LDFL: ADAPTING MULTICHANNEL DISTRIBUTION SYSTEM FOR

OMNICHANNEL CONSUMERS

Jaydeep Mukherjee wrote this case solely to provide material for class discussion. The author does not intend to illustrate either
effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying
information to protect confidentiality.

Version: 2019-09-10

Mr. Anurag Handa, Director – India Sales for “detergents” business, of LDFL India Limited (LDFL) had
just another week to finalize the 2019 channel sales policy, which had to be rolled out on 24th of December
2018. In the last two years, LDFL was losing major sales in the highest selling General Trade (GT) channel,
while garnering minor gains in the smaller emerging channels, resulting in drop in overall detergent market
share in many markets across India. Among the emerging channels, Cash & Carry (C&C) format posed the
biggest problem for the GT business as it provided cheaper alternate source of supply to the retailers1, who
dominated the total detergent sale in the industry. Part of the reason to offer lesser prices to the C&C channel
was the lesser cost to service them, but more importantly it was LDFL’s global business tie up with these
C&C firms, which ensured higher discounts even for the fledgling business in India. The entire GT sales
team felt frustrated at not getting the support of the top management, which made them fall short of desired
sales results, and lose incentives even after putting in a lot of hard work. Refer to Exhibit 1 for organization
structure of LDFL & Exhibit 2 for the Key Result Areas of the sales team. The 2019 strategy should help
reduce the inter channel conflict, which had resulted in destocking of LDFL products by the GT, leading to
an overall loss of market share in 2018.

Anurag had no control over the global agreements which governed the C&C discount structure applicable
in India, but he needed to reduce the channel conflict which was leading to demotivation of GT sales force.
The options before Anurag were to demarcate specific channels the for sales of specific SKU2, focus on
stricter price control across channels which could ensure level playing field for GT, customized market
offerings for targeted customer segments, and making changes in the organization structure and the
performance metrics. In his own assessment, all the options had their benefits as well as pitfalls, and
implementation challenges. Anurag was due for promotion the next year, a good performance in 2019 was
very critical for his career progression. Success in this assignment could definitely improve his prospects,
hence he needed to act quickly and decisively to salvage the situation.

INDIAN RETAIL LANDSCAPE

India had been going through a marked disruption in the distribution channels, driven by the changes in
technology landscape, consumer behavior and emerging new channel formats. The main channels were GT,
modern retail (MR), Cash & Carry (C&C) and electronic commerce. The overall Indian retail market was
expected to grow at 12 % per annum in 2019, the MR was expected to expand at 20 %, and GT at 10%. It
was reported that in 2018, that emerging retail market contributed only 21 % of the total sector while GT
contributed the rest.

1
Shops who sell to the end consumers
2
Stock keeping units
Page 2 *

GT: India was pre-dominantly a land of small shop owners. There were 2.5 million retail stores that stocked
one or more categories of FMCG3 products. Of these, relevant universe for LDFL’s product portfolio was
1.1 million only. GT accounted for 80% of LDFL business in India.

GT was the most established distribution system for FMCG products in India. The marketers appointed
distributors, who had exclusive distribution rights for the products in specific geographies called territories.
Distributors supplied to the major retail and wholesale outlets in their territories. They supplied stocks at
the retailer’s premises, offered sales promotion support, limited credit as per agreed terms and conditions
on behalf of the principal.

The distributors did not find it commercially viable to cater to very small retailers, who purchased from the
wholesalers. Typically, wholesalers purchased from distributors in large quantities, stocked in bulk, paid
promptly and enjoyed higher discounts as compared to other retailers. The wholesalers passed on most of
the discounts to the retailers purchasing from them, to retain their customers in a competitive market.

GT systems had remained unchanged in its operations for over past five decades. Traditionally the retailers
had some ability to influence the consumer’s brand choice at the point of sale. The marketer tried to load
stocks on the distributors by giving some extra inducements like discounts and credit, who in turned put
extra stock on the retailers by passing on these extra inducements. Thus stock pressure was an important
driver of sales in the GT. The stocking and discount decisions were negotiated based on very rough data
about retailer stocks, future demand scenario and lucrativeness of promotional schemes. Last few years had
seen a stagnation in the general trade network of India, which was struggling to keep pace with the fast
changing consumer demands. They were fighting multiple battles: On one side they were fighting MR while
on the other side they had electronic commerce, both of which made shopping convenient and fun as well
as put the largest assortment of products in front of the end consumers4 to choose from.

By end of 2018, the direct GT coverage of LDFL reached 0.5 million stores, while almost 97% retail stores
selling to the end consumers stocked LDFL products. A considerable part of the extended retail universe of
LDFL was supplied by wholesale stores (3% of retail universe) which provided wider reach to LDFL
products by providing regular refill to the small and scattered retailers across the country.

MR: These were large organized retailers having retail outlets in multiple locations across the country, and
directly dealt with the marketers like LDFL. Their outlets were located in areas where foot fall and
consumer demand was large enough to sustain their very high fixed costs of running large retail outlets. To
consumers, they offered wide assortment, lucrative promotional offers, loyalty programs etc. apart from a
great shopping experience. They were able to negotiate higher discounts from the marketers as they
provided bulk sales and point of sale visibility to the brands, and leveraged consumer data which they
collected very systematically. Macro-economic trends which favored the growth of MR in India was the
spread of digital technology and internet which helped consumers to compared product offers across
different channels, helping them purchase from the channel that had the best offer. Also, the
“Demonetization5” initiative of Government of India in November 2016, added further fillip to consumers
buying from organized retail outlets, as they accepted electronic payments. Thus, during this phase, MR
was able to quickly acquire a large pool of regular consumers, many of them however continued to do use
the wholesale and retail markets under GT channel for their top up purchases.

3
Fast Moving Consumer Goods
4
For this case, customer = retailers and distributors, while consumers = end consumers and users of detergent
5
When the high denomination Indian currency were made null and void, severely restricting cash in the economy
Page 3 *

C&C: Cash and carry companies were big wholesale organizations who sold to business customers like
small shop owners. They were comparable to wholesalers of the GT channel and they operated with basic
no frills format of the stores, low cost locations, offered no credit but accepted credit cards, provided wide
product assortment and focused on high stock turns which reduced their operating costs. C&C stores in
India were generally over 50,000 square feet outlets offering more than 5,000 items across product
categories such as FMCG, Electronics, Home Appliances, Fresh Fruits, Vegetables, Poultry, Dairy Products
etc. This created spatial convenience, and that too at everyday low and transparent prices to business
members. This helped many GT retailers and business owners lower their cost of procurement, and
operations, thereby maximizing their margins. Over 90-95% of these products were sourced locally by the
C&C, which helped to keep their costs to a minimum. It also added to the growth of local economy and
created job opportunities for local population as they employed directly from the local community, hence
local support for them was not less than that of GT.

Being global multinationals, CC companies in India were able buy at lower prices as compared to the GT
distributors due to globally negotiated business deals. This enabled the C&C to provide the Indian retailers
the benefit of a wide product assortment to suit their stocking requirements, competitive and transparent
prices, better shopping experience, and convenient payment and delivery solutions. C&C players also
deployed trained sales support team, who provided sales support and services to business members at their
doorstep, to enhance their overall buying experience.

As per industry report of April 2018; Walmart, Metro, Bookers, and Reliance were operating a total of
92 C&C stores in India. 2.6% of traditional trade in all consumer product goods now moved through this
organized wholesale. The INR6 68 Billion market had been growing at 13% annually, faster than MR, albeit
on a lower base. Though the C&C outlets were designed to primarily cater to resellers like GT retailers,
however, some of the end consumers also visited these outlets. See Exhibit 3 for the summary of shopper
behavior study conducted by LDFL on the C&C channel.

Electronic commerce: This business in India was driven by many large global companies as well as smaller
Indian retailers which offered the convenience of anytime anywhere shopping, wide assortment and good
deals to their consumers. Technology savvy and young generation consumers were rapidly shifting into this
new format. The challenge for electronic commerce was developing the supply chain which could provide
the last mile connectivity, with the desired service quality, cost effectively. Lack of logistic infrastructure
and operational backbone was limiting the potential growth. It was likely to take another couple of years to
have significant impact on the Indian retail landscape. Acceptance of electronic commerce was high in
urban areas, but lesser in the smaller inaccessible locations where the volume of business was not adequate
for commercial viability. While electronic commerce had had a significant impact on non-food retailers,
the food retailers are starting to see the impact of changing consumer habits on their core business –
Groceries – staples, fresh and frozen, and household products. A comparison of the key attributes of all the
channels in India, is given in Exhibit 4.

COMPETITIVE LANDSCAPE

The major detergent brands were marketed by Indian subsidiaries of two multinational giants LDFL India
and Bharat Consumers Limited (BCL). Together, they accounted for almost 65% of the volume sales and
75% of the value sales in the country. Both these companies were fierce competitors, and used a lot of
media advertising to generate consumer pull for their brands. They followed intensive distribution and were
available in all retail formats across channels. These brands were footfall and volume sales drivers for the
retail channel and hence were must keep item. The rest of detergent market in India was very fragmented

6
INR= Indian Rupee, where 1 US Dollar = 70 INR
Page 4 *

with smaller Indian players, with regional or local presence, who relied on dealer push and followed
primarily selective distribution. These local brands also sold alongside the multinational brands but their
target markets were different, mostly playing on comparatively lower price points.

LDFL India was a US $ 2 billion subsidiary of the world’s largest consumer goods company LDFL which
had global turn-over of $ 80 billion in 2018. Established in 1932, LDFL India now served over 800 million
consumers across India. LDFL India portfolio comprised of multiple brands which dominated the categories
of Beauty & Grooming, Household Care and Health & Well Being. Superior product propositions and
technological innovations had enabled LDFL to achieve market leadership in a majority of categories it
was present in.

BCL was India's largest FMCG company with a heritage of over 90 years in India. With over 35 brands
spanning 20 distinct categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants,
cosmetics, tea, coffee, packaged foods, the company was a part of the everyday life of millions of consumers
across India. The Company had about 20,000 employees and had sales of $7 Billion in 2018. BCL was a
subsidiary of one of the world’s leading suppliers of Food, Home Care, Personal Care and Refreshment
products with sales in over 200 countries and an annual sales turnover of $ 100 billion in 20187.

CONSUMER BEHAVIOR

From the consumer behavior perspective, detergents were a planned purchase category in India, where the
lady of the house was the key decision maker. Traditionally, television advertising was used by marketers
to build the brand image, communicate special features / promotions and keep the brand at the top of the
mind of the target market. The factors that determined product choices in detergent category were price,
quality, fragrance and promotion along with brand image. Since the category was about regular use and not
high value item, most households had used multiple brands over time, and had arrived at a set of specific
brands which they were ready to purchase. Hence, advertising and point of sale promotions, management
of price points, and retail visibility were quite useful in driving demand.

Proliferation of smartphones and access to economical internet connections had transformed the Indian
consumers purchase behavior significantly. Most consumers now used internet to search for the product
features, read consumer reviews, compare prices across different retail outlets. The e-commerce websites
and other marketer were using the digital medium to attract consumers based on attractive prices and
consumer promotions. Consequently, consumers were becoming more aware of the availability of discounts
and becoming bargain hunters for all product categories. Many of them were even trading up to bigger pack
sizes to get better discounts. They demonstrated the phenomenon of showrooming and often bargained with
retailers for better priced by quoting as well as showing the online prices.

This phenomenon of consumers becoming omnichannel, deal prone and price seeking was having
significant impact on the retail channel dynamics. Traditionally there was difference in the prices of
products of the same brand across different channels as they all channels provided their distinct “service
output” for the consumers. This was possible because there was lack of easily available information for
most consumers about prices offered by different retailers as well as difficulty in comparing. However, the
spurt in the digital medium removed the asymmetry in information, which brought in price and offer
visibility across channels for the consumers, which entirely changed their store preference.

As a consequence of omnichannel consumers, retailers also had to be aware of the prices being offered by
other outlets in their vicinity, and ensure best deal for their consumers. Thus the large majority of GT

7
Source: https://www.hul.co.in/about/who-we-are/introduction-to-hindustan-unilever/ accessed on 15th Sept 2019
Page 5 *

retailers had to make concurrent adjustments in their purchase and stocking practices. The net impact of
this shift in consumer behavior was that all retailers were forced to become very aware of their purchase
prices and were in lookout to get the best deal, and shopped from multiple potential suppliers like the
distributor, the wholesalers or the C&C outlets.

There were many instances of LDFL GT retailers lodging compliant with the LDFL sales team about the
lower prices being offered to their regular consumers by other GT retailers. The most challenging problem
was faced by the GT sales team, who were not able to provide the discounts offered in C&C and MR
channel, and yet had the highest sales targets. The problem was compounded by the prevalence of the
EDLP8 policy followed by C&C. This forced many of the GT distributors to stock less of LDFL products,
while retailers directly purchased from both the retailers as well as C&C channels, wherever they got better
offers. Also, the GT channel realized that stockholding had to be minimized so that they could leverage the
daily offers offered by C&C channel. Thus there was a considerable reduction in the LDFL stock in GT.

CHANNEL STRUCTURE: FOCUS ON PUNJAB MARKET

Anurag faced his biggest problem in Punjab, a prosperous agricultural state in north India. Hence he decided
to study it in detail to comprehend the problem and find a robust solution. Punjab was a major detergent
market where LDFL dominated with above 33% market share for many years. In the last five years, market
evolution and advent of emerging channels like MR, C&C and electronic commerce had reduced the share
of GT from 86% to less than 70% of LDFL’s detergent sales in 20189. See Exhibit 5 for year-wise share of
different channels in LDFL’s sales & Exhibit 6 for details of the channel-wise market share of LDFL
detergents category in Punjab.

General Trade: The GT sales team of LDFL had appointed 12 distributors in Punjab, each servicing around
250 retailers and 50 wholesalers in well-defined geographical territories. Retailers served the end
consumers who shopped for day to day necessities in small quantities. Thus GT was largely dependent on
consumer footfall and hence were available in all residential localities, providing spatial convenience and
a reasonable product assortment to the end consumers. Many GT end consumers were shopping from the
MR channels also in case they were located in geographical proximity.

Most retailers had to compete for a limited pool of consumers and they needed to offer the most competitive
price. Hence retailers were keen to get the best commercial deal from the distributor. Over time, this trend
had established a process of price comparison by the retailers across multiple LDFL channels. Many of the
retailers were increasingly shifting to C&C channels because they faced no target pressure and yet received
better deals, limited credit and larger assortments than the GT distributors provided.

Modern Retail: There were 5 major MR chains operating in 79 outlets across Punjab. MR channel in Punjab
had a steady sale, attracting the end consumers primarily from GT. Though the MR’s enjoyed higher
discount from the marketer, it also had higher expenses to maintain the higher infrastructure, manpower,
promotional and marketing expenses.

Cash &Carry: This format in Punjab was a membership based retail store, selling limited SKUs mostly in
bulk packs. C&C had a membership requirement; customers were usually retailers who had to pay an annual
fee in order to continue their membership. In Punjab, there were 3 players in C&C space: Walmart, Metro
and Reliance.

8
Every day lowest price, where the prices of products are changed every day
9
Excerpts from: https://www.indianretailer.com/article/operations/marketing/The-neglected-General-Trade-Networks-of-
India.a6243/, accessed on 22nd April 2019
Page 6 *

Walmart was world’s largest retailer and the biggest customer for LDFL globally. Walmart India Private
Limited was a wholly owned subsidiary of Walmart Stores Inc., renowned for its efficiency and expertise
in logistics, supply chain management and sourcing. In 2017, Walmart India owned and operated 3 Best
Price Modern Wholesale stores in Punjab. Each outlet offered nearly 5,000 items in a C&C wholesale
format. Apart from these, it had a B2B electronic commerce platform, its services were extended to the
Best Price store members (Kirana10 stores, offices and institutions and hotels, caterers and restaurants &
other business members), providing them with a convenient online shopping opportunity. As an exclusive
virtual store for its members the electronic platform provided a similar assortment of products, as well as
special items11.

Metro was a German chain with extensive experience of C&C format across the globe. They had 5 stores
in Punjab and 24 stores across India. They reported INR 745.2 million revenue at 16% year on year sales
growth in Nov 2018. India was a key growth market for Metro, we are focused on achieving profitable and
sustainable growth. The company had recently launched OPD (order, payment, delivery) for traders and
kiranas to facilitate online order placement and door-step delivery. The company was also building a
distinctive value-proposition for the HoReCa (hotels, restaurants and caterers) segment by leveraging its
global expertise. The company planned to have 50 stores in India by 202012.

Reliance was an Indian group which had 45 cash & carry stores under the Reliance Market13 brand in 2018.
It opened the first Reliance Market in 2011 and had expanded to 37 cities; it claimed to have about 2.5
million members. The company was planning to set up 300 of these in another three years, to take on the
likes of Walmart, Metro and others, with an investing outlay of INR 50 billion in this business. It had 5
outlets in Punjab in 2018.

THE PROBLEM DEFINITION, DECISION OPTIONS & CONSTRAINTS

The GT team of Anurag was quite frustrated because of the developments in the emerging channels. In the
meeting called to discuss the situation, the GT team of Punjab presented the following:

Proliferation of internet connectivity was helping digitally savvy consumers to cherry-pick the best deals
and they were no more dependent on a particular channel to fulfill their needs. However, the overall impact
was not alarming as many consumers’ still used the GT for their daily requirements and top up. Some GT
outlets were also trying to provide the consumers with the enhanced shopping experience that the MR
provided, though the price points were not matched. Thus, there was a definite shift of consumers from GT
to MR but this was not a serious bone of contention between GT and MR team of LDFL as it was end
consumers’ choice to buy from any channel they preferred.

However, the C&C outlets were offering significantly better financial deals to the GT retailers, than what
the LDFL’s GT distributors could offer. If some C&C scheme did not work, they were changing it quickly,
even on daily basis, which was leading to insecurity among the retailers of GT business about their being
able to consistently buy at the best price. The net impact of this was a reduction in GT retailer’s confidence
on LDFL’s prices, resulting in margin erosion, leading to severe erosion retailer’s motivation to sell. The
overall impact being:

10
Mom and pop grocery stores
11
Adapted from http://www.wal-martindia.in/ accessed on 15th Sept 2019
12
https://www.metro.co.in/about-us accessed on 18 April 2019
13
https://relianceretail.com/reliance-market.html accessed on 20th April 2019
Page 7 *

• GT retailers becoming unsure of the price fluctuations of LDFL products in the market, hence they now
stocked only minimum quantities that they required to service regular demand. Most of them were
ready to replenish stocks at higher prices rather than stocking in bulk and risking the loss if the rest of
the market started selling at a discount. Hence, there was a marked reduction in the stock of LDFL in
the retail outlets, which contributed to sales and market share loss for LDFL in Punjab.
• LDFL not preferred by GT retailers, which was still contributing almost 70% of the business in Punjab.
• Ironically, current discounts of LDFL were also insufficient for sustainable topline delivery at C&C,
hence they were also not happy, leading to unhappy channels.

The ASM14 and RM15 handling the GT business felt that LDFL’s C&C sales policy was aggravating the
challenges for the GT business while unduly promoting the relatively miniscule emerging channel in
Punjab. Since its major competitor BCL did not offer disproportionately preferential treatment to the C&C
channel, they did not face the challenge that LDFL faced in the GT. Research done by the LDFL’s summer
interns in Punjab market indicated the possible causes to be:

• Retail selling price variance of a SKU between C&C and GT was much higher in LDFL, as compared
to other competitors including BCL. This was because the global tie up of LDFL dictated the discount
for C&C in India, and not its current share in the market. No such constraint was there for BCL, who
offered much more targeted schemes for the C&C operations.
• Volatile prices for LDFL SKUs had made it less lucrative for general trade to carry LDFL detergent
inventory; hence LDFL stock levels had dropped across the GT outlets. Lesser stock pressure was
leading to out of stock situations as well as less retailer push, translating into a share loss in detergents.
• LDFL’s GT promotions were complicated and were settled after almost a month, while C&C’s flat or
tiered pricing was immediately deducted from invoice. GT specific trade promotions like Gold coin
scheme, foreign trips and Amazon gift vouchers were in-efficient, as they neither converted to better
margin for retailer nor helped them by improving price-competitiveness for the specific SKU’s.
• Some ways in which C&C sweetened its deals to the GT retailers was acceptance of postdated
cheques16, which mostly resulted in 15 days of extra credit. Also, they had tie up with credit card issuers
who offered 0.3% cashback (weekly stock rotation for a trader could mean 1.2 - 1.5% monthly margin
which translated to a 30% annual impact). C&C also offered free delivery on special days which
negated the advantage of door delivery that the GT distributors provided to their retailers.

Anurag held a meeting with his channel team on 20th Dec 2018. He set up the deliberations with his opening
comment: “When different channels try to sell every SKU, markets never attain a stable market operating
price (the price at which the product was sold to end consumers) as each player across channels would try
to under-cut the other, leading to lose-lose situation for the entire channel system. Margin reduction of some
specific channel was unlikely to ensure price-stability as they all provided different service output to their
consumers. While in most cases, any under-cutting in market was directly/indirectly funded by company
(using mechanisms like contracted margin/ promotions/ visibility / collaboration incentive/ launch plans),
in certain situations, the emerging channels would still do it by cross subsiding the margins from other
products, to maintain their customer equity of value / EDLP/ best buy etc.”. He also presented the research
finding on the criteria used by the retailers in determining their purchase decision (Exhibit 7), comparison

14
Areas Sales Manager, responsible for managing sales from a defined geographical territory, typically a stste of
India
15
Regional Manager, responsible for managing sales for a few states, with the ASM’s reporting to them.
16
An order to a bank in a desired format, to make payment to a desired beneficiary
Page 8 *

of commercials of retailers buying from the GT Vs MR (Exhibit 8), the comparison of the value propositions
of all the channels (Exhibit 9), and comparison of financials of all the channel intermediaries (Exhibit 10).

The GT team came up with suggestion of product portfolio demarcation. They suggested, based on sales
achieved and company priorities, LDFL should assign a channel as primary vendor (PV) for every SKU.
PV would have the following roles for the SKU:

• PV to be responsible for achieving targeted sales volume and biz growth of that SKU in Punjab. Other
channel partners will maintain or grow in a non-disruptive manner.
• PV would determine the MOP17 for that SKU & for that PV shall buy the amount which was the
shortfall in the target achievement by other channel partners, for the assigned SKU.
• PV not to be changed frequently, it should have a business goal and timeline of at least 2 quarters
aligned for the SKU with PV, however, the performance of PV shall be reviewed every month.

The C&C team suggested that there should be strict policy of stopping supply, in case of any channel partner
offering more discounts than allowed. It would be implemented by communicating recommended pricing
guidelines for every channel. Work out in advance a fair supply forecast and its channel wise allocation in
line with pricing guidelines. In case of demand surge in a specific channel, supply rationalization to be
followed to manage the price pressure.

The trade marketing head suggested that, even though LDFL India did not have control on the overall
discounts for C&C channel, LDFL India was within its rights to impose strict price implementation controls
in the C&C channel. C&C operations were quite data driven, based on consumer profiling, customers were
to be segmented by C&C. There would different offers (SKU + promotion + price combination) for different
consumer segments for LDFL products. Such offers to be designed and implemented by the LDFL sales
management team in a manner that, they should create no conflict among different channels.

GTM Head proposed that, LDFL should restructure its sales responsibility and accountability. The
accountability of total sales of the geography should lie with one manager and should not have multiple
managers focused on sales of specific channel. This would ensure that optimal decision was taken for the
entire geography. Similarly, it would ensure state level business operating plan for market share growth,
faster decision making on channel conflict / supply re-allocation etc.

Anurag was of the opinion that LDFL would prosper in long term and gain market share if it managed to
adapt its channel management to the emerging channels and the omnichannel consumer better than its
competitors. He felt that it would be best managed if the consumers and retailers had the choice of picking
the best product offer from the channel of their choice. Also, he had to maintain a level playing field for the
entire sales team so that LDFL could attract, retain and take optimal output from its sales managers.

He had to decide on the best plan, that could be reasonably implemented in the market in a time bound
manner. Though his immediate focus was achievement of the 2019 sales objectives, he was keen that his
decisions did not hinder the long term growth of LDFL in India.

17
Market operating price, the price at which the consumers were able to buy an SKU from retail outlet
Page 9 *

EXHIBIT 1: THE ORGANIZATION STRUCTURE OF LDFL

India Sales –
Director

North & East South & West Emerging Trade

GTM Head
Regional Regional Channel Leader - Marketing
(RM)
Manager - RM Manager - RM RM Head (RM)

3 Team
6 ASM 7 ASM
Leaders

TSMs TSMs NAMs

Source: Case writer

EXHIBIT 2: KRAS FOR SALES TEAM OF LDFL

Director and Regional Manager (RM) Level:

1. Sales growth – value

2. Sales growth – volume
3. Shares (corporate)
4. Distribution growth
5. Cash (Payment days)
6. Inventory days
7. Net outside sales (deducting trade discounts and other sales expenses)

ASM, TSM and Team Leaders level:

1. Sales growth – value

2. Corporate Shares
3. Distribution
4. New Initiative Launch
5. Spending efficiency

RM’s sales target included distributor and indirect retail targets only
Emerging Channel sales targets included MR, C&C and electronic commerce targets.

Source: Case writer

Page 10 *

EXHIBIT 3: THE SHOPPER BEHAVIOR DATA FROM C&C

Resellers at C&C: Almost 90% visiting these stores were small-medium kiranas (small, usually family-
owned shops selling groceries and other sundries) while medium to big wholesalers did not walk into these
stores. These customers typically brought a shopping list, where only parent brand name was written, with
no quantity/variant/price details. Resellers majorly stuck to usual quantities even for good promos, unless
it was limited time offer. 35-38% of resellers bought at least 1 category outside their shopping list (for which
they got guided by store sales persons / offers). While resellers frequented Reliance (2 times/month),
Walmart resellers prefer monthly shopping. Latest products, assortment & trust on quality were key
expectations from the store. Discount percentage was preferred margin communication for resellers; at-
least 40% resellers don’t know the margin from C&C but believed it to be best priced. Resellers relied on
in store experts (sales persons) to educate them on new products, more so in upcountry markets. Price off
was the most preferred promotion followed by volume promotions. Stores perceived that apart from
convenience and promotional offers, products delivered by C&C had lesser issues like damages/quantity
mismatch and hence trusted them. Distribution extension by CC was very minimal and they sold more of
existing SKUs in store by providing higher discounts & promotional schemes.

End consumers at C&C: 68% of end consumer shopping in C&C made all purchase decisions in store, and
had pre-planned for only 3-4 categories. 83% of Walmart, 41% of Reliance shoppers decided on the specific
brand in store. 93% shoppers decided the pack size in store and picked the pack offering the most lucrative
deal. Assortment, new products and convenience were key expectations. Shoppers upsized/ up tiered at-
least one of their purchase due to expert advice they received at the point of sale.

Source: Case writer

Page 11 *

EXHIBIT 4: COMPARISON OF RETAIL CHANNELS IN INDIA

Service Output Service Output

Business Consumer behavior Shopper behavior
Provided by the Demanded by
Model and profile and profile
channel customers

Will not try new

Buys all tiers of Convenience,
brands unless current
brands. availability of Right assortment,
brand causes
General Buys sachets at end regular availability,
problems/
Trade of the month – are merchandise, competitive
unavailable.
usually outlay customized pricing
Looks for specific
constrained shoppers treatment, Speed
price-points
Willing to pay more
for brands or better
Experience,
shopping experience.
Buys Premium tier Assortment, New Experiences,
Value conscious but
brands and were product deals and loyalty
MT not outlay
highly brand introductions, benefits in
constrained.
conscious Deals on certain addition to above
Great shopping
periods
experiences drove
trials.

Buys products for

It’s not consumption
catering to the
based purchase but
demands of Credit, free
for selling at stores.
consumers in their Bulk deals, price delivery, returns
C&C Have a list in mind or
shops. Compares advantage in addition to what
physically inspecting
prices with distributor is provided
for possible goods to
and wholesalers to
stock
buy cheaper.

Convenience,
Value conscious but
Buy across deals, assortment Fast delivery,
NOT outlay
categories and tier of (availability of quality content,
Electronic constrained. Good
brands, but for most infrequently ratings & reviews
commerce shopping experience
purchases, fairly demanded in addition to what
drives trial and repeat
brand conscious products), 24*7 is provided
purchase.
shopping option

Source: Case writer

Page 12 *

EXHIBIT 5: SHARE OF DIFFERENT CHANNELS IN DETERGENT SALES OF LDFL IN PUNJAB

Channel Type 2014 2015 2016 2017 2018

General Trade 86.0% 84.8% 77.1% 73.5% 69.5%
MR 3.2% 4.5% 6.8% 7.6% 8.5%
C&C 2.5% 3.5% 6.3% 8.4% 9.6%
Electronic commerce 0.0% 0.0% 0.3% 1.0% 3.0%
CSD / CPC (Institutional
sales) 8.3% 7.2% 9.5% 9.5% 9.4%

Source: Case writer

EXHIBIT 6: MARKET SHARE OF LDFL DETERGENT SALES IN DIFFERENT CHANNELS IN PUNJAB

Channel Type 2014 2015 2016 2017 2018

General Trade 35.0% 34.8% 34.5% 33.5% 30.0%
MT 48.5% 46.5% 46.3% 46.8% 47.1%
C&C 62.0% 68.5% 64.2% 63.5% 62.5%
Electronic commerce 0.0% 0.0% 0.3% 1.0% 3.0%
Trade Market Share 33.2% 34.0% 33.8% 33.5% 30.7%

Source: Case writer

EXHIBIT 7: FACTORS ON WHICH RETAILERS MAKE DECISION OF WHERE TO BUY

1. Price: The lower the better, typically seen in conjunction with the credit provided.
2. Frequency of service: The more is the service frequency, the better. The best being on demand.
3. Fill-rate: The percentage of the total order, that gets fulfilled by the service provider in a pre-decided
time frame.
4. Assortment: Availability of different products, SKU’s and brands.
5. Delivery: The amount of the time taken to deliver, and the cost of delivery (if any).
6. Credit: Amount of credit and the duration of credit provided by the supplier.
7. Education: Amount of sales person training and consumer education provided.
8. Loyalty program: Amount of benefit provided by the supplier for an achievable target, exclusivity
agreement.
9. Displays and devices: Installation of devices and displays aimed at improving the attractiveness of the
shop for generating footfall for the outlet and the brand in question.
10. Ordering convenience – Convenience of time horizon when they can order, time taken to place the
order.

Source: Case writer

Page 13 *

EXHIBIT 8: COMPARISON OF RETAILERS COMMERCIALS

Buying from GT Buying from C&C

2017 2018 2017 2018
Retailers average purchase of Detergent in INR in a
single purchase 400 400 200 400
Number of purchases a month 4 4 6 5
Retailer Net Landed cost for INR 1000 MRP of
Detergent in INR 874 870 863 855

Retailers average operating cost (fixed) as % of MRP 6% 8% 6% 8%

Retailers average operating cost (variable) for as %
of MRP 7% 7% 9% 9%
Retailers average inventory holding of detergent in
days of sales 15 10 12 8
Average credit offered by the supplier to retailer n
days of sales 7 8 2 4
Average credit offered by retailers to consumers in
number of days of sales 2 3 2 3
Retailers average selling price to end consumers for
INR 1000 MRP of Detergent 980 975 975 965
Average annual expense in space and its
Maintenance of detergent stocks by retailers in INR 2000 1200 1000 1000

Note: Capital cost is 12% per annum

Source: Case writer

EXHIBIT 9: VALUE PROPOSITION OF DIFFERENT CHANNELS

Share of
Business Key success Competitive Future outlook of the company
market (trends
Model parameters advantage (LDFL)
of 2-3 years)
Consistently
Penetration, freq.
declining in
of salesmen visit,
most urban
no. of categories The most strategic channel to get new
General Reach & geographies
purchased per trials & gain penetration on any brand
Trade speed where omni-
trip, costs per and SKU
channel conflict
visit, loyalty
was more
(share of wallet)
evident
Penetration, freq. Important channel to up tier / upsize
of salesmen visit, After a existing loyal consumers. However,
no. of categories consolidation this channel was likely to offer
purchased per Experience phase, MT had reduced margin progressively,
MT
trip, costs per & deals started to grow because of increase in bargaining
visit, loyalty again in last 2-3 power. It not only extracted more
(share of wallet) years margin but also made the consumers
“deal seekers” in the long run.
Page 14 *

EXHIBIT 9 CONTINUED

Penetration, freq. Organic growth

C&C will continue to grow due to 2
of salesmen visit, is high, as well
more global chains coming to India, as
no. of categories as high
well as all the existing players
purchased per inorganic
expanding with new store opening.
C&C trip, costs per Pricing growth due to
This channel will soon be above 10%
visit, loyalty new store
of total market, hence it is critical to
(share of wallet) expansion, this
understand how to leverage this
channel is
channel for incremental sales
growing overall
Penetration, freq. Urban households, tech-savvy users
of salesmen visit, with bigger baskets are on this
no. of categories channel and will explode with the
Growing rapidly
purchased per Convenience advent of internet. Cracking the supply
Electronic on a very small /
trip, costs per & chain code may be critical to make
commerce non-existent
visit, loyalty assortment this channel margin meaningful to the
base
(share of wallet) company. This channel is also critical
not just from sales but also
establishing marketing presence

Source: Case writer

EXHIBIT 10: COMPARISON OF THE FINACIALS OF DIFFERENT CHANNELS

Electronic
Distributor MR C&C commerce
Total annual detergent purchase by the intermediary in
2000 260 280 100
Punjab in Million INR (in MRP)
Number of such intermediaries in Punjab 12 3 3 4
Net purchase price as % of MRP 81.2 80.7 80.1 82.2
Average total operating cost as % of MRP 3.5 8.4 1.5 6.5
Average inventory holding of detergent in days of
8.0 4.2 2.5 5.0
sales*
Average credit offered to buyers in days of sales* 10.0 0.0 3.0 0.0
Average selling price to their customers as % of MRP 87.0 92.0 85.5 90.0
* Capital cost is 12% per annum

Source: Case writer