Here I'm going to explain the distribution strategy of Asian paints as AP achieved an

enviable leadership position through its distribution only

"EVERY COLOUR TELLS A STORY"
At the time AP entered the Indian paint business, the physical distribution and channel
management task was the most crucial one in paint marketing. Even now, physical
distribution and channel management continue to be crucial functions in the business. In
the matter of product range too, companies are not able to totally dispense with the need
for variety in view of the many practical limitations of mixing at retail outlets. It is no
easy task to provide mixing and computers. Before we actually go into APs distribution
strategy, let us have brief profiles of the company
Asian paints Limited is an Indian company which have a head-quarter in Mumbai. Asian
paints is India's largest and Asia's third largest paint company with a turnover of more
than 100 billion INR. Asian paints operates in 21 countries with 29 manufacturing
facilities in the world servicing more than 65 countries.
Vision
Asian Paints aims to become one of the top five Decorative coatings companies worldwide by leveraging its expertise in the higher growth emerging markets. Simultaneously,
the company intends to build long term value in the Industrial coatings business through
alliances with established global partners
A story of a distribution excellence
At the time AP entered the Indian paint business, distribution was the most crucial task
for any new entrant. Both physical distribution and channel management posed
formidable challenges. The foreign companies and their wholesale distributors dominated
the business. The foreign companies appointed a few traders as their wholesale
distributors and allowed them to perpetuate a situation of monopoly. Each distributor was
assigned a large territory and was given the right to operate as the exclusive channel of
the company in the assigned territory. The trade terms were also very liberal. The
companies also extended virtually unlimited credit to the distributors.The credit out
standings for the supplies made throughout the year were required to be settled by the
wholesale distributors only at the year-end, at Diwali time. These distributors had neither
the compulsion nor the motivation to invest in distribution infrastructure. They were not
required to move out to semi-urban and rural areas. They concentrated on big cities where
they could make the sales without much investment in distribution infrastructure and
market development. Also, they were shutting the doors on any new paint company
seeking an entry into the business. In other words, these distributors controlled the paint
business and were making it impossible for a new paint company to enter and establish
itself n the business. AP sized up the scenario correctly and formulated a unique
distribution strategy. In the normal course, a firm entering the industry in this scenario
would have opted for the low risk strategy of gaining a limited access to the wholesale
traders and be satisfied with a small share of the existing business. But AP went in for a
strategy that differed totally from the existing pattern. APs strategy in fact, meant the
polar opposite of the established/existing pattern

Elements of APs Distribution Strategy

1 AP BYPASS THE BULK BUYER SEGMENT AND GOES TO INDIVIDUAL
CONSUMERS
2 AP GOES TO SEMI-URBAN AND RURAL AREAS
3 AP GOES RETAIL
4 AP GOES IN FOR AN OPEN-DOOR DEALER POLICY
5 AP VOTES FOR NATIONWIDE MARKETING/ DISTRIBUTION
THE IMPLICATIONS OF APs DISTRIBUTION STRATEGY
APs distribution strategy described in the preceding paragraphs had its associated
implications. AP had to take due note of them and face them squarely.
GOING TO INDIVIDUAL CONSUMERS IMPLIED WIDE PRODUCT RANGE AND
COMPLEX DISTRIBUTION
Had AP concentrated on the bulk buyer segment, it could have managed with a limited
product range, at least, in the initial years. But, APs decision to turn to the individual
consumers necessarily meant a wide product range. In the nature of things, the individual
consumer segment involves a very wide choice in terms of products,materials, shades and
pack sizes. On top of this, AP believed in making products based on the preferences of
consumers. It gathered feedback from the consumers and turned out products, shades and
pack sizes on the basis of such feedback. This policy resulted in a further burgeoning of
the product range.
SMALLER PACKS PROLIFERATED THE PRODUCT DEPTH FURTHER
At the time of APs entry, paint companies were supplying paints in containers of 500 ml
or larger. AP saw that there was a felt need in the market for paints in smaller packs.All
end uses did not require a large quantity. Moreover, it was common practice for
consumers to buy paint initially in a larger quantity and supplement it with small size
purchase to complete the job. AP decided to harness the business opportunity and started
supplying it paints in small packs- in 200 ml, 100 ml and 50 ml packs. This proliferation
in pack sizes also contributed to APs growing product range. AP was by now
manufacturing and marketing as many as 2,000 distinct items of paints, none of which
was strictly a substitute for the other.
WIDE PRODUCT RANGE IMPLIED EXPENSIVE DISTRIBUTION
The policy of having the widest range of products, colours and pack sizes had its
implications on APs distribution. When 2,000 different items had to be made available to
the consumers, it automatically meant that the company had to be prepared for high
inventory holding in its various depots/retail outlets. Accounting and sales arrangements
had also to be provided for on a matching level. Naturally, distribution was becoming
more complex and expensive for AP.
GOING TO SEMI-URBAN / RURAL MARKETS FURTHER ENLARGED
DISTRIBUTION

The decision to go to the semi-urban and rural markets instead of confining to the urban
markets also meant enlargement of the distribution function. AP had to go in for more
dealers in order to serve the scattered semi-urban and rural market. The decision also
meant that AP could not opt for a simple, centralised distribution of its products from its
factory. It had to go in for a decentralised, field-focussed distribution, with a network of
depots located all over the country/marketing territory. Without such extensive and
intensive distribution network, it would not have been possible for AP to cover the semiurban and rural markets
THE IMPLEMENTATION PROCESS
AP Creates a Large Network of Dealers
An extensive network of dealers and a matching physical distribution infrastructure playa
crucial role in the decorative paints segment. This is essential for ensuring
easyaccessibility of the product to customers. In this, Asian Paints scored over
itscompetitors with a massive network of 15,000 dealers spread over 3,500 towns
acrossthe country. AP has the largest distribution network among all the players.
Goodlass hasa network of 8,000 dealers.
AP Established a Network of Company Depots
AP established a large chain of company operated depots/stock points throughout itsvast
marketing territory, from where the retail dealers could conveniently pick up their
requirements. APs basic strategies explained in the earlier sections necessitated aliberal
approach in the matter of stock points/depots. It also meant that the depots had tobe
company operated. After all, AP did not have any wholesale distributors to whom the
responsibility for operating the stock points could possibly have been assigned. AP
established a network of 30 company-run depots, spread through out the country and
serviced its retailers from them. The number of depots varied from city to city. For
example, Bangalore had just one depot while Mumbai had four depots. The depots
typically supplied to about 200-300 dealers.
AP creates a Marketing Organisation that Matched its Distribution Intensity
Effective control of the large number of depots, each having substantial stocks of 2,000
odd distinct items necessitated a matching marketing organisation structure. AP set up a
marketing organisation consisting of four regional sales offices, 35 branch sales offices
and a large number of sales supervisors and sales representatives spread all over the
country. Each branch sales office has its own depots and the various items are stocked in
the depots under the control of the concerned branches. The branches service the dealers
and customers in their territories.These are supported by six regional distribution centres,
which cater to 55 depots. Eachdepot has a branch manager for supervision of several
salespersons who cater to morethan 14,500 dealers in the more than 3,500 big and small
cities all over the country. APfaced many challenges. Of these, the cost-service dilemma
was no doubt, the most important one.
AP Successfully Resolves the Cost-Service Conflict in Distribution

Managing the cost-service conflict was the main challenge that AP faced in the
implementation of its distribution strategy. AP met this challenge successfully.We have
seen that AP has over 15,000 dealers in 3,500 towns in India. AP caters to all of them
directly. As a result, for AP, the distribution task gets tremendously extendedand
distribution cost becomes a significant business parameter.Demand for decorative paints
is characterised by seasonality. Demand drops during monsoons and picks up around a
mouth-and-a-half before the festive season. Major part of the sales take place in the
second half of the financial year. Manufacturers have to carry huge inventories during the
lean period. As a result, distribution cost becomes all the more significant.Naturally,
distribution cost emerged as a major hurdle that AP had to cross. The strategy adopted by
AP necessitated expensive distribution. In addition, AP took another basis decision. It
went in for a very high service level in distribution. Service level is measured in terms of
the number of stock keeping units (SKUs) available in stock as a percentage of the
number of SKUs that should have been in stock. APs service level is more than 85 per
cent whereas that of other large paint companies falls between 50 and 60 per cent. This
meant a further rise in APs physical distribution costs. AP had to resolve this cost-service
conflict. A high service level in physical distribution-in transportation, warehousing,
order processing and inventories necessarily means a high level of costs. Every firm has
to face this cost-service dilemma and work out a compromise. AP voted for a high service
level and without compromising this service level, it tried to contain the distribution
costs.Interestingly, AP succeeded in this endeavour.When we go in to the details as to
how AP actually resolved the cost-service dilemma,four factors stand out:
6 A strong commitment to distribution cost control, without compromising service
level
7 Effective inventory management
8 Effective control of credit outstanding
9 IT initiatives in support of distribution cost control
Strong Commitment to Distribution Cost Control
While following a totally customer-oriented distribution strategy. AP could not afford
toignore the cost angle. AP was in no position to pass on any additional costs to the
consumers. APs marketing philosophy demanded that the consumer price of its paints
should be on the lower side, so as to suit the pockets of the average Indian.
Moreover,APs business growth demanded more and more investment in manufacturing
anddistribution. AP had to find the resources. This apart, the intensity of competition had
also been on the increase. Naturally, profitability was coming under greater strain inthese
circumstances. AP had to control its distribution costs in order to maintain itsprofitability
and market leadership. The question was how to control the costs withoutsacrificing the
service level.
EFFECTIVE INVENTORY MANAGEMENT
Effective inventory management is the first major component of APs strategy
ondistribution cost control. And, AP achieved high efficiency in this regard. Actually,
ininventory cost, AP took the lowest position in the industry. APs average inventory
levelequals only 28 days sales, while the industry average is 51 days sales. This right

away provided a 45 per cent edge in inventory costs to AP compared t its competitors.
APs stock of finished goods was just 7 per cent of its net sales while for the others in the
industry it was nearly twice that level. What is particularly striking in this achievement is
that AP offered customers and dealers a high level of service in product delivery
compared to its competitors and yet kept the inventory costs down by 45 per cent
compared to the competitors.
CONTROL OF CREDIT OUTSTANDINGS
Large credit outstandings, running beyond two months or more, was a naturalconcomitant
of the distribution strategy chosen by AP. The dealers are required to maintain stocks of
all the SKUs that are on demand in the territory. It pushes upinventory levels at the
outlets. They need credit. AP allowed 15-21 days credit for dealers located in the major
towns and 22-30 days credit for dealers in upcountryregions.AP had to pull off a smart
credit control strategy for survival. It resolved the thornyproblem through an innovative
dealer incentive scheme. AP stipulated that each of its dealers should pay for the supplies
within a specified time norm and offered them as attractive incentive scheme for doing
so. It consisted of two components:
10 special discount of 3.5 per cent. This was referred to as the discount for
perfection in payments. It was passed on at the end of the year, provided each and
every payment throughout the year was made within the stipulated time norms.
11 cash discount of 5 per cent. This was paid for all outright cash purchases. It
wasgiven whenever payments were received within 24 hours of the supply/invoice.
Inrespect of outstation accounts, the payment have been made in advance by draft
inorder to be eligible for the cash discount.The scheme was a grand success. APs
credit outstandings always stood below 25days, while the outstandings of the other
major companies were in the range of 40 daysand above. Systematic computerisation
also helped AP maintain the credit outstanding within limits.
LEADERSHIP THROUGH DISTRIBUTION EXCELLENCE
The story of Asian Paints is a story of distribution excellence. AP achieved an enviable
leadership position through the distribution route. While AP did not ignore any of the
other functions of marketing, it was by mastering the distribution function that APs
gained a distinct and powerful competitive advantage. APs distribution strategy wastruly
innovative; it broke new ground in every aspect of distribution. In the final
analysis,excellence in distribution led the company to marketing and corporate excellence