2008-10
Distribution System of HUL
1
Introduction - Hindustan Unilever Limited
Hindustan Unilever Limited (HUL), formerly Hindustan Lever Limited (it was renamed in late June
2007
as HUL), is India's largest Fast Moving Consumer Goods company, touching the lives
of two out of three Indians with over
20
distinct categories in Home & Personal Care Products
and Foods & Beverages. These products endow the company with a scale of combined volumes v olumes of about 4 million tonnes and sales of nearly Rs. 13718 crores. HUL is also one of the country's largest exporters; it has been recognised as a Golden Super Star Trading House by the Government of India. The mission that inspires HUL's over 15,000 employees, including over 1,300 managers, is to "add vitality to life." HUL meets everyday needs for nutrition, hygiene, and personal care with brands that help people feel good, look good and get more out of life. It is a mission HUL shares with its parent company, Unilever, which holds 5 2.10% of the equity. The rest of the shareholding is distributed among 360,675 individual shareholders and financial i nstitutions. HUL's brands - like Lifebuoy, Lux, Surf Excel, Rin, Rin, Wheel, Fair & Lovely, Pond's, Pond's, Sunsilk, Clinic, Pepsodent, Close-up, Lakme, Brooke Bond, Kissan, Knorr-Annapurna, Kwality Wall's are household names across the country and span many categories - soaps, detergents, personal products, tea, coffee, branded staples, ice cream and culinary products. These products are manufactured over 40 factories across India. The operations involve over 2,000 suppliers and associates. HUL's distribution network comprises about 4, 000 redistribution stockists, covering 6.3 million retail outlets reaching the entire urban population, and about
250
million rural
consumers.
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Distribution Network of HUL
Evolution over Time The HULs distribution network has evolved with time. y
The first phase of the HUL distribution network had wholesalers placing bulk orders directly with the company. Large retailers also placed direct orders, which comprised almost 30 per cent of the total orders collected. The company salesman grouped all these orders and placed an indent with the Head Office. Goods were sent to these markets, with the company salesman as the consignee. consignee. The salesman then collected and distributed the products to the respective wholesalers, against cash payment, and the money was remitted to the company.
Wholesalers HUL Factory Large Retailers
y
The focus of the second phase, phase , which spanned the decades of the 4 0s, was to provide desired products and quality service to the company's customers. In order to achieve this, one wholesaler in each market was appointed as a "Registered Wholesaler," a stock point for the company's products in that market. The company salesman still covered the market, canvassing for orders from the rest of the trade. He then distributed stocks from the Registered Wholesaler through distribution units maintained by the company. The Registered Wholesaler system, therefore, increased the distribution reach of the company to a larger number of customers.
HUL Factory Registered Registered Wholesaler Wholesaler Retailers
3
y
The highlight of the third phase was the concept of "Redistribution Stockist" (RS) who replaced the RWs. The RS was required to provide the distribution units to the company salesman. The second characteristic of this period was the establishment of the "Company Depots" system. This system helped in transshipment, bulk breaking, and as a stockpoint to minimise stock-outs at the RS level. In the recent past, a significant change has been the replacement of the Company Depot by a system of third party Carrying and Forwarding Agents (C&FAs). The C&FAs act as buffer stock-points to ensure that stock-outs did not take place. The C&FA system has also resulted in cost savings in terms of direct transportation transportation and reduced time time lag in delivery. The most important important benefit has been improved customer service to the RS.
HUL Factory Factory
The role performed by the Redistribution Stockists warehousing
facilities,
providing
manpower,
includes: Financing stocks, providing providing
service
to
retailers,
implementing promotional activities, extending indirect coverage, reporting sales and stock data, demand simulation and and screening for transit transit damages.
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Detail
Overview
The distribution network of HUL is one of the key strengths that help it to supply most products to almost any place in the country from Srinagar to Kanyakumari. This includes, maintaining favorable trade relations, providing innovative incentives to retailers and organizing demand generation activities among a host of other things. things. Each business of HUL portfolio portfolio has customized the network to meet its objectives. The most obvious function of providing the logistics support is to get the companys product to the end customer. Distribution
System of HUL
HUL's products are distributed through a network of 7,000 redistribution stockists, covering 6.3 million retail outlets reaching the entire urban population, and about
250
million rural
consumers. There are 35 C&FAs in the country who feed these redistribution redistribution stockists regularly. The general trade comprises grocery stores, chemists, wholesale, kiosks and general stores. Hindustan Unilever provides provides tailor tailor made made services to each of its its channel channel partners. It
has
developed customer management and supply chain capabilities for partnering emerging self-service stores and supermarkets. Around 2,000 suppliers and associates serve HULs 40 manufacturing manufacturing plants which are decentralized across
2
million square miles of territory.
(Fig. 1 Schematic of HULs Distribution Network) 5
1.
Distribution at the Villages:
The company has brought all markets with populations of below 5 0,000 under one rural sales organisation. organisation. The team comprises an exclusive sales force and exclusive redistribution stockists. The team focuses on building superior availability of products. In rural India, the network directly covers about 50,000 villages, reaching
250
million consumers, through 6 000
sub-stockists.
(Fig. 2 Rural Distribution Model of HUL) HUL approached the rural market with two criteria - the accessibility and viability . To service this segment, HUL appointed a Redistribution Redistribution stockist who was responsible for all outlets and all business within within his his particular town. In the 25% of the accessible markets with low business potential, HUL assigned a sub stockist who was responsible to access all the villages at least once in a fortnight and send stocks to those markets. markets. This sub-stockist sub-stockist distributes the company's products to outlets in adjacent smaller villages using transportation suitable to interconnecting interconnecting roads, like cycles, scooters or the age-old bullock cart. Thus, Hindustan Unilever is trying to circumvent the barrier of motorable roads. The company simultaneously uses the wholesale channel, suitably incentivising them to distribute company products. The most common form of trading remains the grassroots buy-and-sell mode. This enables HUL to influence the retailers stocks and quantities sold through credit extension and trade discounts. HUL launched this Indirect Coverage (IDC) in 1960s. Under the Indirect Coverage (IDC) method, company vans were replaced by vans belonging to Redistribution Stockists, which serviced a select group of neighbouring markets.
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2.
Distribution at the Urban centres:
Distribution of goods from the manufacturing site to C & F agents take place through either the trucks or rail roads depending on the time factor for delivery and cost of transportation. Generally the manufacturing site is located such that it covers a bigger geographical segment of India. From the C & F agents, the goods are transported to RSs by means of trucks and the products finally make the last mile based on the local popular and cheap mode of transport.
3. New distribution channels: PROJECT SHAKTI This model creates a symbiotic partnership between HUL and its consumers. Started in the late 2000,
Project Shakti had enabled Hindustan Lever to access 80,000 of India's 638,000 villages.
HUL's partnership with Self Help Groups (SHGs) of rural women, is becoming an extended arm of the company's operation in rural hinterlands. Project Shakti has already been extended to about 12 states - Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Tamil Nadu, Chattisgarh, Chattisg arh, Uttar Pradesh, Orissa, Punjab, Rajasthan, Maharashtra and West We st Bengal. Be ngal. The respective state governments governments and and several NGOs are actively actively involved involved in the initiative. initiative. The The SHGs have chosen to partner with HUL as a business venture, armed with training from HUL and support from government agencies concerned and NGOs. NGOs. Armed Armed with with micro-credit, micro-credit, women from SHGs become direct-to-home distributors in rural markets. The model consists of groups of (15- 20) villagers below the poverty line (Rs.750 per month) taking micro-credit from banks, and using that to buy our products, which they will then directly sell to consumers. In general, a member from a SHG selected as a Shakti entrepreneur, commonly referred as 'Shakti Amma' receives stocks from the HUL rural distributor. After being trained by the company, the Shakti entrepreneur then sells those goods directly to consumers and retailers in the village. Each Shakti entrepreneur usually service 6-1 0 villages in the population strata of 1,000-2,000. The Shakti entrepreneurs are given HUL products on a `cash and carry basis.' The following two diagrams show the Project Shakti model as initiated by HUL.
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Project Streamline To cater to the needs of the inaccessible market with high business potential HUL initiated a Streamline initiative in 1997. Project Streamline is an innovative and effective distribution network for rural areas that focuses on extending distribution to villages with less than
2000
people with the help of rural sub-stockists/Star Sellers who are based in these very villages. As a result, the distribution distribution network directly covers as of now now about 40 per cent of the rural population. Under Project Streamline, the goods are distributed from C & F Agents to Rural Distributors (RD), who has 15-20 rural sub-stockists attached to him. Each of these sub-stockists / star sellers is located in a rural market. The sub-stockists then perform the role of driving distribution in neighboring villages using unconventional means of transport such as tractor and bullock carts. Project Streamline being a cross cross functional functional initiative, the Star Seller sells everything from detergents to personal products. Higher quality servicing, in terms of frequency, credit and full-line availability, is to be provided to rural trade as part of the new distribution strategy. 8
The diagram shows the model of Project Streamline.
HINDUSTAN LEVER NETWORK (HLN) It is the company's arm in the Direct Selling channel, one of the fastest growing in India today. It already has about several lakh consultants - all independent entrepreneurs, trained and guided by HLN's expert managers. HLN has already spread to over 1500 towns and cities, covering 80% of the urban population, backed by 4 2 offices and 240 service centres across the country. It presents a range of customised offerings in Home & Personal Care and Foods. The New Compensation plan for HLN partners provides new exciting ways of earning substantial income in addition to offering rewards like revenue sharing through the innovative concept of pools MOTHER DEPOT AND JUST IN TIME SYSTEM In order to rationalise the logistics and planning task, an innovative step has been the formation of the Mother Depot and Just in Time System (MD-JIT). Certain C&FAs were selected across the country to act as mother depots. Each of them has a minimum number of JIT depots attached for stock requirements. All brands and packs required for the set of markets which the MD and JITs service in a given g iven area are sent to the mother mot her depot by all a ll manufacturing units. The JITs draw their requirements from the MD on a w eekly or bi-weekly basis.
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LEVERAGING INFORMATION TECHNOLOGY HUL customers are serviced on continuous replenishment. This is possible because of IT connectivity across the extended supply chain of about 2,000 suppliers, 80 factories and 7,000 stockists. This sophisticated network with its voice and data communication facilities has linked more than
200
locations all over the country, including the head office, branch offices,
factories, depots and the key redistribution stockists. They have also combined backend processes into a common Shared Service infrastructure, which supports the units across the country. All these initiatives together have enhanced operational efficiencies, improved the service to the customers and have brought us closer to the ma rketplace. RS Net Initiative: The RS Net initiative, launched in
2001,
aims at connecting Redistribution Stockists (RSs)
through an internet based system. It now covers stockists of the Home & Personal Care business and Foods & Beverages in close to 1200 towns and cities. Together they account for about 80% of the company's turnover. RS Net is one of the largest B2B e-commerce initiatives ever undertaken in India. It provides linkages with the RSs own transaction transaction systems, enables monitoring of stocks and secondary sales and and optimises RSs orders and inventories on a daily basis through online interaction on orders, despatches, information sharing and monitoring.
The
IT-powered
system
has
been implemented to
supply
stocks
to
redistribution stockists on a continuous continuous replenishment basis. Today, the sales sales system gets to know every day what HUL stockists have sold to almost a million outlets across the country. Information on secondary sales is now available on RS Net every day. RS Net is part of Project Leap. Project Leap begins with the supplier runs through the factories and depots and reaches up to the RSs. This ensures HULs growth by ensuring that the right product is available at the right place in the right quantities and at the right time in the most cost-effective manner. Leap also aims at reducing inventories and improving efficiencies right through the extended supply chain. RS Net has come as a force multiplier for HUL Way, the company's action-plan to not only maximise the number of outlets reached but also to achieve leadership in every outlet. RS Net has enabled stockists to place orders on a Continuous Replenishment System. This in turn has unshackled the field force to solely focus on secondary sales from the stockists to retailers and market activation. It has also enabled RSs to provide improved service to retail outlets. Simultaneously, HUL is servicing the rural market, key urban outlets, and the modern trade as a single concern.
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Adexa iCollaboration suite: In
2000,
HUL identified improved supply chain management as a critical business priority and
launched a comprehensive initiative, Project Project Leap Leap tasked with increasing supplier/distributor responsiveness, reducing inventory buffers, and optimizing planning and scheduling. HUL chose the Adexa iCollaboration suite for facilitating centralized monitoring of the SCM, live customer /supplier collaboration, and integrating demand and distribution planning with production scheduling. With the aggregated view of data provided by the iCollaboration suite, HUL was able to combine sales and distribution efforts on the diverse product lines, which resulted in significant savings on the cost side for inventories and distribution. HUL updates inventory positions, shipments and customer orders on a daily basis with these software packages and can get a pulse on the market real time.
(Fig. 3 HULs Turnover Compared with Competitors, 2006)
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(Fig. 4 HULs Market Leadership across various FMCG Categories)
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Channel Design Hindustan Lever Limited (HUL) has two types of channel selling y
Regular (traditional) retail channel,
y
Direct Selling Channel in the name of Hindustan Lever Network (HLN).
HUL has a well entrenched high distribution model which comprises of C&FAs, Redistribution Stockists, wholesalers and retailers (as shown earlier). Hindustan Unilever's distribution network is recognized as one of its key strengths. Its focuses on Product availability, Brand communication, communication, and higher levels of brand experience. HULs Sales Break-up through different channels:
Sales Break-up Through Different Channels 33%
7%
Modern Retail Urban General Trade 60%
Rural Areas
Channel Structure Typically, the goods produced in each of the HUL's 40 factories are sent to a depot with the help of a carrying and forwarding agent (C&FA). The company has its depot in every state of the country. The C&FA is a third party and gets servicing fee for stock and delivery of the products. In each town, there is at least a redistribution stockist (RS) who takes the goods from the C&FA and sells them to retail outlets. The HUL management realized certain problems with the existing sales model. First, the model was not viable for small towns with small population and small business. HUL found it expensive to appoint one stockist exclusively for each town. Secondly, the retail revolution in the country has changed the pattern the customers shop. Large retail self service shops are becoming commonplace.
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In response of these problems, HUL redesigned its sales and distribution channel and the new system is known as 'diamond model' in the company. At the top end of the diamond, there are the self service retail stores which constitute 10% of the total FMCG market. The middle, fatter part of the diamond represents the profit-center based sales team. In the bottom of the pyramid is the rural marketing and distribution which accounts for
20%
of the business. As
a result of the new distribution plan the company has planned to reduce the number of RS in small towns. Field Sales Force To meet the ever-changing needs of the consumer, HUL has set up a distribution network that ensures availability of all their products, in all outlets, at all times. This includes, maintaining favourable trade relations, providing innovative incentives to retailers and organizing demand generation activities activities among a host of other things. The important activities that HUL field sales force does are (i) target chasing and (ii) reporting on a daily basis. Account information is maintained on palmtops given by HUL. During a research and informal survey of HUL field sales force, it was found that for the last two years, training is not being given at all to the sales force. HUL has limited the network channel selling to categories of Home & Personal Care (HPC) and Food products with exclusive brands for this channel. That is, these particular brands (products) (products) are all exclusive to HLN, specifically developed for the Direct Selling channel, and not available in the retail channel. The general trade comprises grocery stores, chemists, wholesaler, kiosks and general stores. Hindustan Unilever services each with a tailor-made mix of services.
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Initiatives taken to improve the Distribution Network HUL has taken the following initiatives i nitiatives to improve its distribution network: y
Setting up of a full-scale sales organisation comprising key account management and activation to impact, fully engage and service modern retailers as they emerge.
y
Servicing Channel partners and customers with continuous daily replenishment.
y
Leveraging scale and building expertise to service Modern Trade and Rural Markets.
y
Delayering of sales force to improve response times and service levels.
y
Revamping of its sales organisation in the rural markets to fully meet the emerging needs and increased purchasing power of the rural population. HULs distribution network in rural India already directly covers about 5 0,000 villages, reaching about 250 million consumers through about 6, 000 sub stockists.
y
Implementation of supply chain system that connects stockists across the country, and also includes a back-end system connecting suppliers, all company sites and stretching right up to stockists. IT tools have been deployed for connectivity across the extended supply chains. Backend processes have been combined into a common Shared Service infrastructure.
y
Launching of Project Shakti through which the company is able to extend its operations in villages. HUL has also included several NGOs and state governments as the initiative helps rural women to improve their financial position.
y
Launching of HUL Network to leverage the channel of direct selling by presenting customised offerings in 11 home and personal care and food categories. Started in 2003, it already has a base of 3 00,000 consultants consultants across the country.
y
Starting of franchised Lakme Beauty Salons and Ayush Therapy centres to offer standardised services, in line with the strategy to leverage the equity of its brands through relevant services.
y
Finding out Innovative ways to reach out to its consumers, particularly in rural areas by leveraging non-conventional media like wall paintings, cinema vans, weekly markets (haats), fairs and festivals.
y
Initiating the concept of Super Value Stores (SVS) in urban areas to partner traditional stores to provide a range of services ranging from managing their inventory to setting up POS (point of sale) banners. In addition to this, to boost up traditional retail in the face increasing in-roads made by large, modern retailing chains like Spencers, Reliance Fresh etc (where HUL is squeezed harder for discounts), HUL started restructuring some of the selected SVSs into the form of self-service retail shops a la modern retails. This is to protect & maintain the competitive advantage that HUL has over its biggest
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competitors in the other markets (e.g., P&G), with its very deep distribution reach through traditional retail. y
Launching the Unicare scheme with upmarket pharmacies and retailers to sale its premium brands.
y
Undertaking several initiatives for traditional channels in order to improve its capabilities at the front-end by developing skills for stockists' sales force. Under 'Project Dronacharya', the FMCG major continuously imparted training to over 10,000 stockist salesmen.
y
Launching of several promotional schemes for existing wholesalers and distributors. For instance, it has started the Vijeta - Rishta Jeet Ka scheme last year to provide a platform for the wholesaler and HUL to grow the business by earning points and redeeming them.
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Analytical Framework To analyze HULs distribution network in the light of 20 most significant variables that affect the distribution part of channel management for any organization in the business of marketing & selling of goods. The variables, their explanations and their impact on the HULs distribution network are given below 1.
NUMBER OF CONSUMERS
In retail business dominated by traditional stores like Kirana Stores etc (Indian retail business falls in this category), higher the no. of consumers, higher will be the no. of channel intermediaries. The implication of this is that there will be many layers in the channel in such a situation and managing such a complex distribution network by keeping tabs on every player will be a huge task. Moreover, Transport & Logistics (T&L) support provided by the organization needs to be well organized. Implication for HUL: HULs key strength lies in managing its distribution network in India. HUL is Indias largest FMCG company with unmatched distribution network, which is built over a century focusing on traditional retail. HULs distribution network comprises about 4,000 redistribution stockists, covering about 6.3 million retail outlets reaching the entire urban population, and about 250 million rural consumers in India. Its said that HUL is able to touch the lives of about
2
out of every 3 Indian consumers. This achievement is due to the sheer
strength of its distribution network (products should be good as always, otherwise they will find no buyers in the long run). For a comparison, P&G, worlds largest FMCG major, does not find its name in the list of top 5 FMCG majors in India as its strength lies in managing modern retail (biggest example, Wal-Mart), but not traditional re tail. 2.
GEOGRAPHIC DISPERSION OF CONSUMERS
Again, this is closely related with the previous variable, more so in a large, geographically diverse country like in India. With the increase in this dispersion level, more intermediaries and more layers are required in the distribution network so as to effectively reach the length & breadth of the country. Obviously the T&L management for such an organization organization would be critical to accomplish this. Implication for HUL: For a country as geographically diverse as India, pan-Indian presence & market leadership can only be possible when products reach even the remotest parts of the country. HUL is very successful in achieving and maintaining this reach due to its distribution network.
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3. FREQUENCY OF PURCHASE If the frequency of purchase is high, then transport intensity in the last mile (i.e., from distributor to retailers) increases manifold. For FMCG products, as a thumb rule we can take that the mean time between two purchases is ~ 90 days. With the introduction of smaller form factor packaging for FMCG goods (Re.1 /- shampoo sachets being a very good example), the transport intensity increased further. Implication for HUL: HUL has about 4 000 redistribution stockists, who supply to approx. 6.3 million outlets across India. Since manufacturing is done at 4 0 plants around the country, rationalizing the logistics and planning is a huge task. An innovative step in that regard has been the formation of the Mother Depot and Just in Time System (MD-JIT). Certain C&FAs were selected across the country to act as mother depots. Each of them has a minimum number of JIT depots attached for stock requirements. All brands and packs required for the set of markets which the MD and JITs service in a given area are sent s ent to the mother depot by all manufacturing units. The JITs draw their requirements from the MD on a weekly or bi-weekly basis and supply to stockists in that area, who, in turn, supply to re tailers. 4. TENDENCY TO POSTPONE PURCHASE If the tendency to postpone purchase is lesser, then the product will be easier to distribute. For example, products/services like Fire Extinguishers, Life Insurance etc. are such that though these are needed, the overall tendency for the consumers is to postpone the purchases these products/services can be be termed as as necessary evil.
For this kind of products, products, regular regular
reinforcement in the minds of consumers becomes necessary, sales field force becomes critical and use of expert field force is commonplace. Implication for HUL: Since FMCG products are used regularly and these products are not necessary evils, distribution distribution network of HUL does not require require any expert field force force to sell its products. Only the recent diversification of HUL into Home Water Purification business (Pure It brand) needs dedicated field sales force. 5. LEVEL OF FAMILIARITY/KNOWLE DGE (OF CONSUMER) ABOUT THE PRO DUCT If the level of familiarity of consumer with the product is higher, lower will be the importance of field sales force and higher will be the importance of channel. Implication for HUL: Since FMCG goods are very much familiar to consumers, channel and its different members are very much important to HUL and field sales forces function is mostly limited to channel management and and ensuring availability of products.
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6.
DEGREE OF BRAN D
LOYALTY
If the consumers are more brand loyal, then less push will be required from the channel members to sell the products as there will be sufficient pull or demand from the consumers. This implies that for products with loyal customer base, efforts from the channel members can be much lesser for final off-take to happen which in turn leads to lesser margins to the channel members for those products. For faster moving products (mostly due to brand pull), retailers may not be averse to slightly lesser margins as rotation of the products is high and thus his/her ROI is protected, Retailers ROI = Margin Mar gin × Rotation/ Investment For a FMCG player with a non-established brand, margins to channel members and point of sale (POS) advertising are both important. Implication for HUL: As HUL enjoys leadership position in many FMCG segments like Soaps, Detergents, Personal Care products etc with strong brands with continuous pull, HUL has less to worry about margins to channel members or POS advertising. But this situation can change considerably in the face of rise of a significant competitor having almost the same reach as HUL has (e.g., ITC as its eating into HULs market share continuously since it entered FMCG segment). 7. PURCHASED ON IMPULSE The impulse purchase products like chocolates, toffees, colas, ice creams etc. follow Says Law which states that Supply Creates Demand, implying availability of these products are the most critical aspect for these to be sold and consumed. This stresses on the fact that T&L for these products becomes very important. Implication for HUL: HUL has only one product in this impulse purchase category - Kwality Walls (ice cream). HUL is #2 after Amul in this FMCG segment. To increase this brands sale & market share, availability, visibility and consumer mind share has to be increased and improved as well. 8. LEVEL OF INVOLVEMENT (LOI) Level of involvement (i.e., time & effort spent by the consumer) generally depends on the product cost. If LOI is higher, lower is the importance of availability and more critical is the supply of information as consumer decision process depends more on elaborate information search. Implication for HUL: As FMCG products are generally Low Involvement Products, HUL has to bother more on ensuring availability of the products, rather than supply of information.
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9.
PURCHASED AS A BASKET OF GOO DS
The products which are generally bought together by consumers as a basket of goods (e.g., Rice, Flour powder, Cooking oil etc at the beginning of the month) are to be made available together for final off-take. Implication for HUL: This aspect partly applies to HULs products as some products like shampoos, soaps; detergents may fall in a basket. Efficient distribution network of HUL ensures availability of all such products at each selling point (individual retailer). 10.
SPEED & COMPLEXITY OF DECISION MAKING PROCESS
If the speed is low, then the complexity of the decision making process is higher and greater is the importance of field sales force and the salespersons skill, knowledge and quality. Implication for HUL: For FMCG products, complexity of decision making process is not there and so, speed of decision making is high. This means that for HUL, field sales force is of limited functional usage. 11.
PRESENT OF EXPERT INFLUENCER IN THE
DECISION
MAKING PROCESS
Roles of sales field force vary depending upon whether expert influencer (e.g., doctors) is present in the process or not. If present, then consumer buying behavior may become subcontracted subcontracted and the expert influencer becomes another customer of the network, apart from the end-user. In that situation two groups of sales force are needed to cater to both the segments. Implication for HUL: For FMCG goods, role of expert influencer is limited. But companies try to associate brands with regulatory bodies/authorities and show advertising with experts commenting upon superior virtues of a product in an attempt to make the buying behaviour shift from picking/variety- seeking to subcontracted and make consumers more loyal to the brand. These are true for HUL also (e.g., Ponds Intitute). 12.
ELEMENT OF CRISIS PURCHASE EXISTS
If element of crisis purchase exists in the buying decision of a product (for example, bulbs & tubes), then its availability becomes critical. Implication for HUL: None of the products of HUL fall under this category. Nevertheless, availability of products of HUL is necessary for other reasons.
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13.
ELEMENT OF RISK AVERSION EXISTS
If the level of involvement of the consumer in buying decision process is higher, risk taking tendency of the consumer will be lower or consumer will be more risk averse. In such a situation, channel members can unsell a brand by giving explicit or implicit suggestions. This implies that in such a case, selling depends on many cases how the company is taking care of channel members (keeping them happy) such that they are not lured by other competitors or directed by grievances so as to unsell the brand. This situation is prevalent mostly in Consumer Durables (like TV, Refrigerators etc.). In FMCG goods, the situation does not exist per se. Implication for HUL: HUL is not affected for its FMCG products by this variable. For water purifier Pure It, this can have considerable impact if its sale starts to happen through channel members rather than by field sales force as is happening now. 14.
PERISHABILITY OF THE PRO DUCT
If the product is perishable (having small shelf life; examples newspaper, milk, fruits etc), then the dimension of speed in reaching the end consumers becomes critical & T&L assumes great significance for the company. Implication for HUL: The FMCG products that HUL sells are not perishable by nature, but have limited life. So this aspect is not critical c ritical for HUL. 15.
TIME BAND ASSOCIATED WITH THE PURCHASE OF THE PRO DUCT
If there is seasonality/cyclicity for the demand or purchase of the product (examples newspaper, milk are most most on demand in the 1st three hours of the day; cooking cooking oil, rice etc grocery items are most on demand in the the 1st week of the month), then high T&L and infrastructural requirements are needed for the last mile for the time band when demand is maximum. It is possible to have idle capacity in the areas mentioned above outside the peak required time band. Implication for HUL: For some of the products of HUL, the above stated variable is significant. For example, in Food segment, Branded Atta Annapurna; in segments like Laundry Detergents, Shampoo & Hair Oil etc. this element of demand time band exist to a certain extent. This underscores underscores the importance importance of T&L for HUL as the transport intensity between distributors distributors and retailers increases in the 1st & 4th week of a month for the products mentioned above. This is over and above the regular replenishment of stocks at retailers done by distributors. Festivals like Holi etc. may also increase the demand for personal care items like soaps, shampoos etc for a short period and distribution network should be geared up not to miss any such opportunity. 21
16.
FUNGIBILITY
Fungibility is the property of a good or a commodity whose individual units are capable of mutual substitution. Examples of highly fungible commodities are crude oil, wheat, orange juice, precious metals, and currencies. Fungibility has nothing to do with the ability to exchange one commodity for another different commodity. It refers only to the ease of substitution of one unit of a commodity with another unit of the same commodity for all intents and purposes. Fungibility is different from liquidity. A good is liquid and tradable if it can be easily exchanged for money or for another different good. A good is fungible if one unit of the good is substantially equivalent to another unit of the same good of the same quality at the same time and place. It is said that commodities are fungible, goods tangible, services intangible, experiences memorable & transformations are effectual. As an example, one Rs. 100/- bank note is interchangeable with another. Cash is fungible. A barrel of West Texas Intermediate crude oil is fungible (direct exchange) with another barrel of the same crude oil. Oil (of the same type) is fungible. Fungibility does not imply liquidity, and liquidity does not imply fungibility. Jewels can be readily bought and sold (the trade is liquid), but individual diamonds, being unique, are not interchangeable (diamonds are not fungible). Indian rupee bank notes are interchangeable in London (they are fungible there), but they are not easily traded there (they are not liquid in London). In contrast to diamonds, gold coins are fungible. They are also liquid, especially under a gold standard. The combination of fungibility and liquidity is one of the reasons why gold has successfully served as money for thousands of years. Further, a fungible thing can become non-fungible under some circumstances. For example, an old coin or a currency note may assume a value which is way above its face value due to historical reasons or due to some defects in it which makes it unique from others from a viewpoint which sees it differently than its intended purpose. The outcome of product fungibility is that the more fungible a product becomes, higher is the chance that parts of the distribution channel it can be replaced by IT. A good example of this is dematerialization (Demat) route for share trading now where there is no physical existence of shares. Implication for HUL: As branded FMCG goods are not fungible per se (branding is done to decommoditize & differentiate the product), the importance of channel members will continue.
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17. DEGREE
OF CUSTOMIZATION POSSIBLE
Degree of customization directly affects economies of scale; higher the customization, lesser the economies of scale. Also, criticality of sales field force increases with customization levels of the offering. Implication for HUL: For FMCG products of HUL, which are mass produced, such customizations are not possible and thus with higher economies of scale, lower criticality of field forces from the standpoint of customization of product offerings, costs are lower in these respects with HUL. 18.
NEGATIVE OR POSITIVE REINFORCING PRO DUCT
Negative reinforcing products are those which are bought to avoid/reduce the problem (ex. insurance, washing machine, car battery etc). Positive reinforcing products are those which gratify the senses (ex. Perfumes, Chocolates, Vacation etc). Shopping experience becomes a critical aspect for positive reinforcing products to reaffirm the positive feelings. Implication for HUL: Axe & Rexona deodorants are distinctly positive reinforcing products from HUL, including others like Lux, Lakme etc. So these are seen in most shopping malls etc. with high visibility displays to reaffirm the feelings. Consumers are willing to pay higher for these brands. 19.
VALUE/VOLUME RATIO (VALUE DENSITY) OF THE PRO DUCT
This ratio is very important for both the company and the retailer for its two critical aspects T&L cost and retailer ROI/sq. cm (retailers are actually in real estate business in true sense). Higher the ratio, better it is for both company and the retailer as higher ratio signifies lesser T&L cost per unit volume transported for the company and greater ROI per unit of shelf space for the retailer. Implication for HUL: In general for FMCG goods and for HUL as well, value density is relatively lower. In addition to this fact, increasing trend towards using smaller pack sizes increases the packaging density (increased packaging density increase cost to some extent, but favours mechanized handling greatly, reducing handling costs). Since value density is less, transportation costs will be higher and thus it is of economic sense to have manufacturing plants located closure to major markets. This is the reason HUL has various manufacturing plants (40 in totality) located across India. This is a pointer to the fact most of the major FMCG
players (including (i ncluding HUL)
use
contracted manufacturing manufacturing
dispersed across ac ross the
geographic spread so as to lower transportation cost component.
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Conclusion Hindustan Unilever, which once pioneered distribution in India, is today reinventing distribution - creating new channels, and redefining the way current channels are serviced. In the process it is converging product availability, with brand communication and brand experience.
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