A

Project Study Report

On

Titled
STUDY OF DISTRIBUTION CHANNEL OF ASIAN PAINTS
IN
ASIAN PAINTS

For the partial fulfillment of the Certificate of

Bachelor of Business Administration

SUBMITTED TO:- SUBMITTED BY:-

Ruchika thakur Surendra Singh
(Faculty &Guide) BBA III YEAR

Maharishi Arvind Institute of Science and Management,

JAIPUR
2010-2011
 2

CERTIFICATE FROM FACULTY GUIDE

This is to certify that summer training report entitled

“STUDY OF DISTRIBUTION CHANNEL OF ASIAN PAINTS

IN ASIAN PAINTS’’

Work carried out by

“SURENDRA SINGH” In the partial fulfillment of requirement

for the award of Bachelor of Business Administration (BBA)

Final year 2010-2011 affiliated to University of Rajasthan,

Jaipur.

To the best of my knowledge & belief this work is not

submitted/published elsewhere for any degree or diploma

examination.

Faculty Name: RUCHIKA THAKUR

MAISM, Jaipur.
 3

ACKNOWLEDGEMENT

At the outset, I would like to express my sincere and deep

felt thanks to our supervisor RUCHIKA THAKUR of
Maharishi Arvind Institute of Science and Management
of Jaipur to take this opportunity through which I got the
chance to make a report on STUDY OF DISTRIBUTION
OF CHANNEL OF ASIAN PAINTS.
I would also like to convey my heartfelt thanks to our
Dean Sir for his encouragement, advice and strong
support in every manner to make this report up to the mark.

I am also indebted to our seniors and friends for their constant

help and contribution by providing oversight and critique, in
their special areas of interest that influenced this.

I am also thankful to all those people who cooperate and help

to completing project. It was such a great experience to interact
with people and to get their view. It will definitely help us to
improve our communication skills. Gain the knowledge of
various techniques of advertising prevailing to the company

Surendra singh
(BBA III YEAR)
 4

EXECUTIVE SUMMARY

STUDY OF DISTRIBUTION OF
The project work done on
CHANNEL OF ASIAN PAINTS.
At asian paints, Jaipur, focuses primarily on assessing the future of the

Insurance sector in India as seen through the eyes of HDFC. Evaluating the

performance of this sector has been very difficult because of the immense

competition in this sector.

Future of a particular service depends on the performance of that service

sector and evaluation of performance of Insurance sector is very difficult

task because performance is a multidimensional contract.

It is important to recognize what good performance means. From strictly

financial perspective, the management can achieve high yield performance

primarily through providing quality service to customers.

I have prepared this report in partial fulfillment of requirement of the degree

of BBA.
 5

DECLARATION

This is to certify that the work done on "STUDY OF

DISTRIBUTION CHANNEL OF ASIAN PAINTS“
under the subject ‘Seminar on Contemporary Management
Issues’ and a written report submitted by me to Maharishi
Arvind Institute of Science and Management, Jaipur is
in partial fulfillment of the requirement for the award of
degree of BBA. This work has not been submitted
anywhere else for any other degree/diploma.

Declaration by:

(Surendra singh )
BBA III YEAR
 6

INDEX

 INTRODUCTION
RESEARCH
FINDING AND DISCUSSION
BIBLIOGAPHY
QUESTIONNAIRE
 7

INTRODUCTION
CHANNELS OF DISTRIBUTION

A major focus of channel of distribution is delivery. It is only through

distribution that public and private goods and services can be made available for
use or consumption. Producers of such gods and services are individually capable
of generation only the form or structural utility for their products and services.
They can organize their production capabilities in such a way that the products they
have developed can, in fact, be seen, analyzed and sold in the market. The
emergence and arrangement of a wide variety of distribution oriented institutions
and agencies, typically called intermediaries because they stand between
production on the one hand and consumption.

 Intermediaries can improve the efficiency n the other, can be explained in

the following terms: of the process.
 They help in the proper arrangement of routes of transactions.
 They help in the searching process.
 They help in the sorting process.

Marketing channels are set of interdependent organizations involved in the process

of making a product of service available for use or consumption.
 8

According to American Marketing Association, “A Channel of distribution, or

marketing channel, is the structure of intra-company organization units and extra-
company agents and dealers, wholesale and retail through which is a commodity,
product or service is marketed.”

According to Phillip Kotler, “ Every producer seeks to link together the set of
marketing intermediaries that best. Fulfill the firm’s objectives. This set of
marketing intermediaries is called the marketing channel (also trade channel of
channel of distribution).”

According to William J Stanton,” A channel of distribution for a product is the

route taken by the title to the goods as they move from the producer to the ultimate
consumers or industrial user.”

FUNCTION OF CHANNELS OF DISTRIBUTION:

 INFORMATION: Middlemen have a role in providing information about

the market to the manufacturer. Developments like changes in consumer
demography, psychography, media habits and the entry of a new competitor or a
new brand and changes in customers preferences are some of the information that
all manufacturers want. Since these middlemen are present in the market place and
close to the customer they can provide this information at no additional cost.

 PRICE STABILITY: Maintained price stability in the market is another

function a middlemen performs. Many a time the middlemen absorb as increase in
 9

the price of the products and continue to charge the customer the same old price.
This is because of the intra-middlemen competition. The middleman also maintains
price stability by keeping his overheads low.

 PRIMITON: Promoting the products in his territory is another function a

middleman performs. Many of them design their own sales incentive programmes,
aimed at building customers traffic at the other outlets.

 FINANCING: Middlemen finance manufacturers operation by providing

the necessary working capital in the form of advance payments for goods and
services. The payment is in advance even through the manufacturer may extend
credit, because it has to be made even before the products are bought, consumed
and paid for by the ultimate customer.

 TITLE: Most middlemen take the title to the goods, services and trade in
their own name. This helps in diffusing the risks between the manufacturer and
middlemen. This also enabled middleman to be in physical possession of the
goods, which in turn enables them to meet customer demand at vary moment it
arises.

 HELP IN PRODUCTION FUNTION: The producer can concentrate on

the production function leaving the marketing problem to middlemen who
specialize in the profession. Their services can best utilized for selling the
production where the rate of return would be greater.

 MATCHING DEMAND AND SUPPLY: The chief function of

intermediaries is to assemble the goods from many producers in such a manner that
 10

a customer can affect purchases with ease. According to Wroe Alderson, “The
goal of marketing is the matching of segments of supply and demand.”

 PRICING: In pricing a product, the producer should invite the suggestions

from the middlemen who are very close to the ultimate users and know what they
can pay for the product. Pricing may be different for different markets or products
depending upon the channel of distribution.

MARKETING FLOWS IN CHANNELS OF

DISTRIBUTION:

A flow is a set of function performed in sequence by channel

members. In the flow process, producers, wholesalers, retailers and
consumers are linked. The functions that need to be necessarily performed in
a channel system include transfer of ownership through transportation, order
processing, inventory carrying, storage, sorting negotiations and promotions.
The same function in a give channel system, may be performed at more than
one level and, in such a case, the workload for the function would need to be
shared between channel members.

A channel symbolizes the path for the movement of title, possession and
payment for goods and services.
 11

CHANNEL LEVELS:

The producer and the final customer are part of every channel. We will use
the number of intermediary levels to designate the length of a channel.

 CHANNELS OF DISTRIBUTION FOR CONSUMER GOODS:

As we know that a channel of distribution is the combination of

middlemen that a company uses to move is product to the ultimate
consumer. For the consumer products, four channels are widely used
as shown in figure below.

 ZERO-LEVEL CHANNEL: A Zero-level channel (also called a

direct-marketing channel) consists of a manufacturer selling directly

to the final customer. The major examples are door-to-door sales,
home parties, mail order, telemarketing, TV selling, internet selling,
and manufacturer-owned stores. Eureka Forbes representatives sell
vacuum cleaners door-to-door.

 ONE-LEVEL CHANNEL: A one-level channel consists one selling

intermediaries, such as a retailer.

 TWO-LEVEL CHANNEL:A two-level channel contains two

intermediaries. In the meatpacking industry, wholesalers and a
retailer.
 THREE-LEVEL CHANNEL: A three-level channel consists three

intermediaries. In the meatpacking industry, wholesalers sell to

jobbers, who sell to small retailers. Longer marketing channels can be
 12

found. In Japan, food distribution may involve as many as six levels.

From the producer’s point of view, obtaining information about end
users and exercising control becomes more difficult as the number of
channel levels increases.

0-level 1-level 2-level 3-level

Manufacturer Manufacturer Manufacturer Manufacturer

Wholesaler Wholesaler

Jobber

Retailer Retailer Retailer

Consumer Consume Consumer Consumer

Consumer Marketing Channels

 CHANNEL OF DISTRIBUTION FOR SERVICES: The intangible

nature of services creates special distribution requirements. There are

only two common channels for services.
 13

Product of services

Zero level (direct)

Agents

One level
Ultimate consumers or business users

Distribution Channels for Services

 CHANNELS OF DISTRIBUTION FOR INDUSTRIAL

PRODUCTS: Figure below Shows channels commonly used is
industrial marketing. An industrial-goods manufacturer can use its
sales force to sell directly to industrial customers. It can sell to
industrial distributors, who sell to the industrial customers, or it can
sell through manufacturer’s representatives or its own sales branches
directly to industrial customers, or indirectly to industrial customers
through industrial distributors. 1-1-2-level marketing channels are
quite common in industrial marketing channels.
 14

0-level 1-level 2-level 3-level

Manufacturer Manufacturer Manufacturer Manufactur

Manufacturer Manufacturer
representative representative

Industrial
distributor

Industrial Industrial Industrial Industrial

customer customer customer customer

Industrial Marketing Channels

TYPES OF INTERMEDIARIES
 15

 SOLE-SELLING AGENT/MARKETER: when a manufacturer

prefers to stay out of the marketing and distribution task, he appoints a

suitable agency as his sole-selling agent/marketer and entrusts the
marketing job with him. A ‘sole-selling agent’ or a ‘marketer’ is
usually a large marketing intermediary with large resources and
extensive territory of operation. He will be having his own network of
distrinutors/stokists/wholesalers, semi-wholesalers and retailers. He
takes care of most of the marketing and distribution functions on
behalf of the manufacturer. Obviously, a sole-selling agent/marketer
will earn a large margin/commission compared to other types of
intermediaries.

 C & F AGENTS (CFAs): In many cases, manufacturers employ

carrying and forwarding agent, often referred to as C & F Agents, or

CFAs. The CFAs can be describe as special category wholesalers.
They supply stocks on behalf of the manufacturer to the wholesale
sector or the retail sector. Their function is distribution. Their
distinguishing characteristic is that they do not resell products, but act
as the agent/representative of the manufacturer. They act so behalf of
the manufacturer and as his extended arm. In essence, they are
manufacturer’s branches.

 WHOLESALER/STOKIST/DISTRIBUTOR: A ‘wholesaler’ or

‘stokist’ or ‘distributor’ also a large operator but not on a level

comparable with a marketer of sole selling agent, in size, resources,
and territory of operation. The wholesaler/stokist/distributor operates
 16

under the marketer-soleselling agent, where such an arrangement is

used by the manufacturer.

 SEMI-WHOLESALERS: Semi-wholeseller are intermediaries who

buy product either from producers or wholesellers in bulk, break the

bulk or resell the goods (mostly) to retailers in assortment needed by
them. Like the wholesalers, semi-wholesellers too perform the various
wholesaling functions that are part of the distribution process. In some
cases, they may also perform the retailing functions. Their strength is
‘specialization by region’. They assist the producer in reaching a large
number of retailers efficiently.

 RETAILER/DEALER: retailers sell to the household/ultimate

consumers. They are at the bottom of the distribution hierarchy,

working under wholesalers/stokists/distributors/semi-whosalers,as the
case may be. In cases where the company operates a single-tier
distribution system, they operate directly under the company. The
retailers are also sometimes referred to as dealers of authorized
representatives. They operate in a relatively smaller territory or at a
specific location; they do not normally perform stock-holding and
sub-distribution functions. The stocks they keep are operational stocks
necessary for immediate sale at the retail outlet.

 VALUE-ADDED RESELLERS: they are intermediaries that buy the

basic product from producers and add value to it or, depending on the
nature of the product, modify it and then resell it of final customers.
 17

 MERCHANTS: They are intermediaries that assume that ownership

of the goods that they sell to customers or other intermediaries.

Marchants usually take physical possession of the goods that they sell.

STEPS INVOLVED IN DESIGNING A

CHANNEL SYSTEM

Formulating the Channel Objectives

 18

Identifying Channel Functions

Linking Channel Design to product

characteristics

Evaluation of the Distribution

Environment

Evaluation of Competitor’s
Channel Design

Matching the Channel Design to

Company Resources

Evaluation the Alternatives and

Selecting the Best
INTENSITY OF DISTRIBUTION
(MARKET COVERAGE)

The nature and intensity of competition in the industry will determine the
distribution pattern adopted by a firm. Some firms may adopt an intensive
distribution strategy and be indifferent to multiple brand outlets. Here, these
 19

firms aim at getting the highest share from such outlets. Other firms may
have the policy of exclusive distribution-insisting that the intermediary deal
in no other brand.

 INTENSIVE DISTRIBUTION: intensive distribution is a form of

distribution in which the manufacturer distributes his products through

as many outlets as possible. This type of distribution is used for those
products that are characterized by low involvement of the customer
and where customers look for location convenience. Products like
chocolates, biscuits, shaving blades, soaps and detergents are
distributed in this manner, so that they are easily available to the
customers at their nearest locations.

 EXCLUSIVE DISTRIBUTION: exclusive distribution is a form of

distribution in which there are al limited number of intermediaries

between the producer and the customer. Producers who want to
deliver the maximum services quality to the customers opt for this
type of distribution network. By limiting the number of distribution
outlets. An exclusive distribution producer can control the quality
levels at these outlets. An exclusive distribution arrangement also
helps the producers ensure that the distributors do not sell competing
products along with the producer’s products. Products that are
marketed through the exclusive distribution process have a higher
brand value and are naturally priced higher. Automobiles, apparels
and this accessories are sold though exclusive distributorship.
 20

 SELECTIVE DISTRIBUTION: this form of distribution falls

somewhere in between the two extremes of exclusive and intensive

distribution. In this from of distribution, although the manufacturer
does not use all the available marketing channels, he uses more then
one-distribution channel. As the manufacturer uses a relatively fewer
number of distribution channels, he can maintain good relations with
the channel members and as a result, expect an increased marketing
effort from them. Branded menswear like color plus, arrow, zodiac,
lee and so on are available at exclusive showrooms as well as
thorough other distribution channels. Similarly, in the branded
suitcase or luggage market, VIP, aristocrat, samsonite, etc, sell their
products at exclusive showrooms as well as at other retail outlets.

“RESEARCH”
DISTRIBUTION STRATEGY
-THE CASE OF ASIAN PAINTS
 21

Asian Paints is India's largest paint company and the third largest
paint company in Asia today, with a turnover of Rs 36.7 billion
(around USD 851 million). The company has an enviable reputation in
the corporate world for professionalism, fast track growth, and
building shareholder equity. Asian Paints operates in 21 countries and
has 29 paint manufacturing facilities in the world servicing consumers
in over 65 countries. Besides Asian Paints, the group operates around
the world through its subsidiaries Berger International Limited, Apco
Coatings, SCIB Paints and Taubmans.

Forbes Global magazine USA ranked Asian Paints among the 200
Best Small Companies in the World for 2002 and 2003 and presented
the 'Best under a Billion' award, to the company. Asian Paints is the
only paint company in the world to receive this recognition. One of
the country's leading business magazine "Business Today" in Feb
2001 ranked Asian Paints as the Ninth Best Employer in India. A
survey carried out by 'Economic Times' in January 2000, ranked Asian
Paints as the Fourth most admired company across industries in India.

The company has come a long way since its small beginnings in 1942.
Four friends who were willing to take on the world's biggest, most
famous paint companies operating in India at that time set it up as a
partnership firm. Over the course of 25 years Asian Paints became a
corporate force and Indi's leading paints company. Driven by its
strong consumer-focus and innovative spirit, the company has been
the market leader in paints since 1968. Today it is double the size of
any other paint company in India. Asian Paints manufactures a wide
range of paints for Decorative and Industrial use.
 22

Vertical integration has seen it diversify into products such as Phthalic

Anhydride and Pentaerythritol, which are used in the paint
manufacturing process. Asian Paints along with PPG Inc, USA, one of
the largest automotive coatings manufacturer in the world has begun a
50:50 joint venture, Asian PPG Industries to service the increasing
requirements of the Indian automotive coatings market. Another
wholly owned subsidiary, Asian Paints Industrial Coatings Limited
has been set up to cater to the powder coatings market which is one of
the fastest growing segments in the industrial coatings market. This
wholly owned subsidiary of Asian Paints has entered into a tie-up with
Canada-based Protech Chemicals which is one of the top ten powder
coatings companies in the world for technological know-how in the
area of powder coatings.

INTERNATIONAL OPERATIONS

Asian Paints operates in 22 countries across the world. It has

manufacturing facilities in each of these countries and is the largest
paint company in ten overseas markets. Asian Paints operates in five
regions across the world viz. South Asia, South East Asia, South
Pacific, Middle East and Caribbean region through the five corporate
brands viz. Asian Paints, Berger International, SCIB Paints, Apco
Coatings and Taubmans. In ten markets, it operates through its
subsidiary, Berger International Limited; in Egypt through SCIB
Paints; in five markets in the South Pacific it operates through Apco
Coatings and in Fiji and Samoa it also operates through Taubmans.
 23

The countries that Asian Paints has presence are as follows:

South Asia : Bangladesh, Nepal, and Sri Lanka

South East Asia : China, Malaysia, Singapore and Thailand

Caribbean Islands : Barbados, Jamaica, Trinidad and Tobago

Middle East : Bahrain, Egypt, Oman and United Arab Emirates

South Pacific : Australia, Fiji, Solomon Islands, Samoa Islands,

Tonga and Vanuatu

Asian Paints (AP) is the market leader in the Indian paint industry,
commanding a market share of 38 per cent in decorative paints and 33
per cent overall in the organized sector. Its annual sales turnover
exceeds Rs 36.7 billion (around USD 851 million), way ahead of all
the competitors in the industry. In profits too, AP is far ahead.

AP’s market leadership in the decorative paints segment can be

grasped correctly when we take note of the relative position of the
various players in the industry. Whereas AP has a market share of 38
percent, its nearest rival, Good lass Nerolac, commands a share of just
14 is wholly Indian in capital, management and technology, and in an
industry historically dominated by multinationals is certainly a
commendable feat.

How did AP achieve this success?

 24

AP’s success is the combined result of its strong corporate and

marketing strategies, Maximum credit should, however, go to its
marketing strategy. Within marketing, it was distribution excellence
that took AP to the enviable position, that it holds today in the Indian
paint industry. This case study explains AP’s distribution strategy.

A STORY OF DISTRIBUTION EXCELLENCE

This case study, in fact, depicts the distribution strategy adopted by

AP in the early years of its operations. The interesting point is that this
strategy serves AP well even today, when the context has somewhat
changed. In the earlier years, in the decorative paint segment, a wide
product range in terms of colour and pack size was a crucial factor for
success. AP literally leapfrogged and overtook all its competitors, and
offered the widest range of products. It also created the distribution
outfit that was necessary for reaching the wide range of product to
customers in every nook and corner of the country.

In latter years, technology came to the rescue of the players in this

regard. Customers could get the colour of their choice through mixing
at the retail outlet. With the help of an automated machine kept at the
retail outlet, paint is given the desired colour by mixing different
shades and stainers in the required proportion. The paint companies
need to maintain only half-a-dozen basic colourants with retailers;
mixing can create the other variants. The new arrangement helps the
 25

companies to manage with a narrow range of paints. They can reduce

the number of SKU’s handled and cut down inventory holding costs.

The above shift has no doubt reduced somewhat the importance

of the physical distribution task in the business, compared to the
position in the earlier years. At the time AP entered the Indian paint
business, the physical distribution and channel management task was
the most crucial one in paint marketing. This context is elaborated in
one of the sections in this case study. We can appreciate the lessons of
the case study better, if we keep in mind this contextual position. Even
now, physical distribution and channel management continue to be
crucial functions in this 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 machines and computers.

Before we actually go into AP’s distribution strategy, let us

have brief profiles of the company and that of the paint industry, so
that the contextual setting of the case is clear. Let us start with the
industry.

THE INDIAN PAINT INDUSTRY

The paint of India is 100 years old. Its beginning can be traced to the
setting up of a factory by Shalimar Paints in Kolkata in 1902. Till the
advent of World War II, the industry consisted of just a few foreign
 26

companies, and some small, indigenous producers. The war led to a

temporary stoppage of imports leading to many more local
entrepreneurs setting up manufacturing facilities. Nevertheless,
foreign companies continued to dominate the industry. Even now,
they remain active contestants, though their foreign shareholdings
stand reduced, with two of them having become totally Indian.

Currently, the industry has a sales turnover of about Rs 3,600

crore. In terms of volume, it corresponds to 5 lakh tones. The industry
is composed of two sectors, the organized and the unorganized. The
organized sector controls 70 per cent of the total market. The
remaining 30 percent is in the hands of the unorganized sector,
consisting of 2000 odd small-scale units.

The industry is not capital intensive. It is however working

capital intensive. The demand for paints is fairly price-elastic and is
linked to economic and industrial growth. Demand is somewhat
seasonal in nature-low during monsoon months, high during festival
seasons.

The Main Segments

The industry comprises two main segments—application-wise—

decorative/architectural paints and industrial paints. The
decorative/architectural paint segment accounts for 70 percent of the
total paint market while in the industrial paint segment accounts for
the remaining 30 per cent. The industry is, however, expected to
 27

undergo a structural shift towards industrial paints in the next few

years, when its share is expected to go up to 50 per cent in line with
the global trend. Industrial paints thus holds greater growth potential
in the coming years. Actually with the decorative segment gradually
bottoming out, companies are already increasing their focus on
industrial paints. Industrial paints are technology intensive.

The industrial paints segment can be further classified into

automotive paints, marine, powder coatings, high performance
coatings, and others. Original equipment manufacturers (OEM) of
products such as automobiles, furniture and while goods such as
refrigerators are prime consumers of industrial paint. The automobile
industry accounts for 50 per cent of the industrial paint market. A
good part of the demand is from shipping and heavy industry, Navy
being the largest customer in shipping.

The Main Players

Asian Paints, Goodlass Nerolac, ICI (India), Berger, Jenson &

Nicholson and Shalimar are the leading companies in the organized in
the organized sector. The top six manufacturers account for about 80
per cent of the market in the organized sector in value terms. AP is the
industry leader, with an overall market share of 33 per cent in the
organized sector. Threat of global competition is minimal in the
industry.
 28

AP dominates the decorative segment, with a 38 per cent market

share. Goodlass, a Tata

Market Shares of Five Major Players

Company Market share (%)

Decorative Industrial Overall
1. Asian Paints 38 15 33
2. Goodlass Nerolac 14 41 18
3. Berger Paints 9 10 9
4. ICI Paints 9 9 9
5. Shalimar 6 8 7

company, is number two with a 14 per cent market share. Berger and
ICI have 9 per cent and 8 per cent shares, respectively, in this segment
followed by Shalimar, with 6 per cent.
Goodlass dominates the industrial paints segment, with 41 per cent
market share. AP is a poor second here, with a 15 per cent market
share. Berger, ICI, and Shalimar are the other substantive players in
the sector, with 10 per cent, 9 per cent and 8 per cent shares,
respectively.
 29

The dominance of Goodlass in industrial paints is largely the result of

its technical association with the Japanese paint major, Kansai Paints,
which has a 29.5 per cent equity stake in the company. Goodlass has a
lion’s share of 70 per cent in the OEM passenger car segment, 40 per
cent share of two-wheeler OEM market and 20 per cent of commercial
vehicle OEM market. Goodlass also holds 20 per cent to the white-
goods segment.

THE COMPANY

As already mentioned, Asian Paints is India’s largest paints company

and the market leader in decorative paints. AP manufactures and
markets a wide spectrum of coatings and ancillaries, which include
decorative, production paints and heavy-duty coatings. The
manufacturing facilities of the company for paint products are
currently spread over four locations—Bhandup, Mumbai, which was
established in 1955; Taloja, Maharashtra, where AP established its
second unit in 1980; Ankelshwar, Gujrat, where operations started in
1981; and Patancheru, Andhra Pradesh, where manufacturing started
in 1985.

Asian Paints offers the widest range of paints in terms of products and
shades, as well as pack sizes, Availability of wide range of shades is
in fact, one major critical success factor in the decorative paints
business. And AP scores high in this factor. AP manufactures and
markets more then 2,800 items of paints (SKU).
 30

PERFORMANCE

AP has been consistently turning out a good performance over the

years. For more than two decades now, it has been the market leader.
Besides, the company has also consistently proved its excellence in
operating performance.

Exhibit 1 gives details of AP’s sales performance during the last four
years.

Exhibit 1 gives some other important details of AP’s performance.

AP has set a target of gross sales of Rs 2,100 crore by 2003. It aims to

be amongst the top ten decorative paints manufacturers in the world
by 2003 and among the top five by 2005.
_____________________________________________________________
Exhibit 1. Asian Paints-Select Performance: 200-2006

2003 2004 2005 2006

Sales Value (Crore ) 911 1,033 1,221 1,373

Sales Vaolume (Tonne) 116,942 132,284 162,110 181,271

Exhibit 2. Asian Paints-Select Performance: (FY 2000)

• AP’s operating profits stood at • The net profit stood at Rs 97

Rs 191 crore in Fy 2000, an crore as compared to Rs 77 crore
increase of 37.7 per cent over the the previous year, higher by 26.6
previous year. Operating profits per cent. Net profit has grown at a
have grown at a CAGR of 13 per CAGR of 12.7 per cent in last five
 31

cent in last five years, much years.

higher than the sales growth of
8.6 per cent.
• The profit before tax (PBT)
stood at Rs 143 crore, an increase
of Rs 49 crore over the previous
year, PBT has grown as a CAGR
of 12.35 per cent in last five
years.
• Return on net worth (RONW)
improved form 25.2 per cent in
FY 1999 to 27.1 per cent in FY
2000. RONW has remained close
to 25-26 per cent in last five
years.
• Return on Capital Employed
(ROCE) improved from 26.6 per
cent in FY 2003 to 35.9 per cent
in FY 2004

AP’s sound marketing has earned it strong brand equity. To quote

AP’s managing director:

‘We have been able to build strong brand equity for our products by
focusing on features that are appreciated by customers, ensuring that
our products are of high and consistent quality, offering a wide range
of shades and packs, and ensuring that our products are available
wherever and whenever required, by building a strong distribution
system.’

Its brands Tractor, Apcolite, Utsav, Apex and Ace are well entrenched
in the market. And AP’s logo, ‘Gattu’, the impish boy, with the paint
tin and brush, symbolizes one of the most recognized and most
prosperous mascots in Indian business!

All this has earned the company a place among the world’s leading
paint manufactures. AP is the winner of the 1995 corporate
performance award by the Economic Times and Harvard Business
 32

School Association of India. It actually received the award twice

within a decade.

AP STRIKES A NEW PATH IN DISTRIBUTION

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 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 distribution. The credit
outstanding for the supplies made throughout the year were required
to be settled by the wholesales distributors only at the year-end, at
Diwali time.

These distributors had neither the compulsion nor the motivation to

invest in distributions 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
 33

business and were making it impossible for a new paint company to

enter and establish itself in 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. AP’s strategy, in fact, meant
the polar opposite of the established/existing pattern.

Chart presents the elements of AP’s distribution strategy. We shall see

the details in the page that follow.

AP Bypasses the Bulk Buyer Segment and Goes to Individual

Consumers

Bulk buyer segment was the major segment of the paint business in
the earlier days and any

Chart Elements of AP’s Distribution Strategy

• AP bypassed the bulk buyer segment and went to individual

consumers of paints.
• AP went slow on urban areas and concentrated on semi-urban and
rural areas.
 34

• AP went retail
• AP went in for an open-door dealer policy
• AP voted for nationwide marketing/distribution

Paint Company needed a share of this major segment for sheer

survival. Though this segment was dominated totally by foreign
companies and their wholesale distributors, a new entrant to the
business like AP would normally have rushed to this segment and
tried to garner a share of it. AP, however, had a totally different game
plan. Seeing that this segment was not a growth segment, though it
was certainly the major segment at that point of time, AP decided to
ignore this segment for the present and go to individual consumers.
And that was crucial decision. It influenced every subsequent decision
AP took in the realm of distribution. Over time, AP proved to the
paint industry that there existed a large and bottomless segment in the
paint business of India, outside the bulk buyer segment, comprising of
individual consumers.

AP Goes to Semi-Urban and Rural Areas

Along with the decision to go to individual consumer segment leaving

aside the bulk buyer segment, AP also decided that within the
individual consumer segment, semi-urban and rural areas would
constitute AP’s priority market. Prior to AP’s entry, the paint business
 35

was by and large concentrated in the urban areas. All the major paint
companies and their wholesale distributors were content with the
market that was available in the urban areas. In contrast, AP clearly
saw that a large market for paints was emerging in the semi-urban and
rural areas, and felt it wise to tap this market. AP also understood that
a new entrant like AP had also a compulsion to go to the semi-urban
and rural areas. The major companies and their wholesale distributors
were not giving any worthwhile opening in the big cities for new
entrants. AP found it difficult to attract the wholesalers in the cities to
deal in its products. It had to necessarily turn to the semi-urban and
rural areas for support. AP wisely decided against committing all its
resources on a head on collision with the foreign companies and their
big wholesale distributors in the urban areas.

AP Goes Retail

Going directly to retail dealers was the next major strategic decision
of AP in the realm of marketing and distribution. Here too, AP totally
broke with the prevailing distribution practice. As mentioned earlier,
the foreign companies, who were the main players, were practicing a
wholesale distributor-dependant marketing system. AP did not see any
great merit in the system. It totally bypassed the well-entrenched
 36

wholesale distributors and went directly to the retailers. While AP’s

competitors remained content with their linkage with a handful of
wholesale distributors, AP preferred direct contact with hundreds of
retail dealers.

AP Goes in for an Open-Door Dealer Policy

AP followed an open-door policy in the matter of adding retail dealers

to its network. The prevailing trend in those days was to limit the
number of dealers to the barest minimum. AP broke this trend and
chose to use practically everyone in the trade, who was willing to
function as its dealer. It was a combined result to the policy of going
directly to retailers and the policy of open door to dealership that AP’s
dealer network swelled rapidly. Even after achieving stability and
maturity in distribution, AP continued to follow a policy of continuous
expansion of dealer network. By 1990, AP was having a 7,000 strong
dealer network. By the year 2000, the number had swelled to 12,000.
And even now, on an average, AP is adding 200 to 250 new dealers
every year.

AP Votes for Nationwide Marketing/Distribution

AP took yet another important and strategic decision in the
realm of distribution. Those days, nationwide distribution/marketing
was not the standard practice in the paint business. On the one side,
there were the 1,000 odd small paint companies who, as a class,
believed in marketing their paints in limited territories in and around
 37

their point of production. On the other side were the big companies,
who as a class, believed in limiting their distribution to the big cities.
In contrast to both these existing practices. AP voted for a nationwide
distribution/marketing. It wanted to have an active presence
throughout the country, in the geographical zones, states and
territories.

THE IMPLICATION OF AP’S DISTRIBUTION STRATEGY

AP’s 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, AP’s 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.
 38

Smaller Packs Proliferated the Product Depth Further

At the time of AP’s 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 its paints in small packs-in 200 ml
and 50 ml packs. This proliferation in pack sizes also contributed to
AP’s 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 Distribution

The policy of having the widest range of products, colurs and pack
sizes had its implication on AP’s 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
 39

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, centralized distribution of its
products form its factory. It had to go in for a decentralized, field-
focused 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 semi-urban and rural markets.

Going Retail Implied Deep Involvement in Channel Management

Through its decision to go retail, AP was getting deeply involved in

physical distribution and

Chart Main Steps in the Implementation Process

• AP’s created a large network • It successfully resolved the

of dealers. cost-service conflict in
• It established a network of distribution.
company depots to service the (i) A strong commitment to
dealers. distribution cost control without
• It created a marketing compromising service level.
organization that matched its (ii) Effective inventory management
distribution. (iii) Effective control of credit
 40

outstanding
(iv) IT initiatives in distribution cost
control

Channel management. In the system chosen by AP, the physical

distribution cum channel management task was far more demanding,
compared to the wholesaler-oriented system practiced by the other
paint companies. While, for companies that embraced the wholesaler-
oriented system, it was enough to service a handful of distributors, AP
had to service a network of thousand of retail dealers. Having taken
the decision to go retail, AP necessarily had to create and service a
vast dealer network. It also had to create the physical distribution
facilities required for servicing such a large network.

National Marketing Necessitated Nationwide Organisation

Extend of marketing territory and complexity of distribution

organization are interrelated. The moment AP voted for nationwide
marketing, it was getting into intensive as well as extensive physical
distribution and channel management. AP thus had to create a
nationwide distribution-cum-marketing organization.

DISTRIBUTION BECOMES AP’S SHOWCASE FUNCTION

AP’s strategies made distribution the most important elements of its

marketing mix. And, AP give to distributions all the inputs that were
demanded by it. In fact, the rest of this case study is essentially a
description of how AP managed its distribution activities-how it
chalked out its distribution programmes, how it implemented them,
what problem it encountered in this task, how it tackled them and how
through distribution success, it achieved marketing and corporate
success.
THE IMPLEMENTATION PROCESS

We shall see low AP went about the actual management of the

distribution function. The main steps in AP’s implementation process
are shown in Chart 2.
Let us see the details.
 41

AP Creates a Large Network of Dealers

An extensive network of dealers, and a matching physical distribution

infrastructure play a crucial role in the decorative paints segment. This
is essential for ensuring easy accessibility of the product to customers.
In this, Asian Paints scored over its competitors with a massive
network of 15,000 dealers spread over 3,500 towns across the country.
AP has the largest distribution network among all the players.
Goodlass has a network of 8,000 dealers.
42
 43

AP Establishes a Network of Company Depots

AP established a large chain of company operated depots/stock points

throughout its vast marketing territory, from where the retail dealers
could conveniently pick up their requirements. AP’s basic strategies
explained in the earlier sections necessitated a liberal approach in the
matter of stock points/depots. It also meant that the depots had to be
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. As shown in Exhibit 32.4
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 depots
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 organization structure. AP set up a marketing organization
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. The marketing organization of the company is
presented in Exhibit 32.5. It can be seen from the chart that a very
extensive structure has been created in the consumer division. It is
primarily meant for taking care of the massive distribution task
involved in this sector. 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 centers, which cater

to 55 depots. Each depot has a branch manager for supervision of
several salesperson who cater to more than 14,500 dealers in the more
that 3,500 big and small cities all over the country.
 44

AP faced many challenges. Of these, the cost-service dilemma was no

doubt, the most important one. And, that is the aspect in which we are
mainly interested in this case study.

Exhibit 5 AP’s Marketing Organisation

General Manager
(Marketing)

Sales Manager Manager Sales

Manager
(Trade) (Export)
(Industrial)

Regional Sales Managers Product Product Product

(1) (2) (3) (4) Manager Manager Manager
Zonal Manager (4)
(1) (2)

Branch Managers
Product Product
Or
Executive (6) Executive (6)
Depot Executive (35)

Service
Sales Supervisors (13) Representatives (4)

Sales Representatives
Sales Repersentatives (168) (Industrial Paints)
(27)
 45

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 extended and distribution cost becomes a
significant business parameter.

Demand for decorative paints is characterized by seasonality. Demand

drops during monsoons and picks up around a month-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 array 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 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. AP’s 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 AP’s physical
distribution costs. AP had to resolve this cost-service conflict.
 46

In the chapter on Physical Distribution and Logistics Management, we

had seen that a cost-service dilemma is inherent in any physical
distribution situation. 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
endeavor.

When we go in to the details as to how AP actually resolved the cost-

service dilemma, four factors started out:

• A strong commitment to distribution cost control, without

compromising service level
• Effective inventory management
• Effective control of credit outstanding
• 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 to ignore the cost angle. AP was in no position to
pass on any additional costs to the consumers. AP’s marketing
philosophy demand that the consumer price of its paint should be on
 47

the lower side, so as to suit the pockets of the average Indian.

Moreover, AP’s business growth demand more and more investment
in manufacturing and distribution. AP had to find the resources. This
apart, the intensity of competition had also been on increase.
Naturally, profitability was coming under greater strain in these
circumstance. AP had to control its distribution costs in order to
maintain its profitability and market leadership. The question was how
to control the costs without sacrificing the service level.

Effective Inventory Management

Effective inventory management is the first major component of AP’s

strategy on distribution cost control. And, AP achieved high efficiency
in this regard. Actually, in inventory cost, AP took the lowest position
in the industry. AP’s average inventory level equals only 28 days
sales, while the industry average is 51 days sales. This right away
provided a 45 cent edge in inventory costs to AP compared to its
competitors. AP’s stock of finished goods was just 7 per cent of its net
sales while for the other 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.
 48

Control of Credit Outstanding

Large credit outstanding, running beyond two months or more, was

natural concomitant 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 up inventory 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 upcountry
regions.

AP had to pull of a smart credit control strategy for survival. It

resolved the thorny problem 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 an attractive
incentive scheme for doing so. It consisted of two components:

(a) A 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.

(b) A cash discount of 5 per cent. This was paid for all outright cash
purchases. It was given whenever payments were received within 24
hours of the supply/invoice. In respect of outstation accounts, the
payments should have been made in advance by draft in order to be
eligible for the discount.
 49

The scheme was a grand success. AP’s credit outstanding always

stood below 25 days, while the outstanding of the other major
companies were in the range of 40 days and above. Systematic
computerization also helped AP maintain the credit outstanding within
limits.

IT Initiatives in Distribution Cost Control

AP’s IT initiatives in respect of distribution-inventory control and

control of credit outstanding, in particular-helped it no control
distribution costs without lowering the service level. AP went in for a
fully computerized distribution system. AP did this not only with an
eye on distribution cost control, but also for the sake of distribution
effectiveness per se. But for such an approach, AP’s distribution
management would have gone haywire. Here was a situation where
2,000 different items of paints, manufactured at four different plants,
had to be distributed to 15,000 dealers in 35,00 towns spread all over
the country. Through 55 depots. AP accomplished this, maintaining
the average service level at 85 per cent, a clear 25 per cent above that
of competition. The IT initiatives also ensured prompt billing,
accurate customer accounting and effective control of credit
outstanding.

Computerization also enabled AP to process recent sales data for the

100 fastest moving SKUs. This analysis was used to project sales of
specific products, which helped plan production and raw material
 50

purchases. With computerization, AP was able to analyse past trends

to arrive at a 90 per cent accurate sales forecast. Corrections were
made every month between the sales projection and actual sales.
Production was thus evened out month-to-month. Sales statistics were
maintained, classified by product, month, salesman, branch, region
and dealer. Such computerized planning and control of production,
sales and inventories helped AP cut distribution costs without
compromising on the high level of service sought by it in physical
distribution.

AP later hired from the Department of Telecommunications, satellite

time and got all its offices in the country networked. They transmit
data daily to the corporate had office in Mumbai, which uses it for
sales and production planning. AP has consistently improved its IT
systems over the years. It has linked all its factories and 55 depots
through V-SAT terminals, and derived big benefits in terms of
streamlined distribution. More recently, AP has implemented supply
chain management software from i2 technologies. AP plans to
upgrade its communication infrastructure through VSAT leased lines
and ISDN lines all over India. It is also implementing an ERP solution
from SAP to be completed in 2001.

AP Acquires a Competitive Advantage Through Its Inventory

Management and Credit Control

One can grasp the full import of AP’s success in this sphere only
when due not is taken of the fact that AP has achieved the lowest
 51

distribution cost as well as the highest differentiated position in the

industry. AP’s ‘Apcolite’, the largest selling brand of paint in the
country, is available in different shades and in eight different pack
sizes. Being in the business of ‘colours’, AP utilized colour to achieve
differentiation, and none of its competitors could match AP in this
aspect. Simultaneously, AP also achieved the lowest cost position in
the industry. Normally, when a firm consciously opts for the
differentiation route with a wide product line, it automatically point
towards higher inventory levels and consequently higher inventory
and other costs. But AP, through its effective distribution
management, inventory management and control of credit
outstanding, in particular, managed to retain its inventory size and
inventory costs at the lowest possible level.
AP actually saved so much on inventory carrying costs that it almost
earned its promotion budget through these savings. This is again
praiseworthy because AP spends as much as per cent of its sales on
promotion, the highest in the industry. It has to spend so much in
order to maintain its differentiation advantage. But strikingly, it has
kept its total marketing costs the lowest in the industry. The two
factors together-the lowest cost position as well as the highest
differentiation position-has conferred a significant competitive
advantage on AP.
 52

CONCULSION

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 function of marketing,
it was by mastering the distribution function that AP gained a distinct
and powerful competitive advantage. AP’s distribution strategy was
truly 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.
 53

BIBLIOGRAPHY

 “Widening the Net.” Business India Intelligence, Auguest 2001,p2,2p.

 Anand, M “Diary of Sales Associate.” Business World. 21 October, 2002
 Brown James R, Fern Edward F., “Conflict in Management Channels:
The Impact of Dual Distribution.” International Review of Retail,
Distribution & Consumer Research, April92, Vol. Issue 2, p121, 12p
 Moriarty, Rowland T and Moran, Ursula “Managing Hybrid Marketing
Systems.” Harvard Business Review, November/December 1990,
Vol. 68 Issue.

 “Marketing Management” by Kotler / keller 2005 Edition.

 “Marketing Management” ICFAI Center for Management Research
 “Marketing Management” Planning, Implimentation & Control by V S
Ramaswamy / S Nmakumari
 www.asianpaints.com
 www.mouthshut.com/product-reviews/Asian_Paints_Royale_Luxury_Emulsion-
 en.wikipedia.org/wiki/Asian_Paints –
 www.novapaint.org/webasia.html
 www.domain-b.com/companies/companies_a/asian_paints/index.html
 http://blog.interface.co.in/archive/2007/09/04/asian-paints-colour-world-
paint-retailing-in-india-that-was.aspx
 54

QUESTIONAIR

CUSTOMER SATISFACTION SURVEY

1. At which place would you like to purchase paint for your home?

A) Shop near at your home

B) Paint market of your city
C) Authorized Dealer
D) Hardware Market Ans. ( )

2. Which type of Paint you plan for painting of your home?

A) Plastic paint
B) Distemper
C) Oil based Paint
D) Water Based Paint Ans. ( )

3. When you Purchase paint for your home which thing you prefer?
A) Brand
B) Quality
C) Price
D) Availability of product Ans. ( )

4. Do you know about ASIAN PAINTS? If yes, how you know?

A) As a Brand
B) Through Television
C) Through Print Media
D) Word of mouth Ans. ( )

5. Which Brand comes to your mind while you start thinking for the
painting of your home?
A) Asian Paints
B) Nerolac
C) Berger
D) Shalimar Ans. ( )

6. Where do you rate a Asian Paints on a Rating Scale of Pen?

A) 1-5 Best
B) 5-10 Average
C) 10-15 Poor Ans. ( )