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last activity : 03 25 2013 11:17:13 +0000
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The word 'Push' has traditionally characterized FMCG sales systems in India. This is changing for the better in many ways. Sales in many companies like HLL, Marico and Colgate is secondary driven. Let me explain this to a reader who is new to sales jargons.
Secondary driven basically means that retail orders to the distributor (secondary sale), which are a function of sales from the retail shelf(offtakes), determine the volume of primaries (billing from the company to the distributors - primary sale). In traditional sales systems the disproportionately high targets were driven by billing high volume of stocks to the distributors (primaries) without there being an adequate movement of stock from the distributor point to the trade (secondaries). This system worked as long as the brands has a demand (pull) that was proportionate to this loading. However in case of inadequate offtakes, this extra stock used to lie at the distributor point or die in the shelves of the retailer. In case of companies with a good (brand) muscle power this process would continue till the distribution pipeline is filled and cannot take any more. However this could take approximately a month or two to happen. So by the time the company managers realise that the product is not moving the ownership would have transferred from the company to the distributor and even from the distributor to the retailer. The impact was as follows:
1) Distributor and retailer money getting stuck in these products that they would otherwise (if not for the sales pressure) have never stocked in such large quantities.
2) A lull in primaries the next month. This would mean that the offtake data would be constant however the sales volumes will take a hit.
3) In the case of this being a new product, reduced willingness in trying out new product launches by the company (especially if the loading has been very substantial). Also it becomes difficult to recall the product and relaunch it. This is because the cost of recalling becomes very high. Going a step further the retailer is unwilling the sell the relaunched product before the older version moves out of his shelf. So if the company does not recall it, the consumer better buy it. This means that even if the 'improved' product is actually better than the older one, the consumer might not get to try it because the trade wants the consumer to first buy the older version. Remember, in case of product modification the trade becomes very particular about FIFO.
The above effect could effectively kill a new brand because cost of resurrection soars!
4) Companies in which the secondary sales of the distributor are not trackable using the company's sales and IT systems during the month, this effect becomes more pronounced. It could lead to the distributor parting ways with the company. It could also lead to wrong reporting by the sales personnel in order to meet targets.
5) Also in case of primary based systems the loading happens in an unscientific way. There is hardly much data/trend analysis of the potential or the capacity of the system until the system protests about it.
Hence secondary driven systems are believed to be better than primary driven systems. They remove a lot of information asymmetry in the system, make the volumes more acceptable to the channel partners and makes brands nimble.
Having said this in support of secondary sales led systems there are flaws in the logic too. These flaws result out of some simple characteristics of the trade.
1) The trade cannot predict effectively the success of failure of a brand
2) The trade may not be business savvy and hence it needs to be aligned with the company goals which could be more scientific.
3) The trade could have a myopic view and might be rejecting or inadequately stocking brands resulting in a opportunity losses in sales.
So the trades estimate of demand cannot be totally relied upon to decide how much sales should happen. It is observed in many cases that the primary pressure results in better secondaries. Secondaries in turn result in better product pressure in the retail shelf and as the idiom goes, "Jo dikhta hai, woh bikta hai"... so better offtakes. So the optimal system would be one in which the focus is on secondaries and at the same time a reasonable pressure is maintained through primaries so that there is no loss of sale due to availability issues.
More changes:
The advent to better use of IT systems has enabled secondary-based systems. The more scientific companies have VMI (Vendor Managed Inventory) at the distributor end so that replenishment happens only when secondaries are happening.
Modern trade is also an example of a secondary based (or rather offtake based) system in which offtakes from shelves determine the primary billing from the company to the outlet. Having said this, it is important to note the MT in India has to go a long way in implementing the kind of systems that are there in western countries. The days of VMI are yet to come in the life of MT in India.
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