoyabean Oil) Premium Vishesh Gold (Refined Palm Oil)

Jar

Vishesh No.1 (Soyabean Oil) Speciality Vanaspati Bakery Fat (Puff)

Jar & Tin

Tin

Single Pack Single Pack

Source: The data had been adapted from the Summer Internship Report submitted by the authors at TAPMI, Manipal.

Exhibit 2a: Market Share of Companies in Edible/ Non-Edible Oil Industry

Exhibit 2b: Sales by Product Category (in 2011)

Product Category Popular Premium Specialty Sales in (` 000 cr) 12.6 5.5 1.9

Source: The data had been taken from the Annual Report (2011) of an edible/non-edible oil firm. The data has been changed to ensure the privacy of the company.

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Exhibit 3: Channel Partners in the Delhi Region 50 45 40 North South Retailers Distributors 15 10 4 North 5 South 3 East West 15 10 8 Wholesalers 6 4 3 10 6 45 10 15 5 East 50 15 West 40 8

Source: The data had been adapted from the Summer Internship Report submitted by the authors at TAPMI, Manipal.

Exhibit 4: Supply Chain and Logistics Overview at MSIL

INBOUND LOGISTICS OUTBOUND LOGISTICS

Purchase division purchases raw material from international market - 85% of requirement.

Finished goods from plants in the form of packaged oil products are transported to hubs

Each hub consists of depots located at various places in the given region Domestic procurement includes purchasing directly from farmers, brokers, traders - 15% of requirement

Delhi hub consists of 27 depots/CFAs

Raw material is shipped to eastern and western ports of India. Finished product is delivered to distributors/ dealers/malls from respective depots

Raw material is directly transferred to strategically located plants using pipelines.

Distributors/dealers/malls deliver final product to the customers.

Source: The data had been adapted from the Summer Internship Report submitted by the authors at TAPMI, Manipal.

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Exhibit 5: Rates of ATL Promotional Media in Delhi13

Print Media Times of India Hindustan Times The Hindu Outlook/India Today Outlook/India Today Billboards Television Avg. Charges(Sony, Zee TV, Star Plus) Slot PrimeTime Regular Radio Radio City/ Radio Mirchi Radio City/ Radio Mirchi Radio City/ Radio Mirchi Slot PrimeTime SuperPrime time Others/Regular Page 3,5 3,5 3,5 Full page Half page Rate ` 4,838/sq cm ` 2,599/sq cm ` 3,890/sq cm ` 5,40,000 ` 2,90,000 ` 150/sq ft Allowed time 10 sec 15 sec 10 sec Allowed time 10 sec 10 sec 10 sec 20x10 ft Cost14 ` 2.05 lakh ` 2.80 lakh ` 1.75 lakh Cost15 ` 7,000 ` 9,000 ` 5,000 Min. Size ofAdvertisement 12x8 sq cm 12x8 sq cm 12x8 sq cm

Exhibit 6: BTL Promotion Media

Activities Direct Mails/ Emails Deployment of Salesperson (Helps in one-to-one communication and promotion) Store Banners Road Shows Trials In Mall Cost Incurred16 ` 0.1 per mail (Monthly avg. of 10,000 mails) ` 8,000/month Size = 4X2 sq ft @ ` 100/sq ft. 6,00,000/year 10,00,000/year

Exhibit 7: Insights from Channel Partners

Insights/Questions Asked Would you like to sell MSILs product? How would you rate MSILs product quality? How would you rate MSILs schemes vis-a-vis its competitors? How is the packaging quality of MSIL vis-a-vis other firms? Do you receive display promotion incentives from MSIL? Do you reference customer for purchase of oil of a particular brand? % of Respondents 85% said Yes 65% said Excellent while 30% said Good 75% said Average 58% said Average while 25% said Poor 90% said No 55% were Neutral while 35% said Yes

Source: The data had been adapted from the Summer Internship Report submitted by the authors at TAPMI, Manipal.

13

Times of India Display Ads Rate Card for 2010-2011. Business Outlook (2010). Weak Signal. Business Outlook magazine, July 10; STAR increases ad rates by 20%, BS Reporter, Mumbai, Apr 27, 2011.

14, 15

16

Compiled by case writer.

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Exhibit 8: Schemes for Channel Partners

Scheme Detail Foreign Holiday tour for 5 days and 4 nights Display Promotions Free Gifts Cost Incurred/Unit ` 60,000/head ` 3,000 ` 3,000-5,000 Frequency/ Quantity Quarterly scheme (20 distributors each quarter) No. of retail outlets 150 (valid throughout the year) Monthly for 150 retailers

Source: The data has been adapted from the Summer Internship Report submitted by authors at TAPMI, Manipal.

Pramod Khandelwal is a Second Year student of TAPMI in the two-year full-time PGDM course and has interest in Marketing, Operations, and Finance. He holds a bachelor degree in Electronics and Communication engineering and worked for four years as a Business Analyst in the consulting domain with Infosys Technologies. e-mail: [email protected],

Syed Reza Salis Naqvi is a Second Year student of TAPMI in the two-year full-time PGDM course and, has interest in Marketing and Operations. He has a bachelor degree in Mechanical Engineering and worked as Project-cum-Maintenance Engineer at Sterlite Industries India Ltd. e-mail: [email protected]

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