INSTITUTE OF MANAGEMENT STUDIES, DEVI AHILYA UNIVERSITY

INDORE (MP)

A PROJECT REPORT ON

“Understanding the Distribution Structure, Channel Conflicts and

Conflict Management Strategies at ASIAN PAINTS in INDORE”

For The Partial Fulfillment for Degree of

Masters in Business Administration (Marketing Management)

Under Guidance
Academic Guide Industrial
Guide
Dr. N.K.Totla
Mr. Manish Shrivastav
Sr. Lecturer Regional Manager
Institute of management Studies (Indore)
Devi Ahilya University Asian Paints

Completed By
Darpan Bhatt
MBA (Marketing Management)

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 2009-11

CERTIFICATE

This is to certify that the research paper “Understanding the Distribution

Structure, Channel Conflicts and Conflict Management Strategies at ASIAN
PAINTS” is being submitted by DARPAN BHATT MBA M.M. as major
Research Project at Institute of Management Studies. The work is satisfactory.

Dr. N.K.TOTALA

Reader, IMS, DAVV, Indore

Research Guide

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 ACKNOWLEDGEMENT

I express my heartiest gratitude to Dr. Jayant Sonwalkar, Director -

IMS, who gave me privileged opportunity to do the project work and
guided me with his valuable suggestions, which helped to give my
project a final touch.

I am highly indebted to my project guide, Mr N.K.TOTALA, who

constantly helped and directed me to carry out my project efficiently. I
thank his for all informal discussions, constructive criticism and for
valuable suggestion in completing the project work in spite of his busy
schedule. His added encouragement and consideration in intervals of
time helped me in the successful completion of the project.

I am also thankful to all other project trainees for their valuable

suggestions, support and co-operation at every stage of project
development.

DARPAN BHATT

MBA (M.M.)

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 DECLARATION

I hereby declare that the project titled “Understanding the Distribution

Structure, Channel Conflicts and Conflict Management Strategies
at ASIAN PAINTS” is a genuine work done by me and the information
collected is authentic to the best of my knowledge. I take full
responsibility for the originality of my work and declare that it is not
pirated in any manner which is deemed illegal by law. My guide is fully
exempted from any such responsibility as mentioned above.

DARPAN BHATT
MBA (M.M.) SEC B
ROLL NO-43433

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 TABLE OF CONTENT

INTRODUCTION 6

Company Profile 10

Distribution Network of Asian Paints 21

Causes of Channel Conflict 24

Description of Channel Partners 29

Channel Conflict 40

RESEARCH METHODOLOGY 42

ANALYSIS AND INTERPRETATION 44

Asian Paints WSS Survey: Indore 44

Asian Paints Retail Survey 48

Observation 50

SUGGESTION AND RECOMMENDATION 51

Recommendations 51

Conclusion 53

REFERENCES 54

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 Marketing Channel Conflict
Introduction:
Channel conflict is a state of opposition, or disorder, among the
organization comprising a marketing channel. If the two parties recognize
that they are mutually dependent, a healthy relationship can persist. If the
two parties perceive that they are mutually independent, a healthy
relationship can also exist. Problems arise when one entity perceives that
they are more dependent on the other than vice versa. As conflict can have
an unfavorable effect on channel member performance, channel managers
must make conscious efforts to detect and resolve it. So we can say that
Channel conflict occurs when one member of a channel views its upstream
or downstream partner as an opponent. The key is interdependency.

Discussion:
It is very important to recognize the true level of conflict that an
organization faces in a channel relationship. The best way is to gather four
kinds of information. Those are describing below.

Step 1:

Counting up the issue- A channel manager needs to consider all the major
issues that can create or might be causes of beginning a conflict. For
example for a car dealer, one study uncovers 15 issues of relevance to
dealers in their relationship with their manufacturer, including inventories,
delivery of cars, the size of the dealers stuff, promotion etc.

Step-2:

Importance- A channel manager needs to identify the importance of each of

the issues that has been counted for. This could be done judgmentally or by
asking dealers directly. For example they may indicate on a scale of zero to
ten to recognize that how important each issue is to the dealership’s
profitability.

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Step-3:

Frequency of Disagreement- It involves assuming or finding out how often

the issues are prone to disagreement and why. For example dealer may be
asked to recall discussion with the manufacturer over the issue.

Step-4:

Intensity of Dispute- a channel manager needs to identify the intensity of

dispute in regard to an issue within the channel members. For example, how
strongly a dealer is disagreeing about a typical issue.

These four kinds of information should be combined to form an index of

manifest conflict for each issue. Conflict 1 = NΣ Importance i X Frequency i
X Intensity i

Adding their products over all the N issues forms an index of conflict.
These estimates can be compared across dealers to see where the most
serious conflict occurs and why.

There is three other points which we have to be considered. Thos are

1. The difference of opinion rarely occur(low frequency)

2. The issue is petty(low importance)

3. The two parties are not very far apart on the issue(low intensity)

If any of these elements is low, the issue is not a genuine source of

conflict.

There are three kind of conflict. Those are

a. Goal Conflict: conflict that stems from differences between channel

members’ goals and objectives.

b. Domain Conflict: conflict that arises due to the disagreement over the
domain of action and responsibility.

c. Perceptual Conflict: a conflict that arises due to the perceptual

difference in regard to the market place.

Channel conflict is often thought of as dysfunctional and, therefore, it is

unwanted. Conflict can, however, be healthy and desirable in certain

5
situations. Conflict can serve to keep channel members from becoming too
inactive or lacking in creativity. This same conflict can also motivate
members to adapt, grow, and seize new opportunities. From the
manufacturer’s perspective, multi-channel distribution strategies can be
beneficial in a number of ways. Firstly, it does allow the manufacturer to gain
much-needed insight into end-consumer’s needs and shopping patterns.
Secondly, manufacturers with broad product lines can benefit because it is
unlikely that a single channel type will be optimal for all products. Finally,
manufacturers with a multi-channel distribution strategy can focus more on
precisely targeting markets and improving their overall competitiveness.
Manufacturers and their channel partners must deepen their relationships
and cooperation. These new types of relationships may take one of three
forms (Matta, Mehta 2001):

Relationship Customers Intangibles Financial

Form
Implication
s

Manufacturer · Retailer owns · Manufacturer · Retailer

the keeps the
Support provides
customer support margin and

relationship and collateral reduces

costs
· Retailer
provides with
manufactur
assortment and er

service; merchandisi
promotes ng
the brand and
marketing

help

Collaboration · Manufacturer · Manufacturer ·

and and Manufacture
r and
retailer share retailer work
retailer
aggregate together on share
customer data merchandising performanc

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 and marketing e based

plans revenue

Seamlessness · Manufacturer  ·
and Manufacturer Manufacture
r and
retailer jointly retailer build
one retailer split
manage and
brand revenues
market to experience
customers through new

brand or
partnership

It is not surprising that minimizing channel conflict is at the center of

many companies’ Internet strategies. Proper analysis and appropriate
strategies can go far toward managing the degree that conflict channel
members must overcome.

A number of ways to resolve disputes are effective. Institutionalized

mechanisms comprises of channel conflict management strategies that is
mainly designed to resolve conflict at its early stage including information
intensive mechanisms, third party mechanisms, building relational norms. Of
course it can also be resolved via Economic Incentive the most commonly
adapted conflict resolution strategy is to manage conflict by way of
economic incentive i.e. financial incentive.

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Channel Conflict through new age distribution
channels (E- business)

Historical Perceptions and Management Implications

Channel conflict is not a new concept. It has been frustrating managers in
the business world for many years. It has always accompanied the
development of new marketing channels, such as the introduction of factory
outlet and discount stores in the 1980s. Only recently, with the emergence of
the Internet as a new and dynamic distribution channel, has this topic been
more of a focal point in boardroom discussions. A recent survey of 50
manufacturers revealed that 66 percent believed that channel conflict was
the biggest issue they faced in their online sales strategy (Hogan, Webb
2002). Channel conflicts in the e-commerce age are intensified by the unique
channel characteristics of the Internet (Matta, Mehta 2001).

Origins of Channel Conflict

Channel conflict emerges as the market evolves and business strategies
change. “The primary motivations for supplier firms establishing multi-
channel arrangements are the desire to increase market share and to reduce
costs. Firms are attempting to reconstruct the supply chain and make it
more efficient, a process that will disrupt traditional channels, resulting in
conflict both internally among the supplier’s channel managers and
externally with distribution partners.” More often than not, objectives among
channels cannot be achieved concurrently. If one channel is succeeding, it is
likely at the expense of another (Hogan, Webb 2002). This is the norm in
multi-channel business strategies. A diverse channel strategy is necessary,
however, for survival in the marketplace. “Manufacturers have historically
been tentative in their approaches to electronic commerce, primarily out of
fear of direct competition with and potential damage to existing sales
channels,” (Matta, Mehta 2001). The only thing that manufacturers fear more
than alienating resellers is having no e-commerce plan at all. As a result,
businesses are forging ahead with e-commerce strategies regardless of the
consequences (Bachelor, Gilbert 2000). It is pretty easy to understand why.
According to reports from e-commerce pioneers, using the Internet in a

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business-to-business application to provide information to customers and
process orders can cut down errors and save time and money, as well as
increase productivity among the sales staff (Kalin 1998). Many feel that it is
ultimately the lure of greater profits that create the desire to sell direct to
consumers. However, with that increased profit potential, comes the
increased risk of losing reseller relationships (Bartholomew 2000). The
expanding role of the Internet has created opportunities for easy and
extensive access to customers. Additionally, the economics of materials
delivery has been revolutionized by the logistical networks of third-party
shippers such as FedEx and UPS (Agrawal, Tsay 2002). “The type and
magnitude of channel conflict in the ecommerce marketplace depends on
the nature of the industry and the individual company. Companies that don’t
own or closely control their offline distribution channels risk damaging
sometimes decades-old relationships and revenue streams. However,
companies that control their own channels risk cannibalizing revenues with
online stores,” (Matta, Mehta 2001). In their 2002 study, Agrawal and Tsay
have set forth the following motivations, which have led many manufacturing
firms to start selling direct:

(1) Resellers do not usually carry the entire line of a manufacturer’s

products,

(2) Direct control of pricing and distribution can lead to higher profit margins,

(3) Resellers can use their power to extract various concessions from the
manufacturers,

(4) Manufacturers can provide a broader product selection in a better

ambiance with higher service in direct outlets,

(5) More flexibility to experiment with product attributes,

(6) Closer contact with customers, and

(7) Protection from crises faced by resellers.

The desire for power may be the most direct cause of channel conflict.
According to Coupey (2001), a hallmark of power is that it relies heavily on
perception. In other words, any channel member may alter their behavior to
the extent of the power that they perceive the other party to hold.
Negotiations among manufacturers, distributors, and retailers are often

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about the power struggle. The influence that a manufacturer holds over its
channel depends on how prominent its products are in the channel’s
business (Kaneshige 2001). A well-known, large-scale manufacturer with a
diversified channel strategy, such as Microsoft, may have more perceived
power because they drive so much business. On other occasions, however, it
may be the distributors who have more influence, which is often the case
with manufacturers of niche products like tools and component parts. At the
retail level, there are giants like Wal-Mart and The Home Depot, which often
have the last word over many manufacturers. They believe that once their
suppliers sell online, they become competitors (Bartholomew 2000). The
Home Depot even sent a letter to more than 1000 of its suppliers in May
1999, which influenced suppliers such as Rubbermaid to stop selling online
(Agrawal, Tsay 2002) (Bartholomew 2000). One can see how these
negotiations might become somewhat complicated. The Internet, however,
has mostly given rise to more powerful consumers. These shoppers know
what they want, when and where they want it, and they are more than
willing to circumvent retailers to get it (Matta, Mehta 2001). The Internet has
created a new set of expectations for the consumer that must now be met,
regardless of what channels are employed. A redefined customer experience,
where the shops are never closed, prices are transparent, and
personalization is emerging is fast becoming the standard. Companies with
no physical storefronts and lower overhead are claiming market share from
established businesses. The technology itself allows all business processes to
function more quickly than ever before. There is also the growing potential
for “mass customization” of merchandise. Existing channels may struggle to
meet these new expectations or risk being replaced (Matta, Mehta 2001).
While any channel member may own perceived power, manufacturers are
usually the ones who are faced with the most decisions that can create, or
curb, channel conflict.

Identifying Channel Conflict

One thing that managers must face is that conflict will always exist to some
degree. To eliminate it totally would diminish business opportunities. In other
words, in order for a company to grow their business, there must be some
conflict. The key is recognizing when it becomes counterproductive. An
obvious sign that your company has taken a misstep is when sales staff and
business partners begin leaving. Another less identifiable sign is when the
customer actually becomes aware of the conflict. “The bottom line for a

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company is how to manage the customer relationships with its production
strategies,” (McDonald 1999). According to panelists at a 2002 vendor
channel roundtable, just by defining the competitive playing field and some
rules for channel participation, suppliers can minimize sales conflicts with
their channel partners (Burke 2002). Consider the Gibson Guitar Company. In
1997, they learned about channel conflict the hard way by offering their
guitars for sale on their website at 10 percent below list price. Dealers
became irate, and the company ended the online sales effort after only a
month. They listened hard to the complaints from their network of dealers
and decided to compromise. Now, instead of selling guitars online, they only
offer strings and other accessories. They have also added their parts catalog
to the web site to sell items that were previously available only to dealers
and repair shops, which is an excellent way to meet those customers’ needs.
Walter Carter, the web site manager for Gibson, felt that their biggest
mistake was failing to inform the dealers that they were planning to sell their
guitars online (Kalin 1998).

Best Practices for Minimizing and Managing Channel

Conflict
Channel conflict is often thought of as dysfunctional and, therefore,
unwanted. Conflict can, however, be healthy and desirable in certain
situations. Conflict can serve to keep channel members from becoming too
passive or lacking in creativity. This same conflict can also motivate
members to adapt, grow, and seize new opportunities. From the
manufacturer’s perspective, multi-channel distribution strategies can be
beneficial in a number of ways. First, it does allow the manufacturer to gain
much-needed insight into end-consumer’s needs and shopping patterns.
Second, manufacturers with “broad product lines can benefit because it is
unlikely that a single channel type will be optimal for all products.” Third,
excess manufacturing capacity can be better utilized with additional outlets
when existing channels are over-supplied. Finally, manufacturers with a
multi-channel distribution strategy can focus more on precisely targeting
markets and improving their overall competitiveness (Webb 2002).
According to a 2000 study performed by Forrester Research, 75 percent of

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online consumers are likely to visit a manufacturer’s web site when
researching a product to buy. Forty-two percent of those consumers visit the
manufacturer’s web site after deciding what to buy, but not where to buy.
Online consumers are empowered with information and are not hesitant to
move on to a competitor’s product offering if they do not find the information
and options they are looking for. Manufacturers and their channel partners
must deepen their relationships and cooperation—when the manufacture
chooses not to compete directly—to service and satisfy empowered
consumers by sharing.

These new types of relationships may take one of three forms (Matta, Mehta
2001):

It is not surprising that minimizing channel conflict is at the center of many

companies’ Internet strategies. Proper analysis and appropriate strategies
can go far toward managing the degree that conflict channel members must
overcome. But the question remains: how does a company decide when they
should compete directly with their retailers online?

Channel Decision Matrix

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Developed by Accenture Consulting, the Channel Conflict Strategy Matrix
analyzes the “forces and opportunities for change” in a given industry and
identifies “optimal change strategies” that a company may use to minimize
channel conflict. When using the Matrix, it is important to understand that
Market Power is defined as “a function of where power resides—with the
supplier or with the channel” and that Channel Value is “a measure of how
much worth the channel adds for the customer, beyond what the
manufacturer provides”.

Once a company performs the exercise that determines Market Power and
Channel Value for each channel, they can then use the Matrix as a
“framework for strategic thinking”. This strategic look at each channel can
(1) point out the safest and most effective combination of the Matrix and (2)
show where to fight and where to mediate and/or avoid channel conflicts
(Bendix, et. al. n.d.). Competing directly with the channel is advisable when
the Market Power resides with the suppliers and the channel adds little or no
distinct value to the sales proposition. Through the use of technology, the
airlines have been able to lower the cost of commissions to travel agents
significantly by investing in electronic ticketing and Internet travel sites.
Forward integrating with the channel is best when Market Power rests with
the traditional distribution channel even though the channel adds little or no
value to the transaction. Suppliers should consider “invading” the channel in
order to increase its “capacity for value creation”. This can often be

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accomplished by creating an innovative offering that the regular channel
cannot duplicate; without the ability to duplicate an offering, channel conflict
may be forestalled for the foreseeable future. Suppliers must take the lead of
their distribution channels when the value is high but Market Power is low.
This situation is often caused by channel fragmentation and must be
overcome by a strong leader so that the channel achieves its aims. When the
traditional channel’s Market Power and value to the channel are high, a
situation exists that has the highest potential for hostility and conflict.
Members of the channel often see themselves as equal to their suppliers and
demand that those same suppliers take full advantage of every opportunity
to cooperate with the channel to maximize the total value created. This may
be done by creating a new customer segment that does not conflict with the
traditional channels or by limiting the number of products sold online
(Bendix, et. al. n.d.)

Propositions for Minimizing Channel Conflict

Kevin Webb (2002), in his paper on Managing Channels of Distribution in the
Age of Electronic Commerce, proposes several ways that manufacturers can
minimize channel conflict. Once the decision has been made to sell direct to
consumers online, lower levels of channel conflict will be experienced:

1. by not pricing products on their web site below the resale price of their
partners.

2. by diverting fulfillment of orders places on their web site to their partners.

3. by promoting partners on their web site.

4. by encouraging partners to advertise on their web site.

5. By limiting the offering on their web site to a subset of their products.

6. By using a unique brand name for products offered on their web site.

7. The earlier the products offered on their web site are in the demand
lifecycle.

8. The more effectively they communicate their overall distribution strategy.

9. The more effectively they coordinate their overall distribution strategy.

10. The more they make use of super ordinate (over-reaching) goals.

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These methods for minimizing channel conflict are, at best, idealistic and, at
worst, impossible to implement given the pressure that companies are under
to create e-business strategies that have a positive return on investment.
The fact cannot be denied, however, that these propositions would have the
desired effect of minimizing channel conflict between manufacturers and
their partners. The shrewd manufacturer will make use of the propositions
that make the most sense for their given business situation.

Asian Paints is India's largest paint company and ranked among the top ten
Decorative coatings companies in the world with a turnover of INR 66.80
billion. Asian Paints along with its subsidiaries have operations in 17
countries across the world with 23 paint manufacturing facilities, servicing
consumers in 65 countries through Berger International, SCIB Paints – Egypt,
Asian Paints, Apco Coatings and Taubmans.

Vision
Asian Paints aims to become one of the top five Decorative coatings
companies world-wide by leveraging its expertise in the higher growth
emerging markets. Simultaneously, the company intends to build long term
value in the Industrial coatings business through alliances with established
global partners.

Group Subsidiaries

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Apco Coatings is a subsidiary of Asian Paints in the South Pacific islands.
Asian Paints operates in Australia, Fiji, Tonga, Solomon Islands and Vanuatu
under the brand name of Apco Coatings.

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.

Few companies can claim of a history of consistent growth for over two and a
half centuries, a presence in over 35 countries and an impact on the lives of
over a billion people. Berger does that with elan. Ever since it was founded in
England in 1760 by Lewis Berger, who perfected a new process for making
Prussian blue the color of most military uniforms then, Berger has never
looked back.

Over the years Berger expanded its operations across oceans, to cover
numerous geographies. In 1994, Berger units were brought under the single
umbrella of the holding company 'Berger International Limited (BIL)' with
headquarters in Singapore, which was also listed on the Singapore stock
exchange. In November 2002, BIL became a part of the Asian Paints Group.
Today, the name of Berger is synonymous with quality and innovation. BIL
has presence across three regions viz. Middle East, Caribbean and South
East Asia. In the Caribbean region, Berger is a household name. And
considering that the company celebrated 50 successful years in the region
recently, this is not surprising.

Incidentally, Berger Paints Jamaica Limited, which is listed on the Jamaican

stock exchange, is amongst the top ten companies in the country in terms of
market capitalization. In the Middle East too Berger is a well-respected
brand. It is the largest paint company in Bahrain. Using its state-of-the-art
manufacturing facilities there, and in United Arab Emirates, it exports to
countries in the Commonwealth of Independent States, Gulf Cooperation

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Council and Africa. In South East Asia Berger enjoys a fine reputation and has
operations in Singapore and Thailand.

Founded in 1979, SCIB Paints today is a reputed name and ranks amongst
the top five paint companies in Egypt. SCIB Paints became a part of the
Asian Paints group in August 2002

Asian PPG Industries Limited, a joint venture between Asian Paints (India)
Limited and PPG Industries, Inc. USA with 50:50 equity sharing was
established in March 1997 with the objective of providing solutions to the
paint requirements of Indian Automobile manufacturers. The joint venture
brought together two leading companies with strengths in technology,
manufacturing and customer insight.

Taubmans Paints Fiji, the fourth largest paint company in Fiji, became a part
of the Asian Paints family in September 2003. Taubmans Paints is the
dominant player in the project sales segment in the country and is a leader
in the neighboring Samoa Islands. It has two manufacturing facilities, one in
Suva (Fiji) and the other in Samoa.

Supply Chain
Asian Paints has harnessed the powers of state-of-the-art supply chain
system using cutting edge technology to integrate all its plants, regional
distribution centers, outside processing centers and branches in India. All the
company's paints plants in India, two chemical plants, 18 processing centers,
350 raw material and intermediate goods suppliers, 140 packing material
vendors, 6 regional distribution centers, 72 depots are integrated.

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The supply chain runs through a wide spectrum of functions right from
materials planning to procurement to primary distribution. It has played a
pivotal role in improving operational efficiencies and creating agile
procurement, production and delivery systems. It has also enhanced the
flexibility of operations, lowered output time and reduced delivery costs,
while improving customer-servicing levels and profitability.

The Supply Chain Management is backed by IT efforts that help the company
in demand forecasting, deriving optimal plant, depot and SKU combinations,
streamlining vendor relationships, reducing procurement costs and
scheduling production processes for individual factories.

Functions of Channel Members

Types of Channel
Four Channels through which marketers can reach customers
Channel 1 Channel 2 Channel 3
Channel 4
Manufacturer Manufacturer Manufacturer
Manufacturer

Agent

Wholesaler
Wholesaler

Retailer Retailer Retailer

Customer Customer Customer Customer

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What is understood by direct Vs. Indirect Channel

The direct-sales channel will grow at the rate of 100 per cent since the base
is small. Direct sales channel in 3 ways: InfoTech, telecom and financial
services industries

• Creating their own sales force

• Selling through someone else’s sales force.

• And using direct sales dealers

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DISTRIBUTION STRUCTURE OF ASIAN PAINTS

(Madhya Pradesh ONLY)

FORMAL STRUCTURE

INFORMAL STRUCTURE

Note: Wholesalers are not a part of the formal structure of Asian paints
distribution network. They make bulk purchases from the distributors directly
thereby leveraging on the margins.

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The indirect channel is, by default and by necessity, the primary channel for
most Indian companies. It is, probably, the most cost-effective way of
reaching a large country with over 3,700 towns and close to 6 lakh villages.
This is set to emerge as the fastest-growing channel of this millennium. The
best part of a franchise arrangement is that the company offering the
product or service does not have to invest in real estate. Besides, the
franchisee often takes care of the local promotional expenditure. This
symbiotic relationship is a win-win situation for the company and the
franchisee and will be the basis of successful channel strategies in this
millennium. Although on-line revenues in India will not be significant for
sometime to come, all companies should maintain a selling-presence on the
Net. The likes of ITC, HLL, Indian Oil, and Amul have to combine to create
innovative channels of distribution. Logistics management provides a
powerful means of enhancing customer value. Why is it so important to
optimize the supply chain? Inefficiencies in the supply chain lead to higher
inventories at all points. This adds costs related to wastage, blocked funds,
and the risk of holding obsolete products. Today, the need is for long-term
relationships, where both manufacturer and supplier can look for mutually
beneficial solutions. Most investments in design and technology in this
industry give returns only over a long period of time, sometimes as long as
the lifecycle of the product.

OWNERSHIP TRANSFER
Stocks manufactured at the factories and co-packers reach the C&f through
mother Godowns. The stocks stored at C&f is the property of Asian paints.
Encashment of stocks are done through Invoicing to Cash Distributors C&f as
per the guidelines given to them. They also receive and store support
materials like give aways, stickers and complementary items etc.

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5
 – Causes of Channels Conflicts–

To answer this question, it is of relevance to define, who belongs to a

marketing channel. From the semi-products are delivered from varies
suppliers to the manufacturer, who then finalize the product and send it
through the “normal” way, next to the wholesaler. This is the first step of a
marketing Channel. The wholesaler sells the product to a brighter group of
retailers, which is the second step and these members sell the product to
customers. Also possible is, that the wholesaler in a first step sells the
product to a “Jobber”, who add new value, service or a package-bundle to
the products and sells these to the customer.

Along with the rising use of Internet this Marketing Channel is added with
new shorter ways to the end-user. At the same time these new opportunities
let conflicts in the Channel Canal rise.

The normal goods-flow works as follows:

Manufacturer  wholesaler  retailer  End-user

One new upcoming good-flow also can work as follows:

Manufacturer  End-user

This removal of Channel members is called Disintermediation.

Disintermediation appears upon the industry in different impacts. Most
affected is the industry of computer hard- and software, travel agencies,
bookstores and music-stores, stock purchasing see e-trades. Not affected are
industries and goods like furniture production, grocery and or also pet-
supplying. Conflicts further can occur cause of reasons like role incongruities
between the partners (which is described above), resource scarcities (which
actually appears for the reason of rare raw-metals), perceptual difference
(e.g. lack of information about new products), and expectation difference
and or decision domain disagreements. A factor for conflicts can also be the
goal incapability (e.g. the manufacturers aim is not to get the highest margin
possible) and last but not least the communication difficulties between
channel members to each other or to the end-user.

Different causes for channel conflict can be distinguished as:

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• Goal incompatibility – Though channel members share the common
goal of maximising their joint effectiveness, each is a separate legal
entity.

• Each has its own employees, owners and interest groups who help
shape goals and strategies, some of which may not be totally
compatible with those of other channel members.

• This incompatibility may be the underlying cause of stress, ultimately

creating conflict.

• Position, Role and Domain In congruency – Changes in

specification of position or poorly defined roles may cause conflict.

• Incompatibility develops within channel arrangements as roles and

methods of operation change.

• Conflict also arises when there is lack of agreement concerning

appropriate domain of members.

• Communication Breakdown – Often is the reason for channel

conflict. Could occur in 2 ways:

• 1) When a firm fails to exchange vital information with other

channel members.

• 2) Through noise and distortion

• Different Perceptions of Reality – Conflict occurs when different

channel members differ in methods of achieving mutual goals or have
different solutions to a mutual problem.

• Even when they have a strong desire to cooperate, conflict can result
from different perceptions of the facts.

• Ideological Differences – Are similar to those resulting from

differences in perceived roles and expected behaviours. Can result
from big-business and small-business perceptions of the appropriate
role of management.

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Horizontal Channel Conflicts –

By emergence of new upcoming stores and retailers, hence which have the
same type of firm and same level of distribution network, the horizontal
channel conflict increases between operating organizations. Along with the
increasing channel conflict, support of retailers for a product often deceases.
Also often seen are retailers pushing themselves under an acceptable level
of price as a result of indirect or direct competition. The horizontal channel
conflict is the most common conflict between members. To see it as an
advantage, the horizontal Channel Conflict leads to a healthy competition,
where the best members restrain on the market and a locally well divided
network develops itself.

Vertical Channel Conflicts –

A Channel conflict appears between manufacturers which sell their brands

not only through the normal way and with the help of their channel partners
like distributors, retailers, dealers and sales men, but by selling through e.g.
the use of an own Internet platform and throw direct to consumers.
In these cases manufacturers try to avoid the higher costs which come along
with more channel members. The avoidance through the normal and longer
way of selling with the help of channel partners should only be an additional
distribution channel, as used without wholesalers and retailers, the product
could decrease because the customer-awareness decreases. Channel
partners are needed to reach a higher group of customers and so to gain
success. To solve the conflict a manufacturer should communicate to the
end-user and to the channel members that a product bought in a retailers
shop could have some special services, faster connections or an extended
advice, which justify a higher price. To support the face to face selling along
the web-sales manufacturers can pay a given percentage of commission to
retailers, so the products will also be shown in the shops and the direct
service is granted.

Multi Channel Conflicts –

A Multi Channel Conflict occurs, when more and more channel members try
to sell the same product to a finite number of customers. This happens these
days also like the vertical-conflict with the emergence use of the Internet
and e-market places. Multi Channel Conflicts are conflicts between B2B

5
sellers like pefa.com, reverse auctions like freemarkets.com, B2C operators
like Amazon.com, C2B auctions like by Priceline.com or C2C selling’s by
Ebay.com. Manufacturers face a huge band bride of different possibilities and
channel choices to sell product for a specific customer’s clientele. Each
member has a different range of channel cost-structure which leads to
conflicts as more members take part to sell the same product selling. This is
supposed to be the most complicated case where a lot of varies conflicts
occur and where the roots and reasons are hard to figure out.

Is a bigger amount of Sellers healthy?

Each member of a Channel Canal fears new upcoming members selling the
same product for a cheaper price. To say it in other words: With new and
more Channel members a channel competition appears, which dumps the
price of the product and so is an advantage for the end user. It forces
channel members to be innovative and to serve the best service coming
along with the best price and quality to the costumer. Members, who can’t
compete, have higher costs and a longer structure will automatically
disappear. A higher productivity in the channel is the result. Therefore it is
an objective to manage the channel conflicts on a certain status, that it
won’t escalate to a destructive level, but lead to a competition situation.

Destructivity may occur, when members cut the service to a zero-point or

won’t give any shelf space for products in showrooms. This leads in the end
to less product selling’s and a less awarded and positioned brand on the
market place. To avoid this, a well organized communication conducted by
the manufacturer may prevent the worst case.

Manufacturers normally seek to expand the number of members and

distribution points where they sell their products while each retailer hopes to
be the only one who sells a special product. However, having too many
channel chase too few consumers results in channel dropping the level of
support to the brand. This can have a deleterious impact on sales as well as
brand image. On the other hand changing customer preferences through

5
different channels can modify industry structures. All in all a delicate balance
must be maintained between moving too quickly and unleashing destructive
channel conflict versus clinging too long to declining distribution networks.

– Is Channel Conflict a good thing? –

The most endangered victims of a channel conflict may be the distributors

group. They are faced with the challenge to show that they add more value
to the product and therefore give a reason to buy the product not directly
through the new e-market shops. The biggest channel is to turn a channel
conflict into channel harmony, where a synergy out of the conflict arises. For
instance a physical store might take the advantage on having at the same
moment an online store and vice versa. If Manufacturers sell their product in
a vertical manner direct to the customers, retailers should try the same and
can in this manner provide less high costs for the end user. The members
have to establish a creative way to supply the products through an efficiency
and profitability channel for the end user. The linear and traditional model is
added by some new channels which have to be well integrated. Finally is to
be said, that channel conflicts are always leading to competition and
therefore to a better service, a better end-user price and last but not least to
new products, better quality and new brands which then will be sold in the
beginning by again a few retailers.

Four types of effects

For better understandings and to conclude the discussion about channel

conflicts, see the bellowed four diagrams. The first diagram shows a negative
effect, where more conflicts leads to decreasing channel efficiency. In this
case the manufacturer should try to lead and optimize his distribution
channels for a better outcome.

In the second diagram shows that a higher conflict level has no effect on the
channel efficiency. The third diagram shows an interesting case, where a
conflict in the first step leads to a higher efficiency, but reaching a special
point of escalation it leads to a decreased efficiency. Last but not least more
conflicts can also result to more efficiency, as it is good to always justify the
own existence on the market by becoming better in service and quality.

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 DESCRIPTION OF CHANNEL PARTNERS

I. C&F Agent
These agents have infrastructural and transportation facilities and are the
responsible for the transfer of goods. No sale takes place at this level. These
C&F agents get monthly emoluments from the company for their service.

II. WSS
The company appoints various wholesale stockiest who are a very important
link between the C&f Agents and the retailers. The number of this stockiest is
not fixed and varies according to the sales potential and geographic size of
the region.

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Primary sale takes place at the Wholesale stockiest. Hence their selection,
motivation and evaluation become very important to the company.

TYPES OF WSS

The company has divided the WSS on the basis of their sales value and sales
potential. The various categories of WSS are

1. CLASS A : These stockiest are the ones who have a sales potential
above

Rs 10, 00000 per month.

2. CLASS B: These stockiest have the sales potential between Rs 5,

00000 and

Rs10, 00000 per month.

3. CLASS C: These stockiest have a sales potential of less than Rs

5, 00000

III. RETAILER
The WSS sell the goods to the retailers who in turn sell it to the end
consumers. The retailers are classified in terms of their dales potential in the
following manner-

Class A- Greater than Rs 30,000 pm

Class B- Between Rs 30,000-10,000 pm

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Class C –Between Rs 10,000-5,000

Class D- Below Rs 5,000

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 SALES STRUCTURE: ASIAN PAINTS INDUSTRIES

NATIONAL SALES HEAD

REGIONAL SALES [6 RSMs divided zone

MANAGER wise]

AREA SALES [One ASM per eight

MANAGER territories]

TERRITORY SALES [One TSI per WSS]

COMPANY LEVEL
INCHARGE
DISTRIBUTOR LEVEL

Interim Sales Interim Sales Interim Sales Interim Sales

Representatives Representatives Representatives Representatives

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ASIAN PAINTS Industries Ltd. is internally divided into four broad product
usage based divisions. They are:

1. Ancillaries

2. Automotives

3. Decorative paints

4. Industrial

These divisions are looked after by their independent National Sales Heads
responsible for their respective divisions. Below these heads, their entire
division is divided into zones headed by the Regional Sales Managers who
are next in the sales hierarchy.

In our concerned division, i.e. Decorative paints; the entire country is divided
into 6 zones headed by respective RSMs. Next in line are the Area Sales
Managers who report directly to the RSMs. FE division has an ASM per eight
territories. Under them are the Territory Sales In charge who act as an
interface between the company, distributors and retailers. Every WSS has
one TSI looking after their order and requirements. To supplement the TSI
and ensuring closer monitoring of the retailers needs and payments, the
distributors themselves recruit sales representatives called Interim Sales
Representatives ( ISRs). One distributor normally has 2-3 ISRs depending on
the expanse and value of his territory.

SELECTION OF WSS

Criteria are:-

1) Capital Investment :

This is dependent not only on the present required turnovers but also on
the estimated future capital investments that will be required by the
distributor (based on company’s growth plans in the area). Amounts
required vary from area to area and markets to markets.

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 2) Relevant Experience

It is imperative that the distributor has had some prior experience as a

channel member in the FMCG sector so that no training is required to be
imparted to him on aspects of the business. The distributor should not be
dealing in competitor’s products and should be able to function as a
dedicated channel for ASIAN PAINTS. Also, he should have at least 2-3 years
of experience as a distributor in the market. But most importantly the
business should not be totally driven by his staff rather has complete self
involvement of the WSS.

3) Infrastructure : The basic infrastructural requirements for a WSS are:

a) Two rooms measuring at least (10*10) sq. feet each.

b) Delivery vehicles preferably 3 wheelers

c) Sales executives called Interim Sales Representatives or ISRs.

d) Storage Godown

However, there are no set guidelines for the above criteria with the same
being variable with market condition and turnover expected of a WSS. Every
new WSS furnishes the Company with basic information in a format specified
by the Company called a WSS Appointment Form (Annexure) which had
details about his shop registration number, type of delivery vehicle,
computer configuration etc.

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 INCENTIVES TO THE WSS
1) Margin

MARGIN LAYOUT

C&F to WSS

• WSS A buys the product at 108.93 from the C&F agent.

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 • WSS B buys the product at 108.65 from the C&F agent

• WSS C buys the product at 107.82 from the C&F agent

WSS TO RETAILER

• WSS A sells to retailers at 112.30,with cash discount of 2%.The billing

is done at 114.60.Hence the WSS gets a margin of 3%.

• WSS B sells to retailers at 112.30.60, with a cash discount of 2%.The

billing is done at 114.60. Hence the WSS gets a margin of 3.25%.

• WSS C sells to the retailers at 112.30, with a cash discount of 2%.The

billing is done at 114.60. Hence the WSS gets a margin of 4%.

AT THE RETAILER

• The retailer is given 2%cash discount by the WSS, which is common to

all the retailers. This 2%cash discount is divided into two parts-

a. Cash Discount 1% on bill.

b. Discount of 1% if the money is delivered within 20 days.(the credit

period)

• The MRP is 127 and the actual selling price varies across retailers.

*All the above margins are in Rs.

RATIONALE OF DIFFERENT MARGINS FOR WSS.

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 The basic logic of giving higher margins to lower class WSS is that as the
business of the stockiest is lower in terms of value, he may not be able to
make up for his infrastructural costs which are accrued in storing and
transportation.

In case of Class A wss, he is able to generate enough volumes to justify his

infrastructural costs. Hence even though his margins are lower, he is able to
generate very high volumes and meet his additional costs.

2) Certificates

Certificates of acknowledgement for achieving the targets for a name like

ASIAN PAINTS are priced by the distributors. They frame them and display
them in their offices.

MOTIVATION OF CHANNEL PARTNERS - “KABHI GIFT KABHI TRIP” OFFER

The company consistently comes up with schemes for its wholesale stockiest
and dealers to enable them to enjoy better margins and thus motivate them
to sell more.

One such scheme is “Kabhi gift Kabhi trip” offer for the dealers.

Duration: April 2010 to Dec. 2010

Valid on product range: ASIAN PAINTS SH/P + SPEEDX + MARINE

Open for: Registered dealers of ASIAN PAINTS

Workability:

In a nutshell, the offer has qualifying criteria of purchase of 1000 kg during

the scheme period. The dealers satisfying the criteria get points on this
purchase which in turn qualifies them for gift / trip slabs.

Broadly, the whole scheme period is divided into three quarters namely,
April-June, July-September, and October-December. Every quarter has a pre-
specified target in kgs which when achieved by the dealer fetches him 1
point.

Also, 5 achievable points are distributed among the following heads:

• Purchase Points

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 On a purchase of 1 kg, the dealers get one pt.

• Exclusive Display Points

On exclusive display of 1 kg of any of the three products the dealer

gets 1 pt.

• Pack Specific Points

This is specific on pack quantities. For eg, packs of 2kg and below,
between 5kg and 10 kg and above 20 kgs. These pack specific quantities
fetch him 2pts each.

• Others

Again gives him 1 pt per kg.

These points and the target achievement points are added up for all quarters
and thus the grand total is reached.

This final point achieved by the dealers makes him fall in one of the gift/ trip
slab in the gift chart if the points are greater than 3000.

The gifts range from watches to DVD players, from trips to Goa to even
Singapore, Patty etc.

EVALUATION

Once a distributor is appointed, the company generally does not take away
business from him, except when the underperformance has been observed
over long periods. While evaluating his performance, his targets performance
is studied relative to that of other distributors in the nearby area (because
growth patterns may by regions). Also, if a WSS is found guilty of Stock
inflow, he is terminated. If a retailer has not been paying his credit for long
periods, he is discontinued from the channel.Also, if a WSS is found guilty of
Stock inflow, he is terminated.

TRAINING PROGRAMMES
 WHOLESALE STOKIESTS :

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 The WSS prove to a very important channel partner for the
company as they forward the goods to the retailers and make them aware
about the same. Hence, product awareness becomes a mandate for this level
so as to completely understand the product utility and application. Also the
company has some policies which the small distributors may find difficult to
understand and thus falter in implementation.

To avoid the above situation, the company sends distribution managers

from the head office to brief them about the products and also give them the
complete system and functioning description. They are also elaborately told
about the schemes launched by the company because they would be further
responsible to ensure that retailers are rightly aware of the schemes.

This training is mostly given to the B and C class WSS.

 RETAILERS :

The retailers are the most important channel partners as they

are the direct link between the company channel partners and the end
consumer. They are also given training in the form of seminars and meets
organized by the company.

 MECHANICS AND CARPENTERS :

Though large offices, industries and households buy products

from the company but the end users are the mechanics and carpenters
among other masons. Their recommendation to buy the product is what
drives the customer to buy the particular brand of adhesive.

The company arranges meets and knowledge shows for them to make them
aware of the products and also to know about their requirements and
necessities.

FORECASTING AND TARGET SETTING

Target setting is a result of negotiation between the distributor and the
company. Mid month targets for the next month are given by the company
at around 5th -10th of a month. These are set for the RSM, ASMs and TSI in
the hierarchy and driven down by them.

5
At the month end the distributor can negotiate these targets in the range of
+/- 10%.However; we see that the ASIAN PAINTS products have much
seasonal and cyclic variation, due to the very nature of the product and their
usage. Lot of forecasting is done on the suggestions of the WSS, as they are
very experienced in these variations.

SEASONAL VARIATION IN DEMAND

Though forecasting is done at the ASM level, there is always an estimation
put forward by the WSS depending on seasonal variations in demand. The
following graph depicts the demand in various months for different products.

As shown above, from the month of Jan to March, there is a demand for
paint related products due to festivals like Id and Holi, when people paint
their houses. In April, with the start of the financial year, many new schemes

5
are introduced. Generally all the products sell during this period. Products
like ASIAN PAINTS SH and ASIAN PAINTS SR 900, sell well during these few
months. As July approaches, sales take a dip. Due to monsoon, there is no
painting of houses. The month of July experiences a slump in demand.

From august to November, demand raises again due to festive and

matrimonial season, where people paint their houses, goes for new furniture
and other renovations.

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 CHANNEL CONFLICTS

A. UNDERCUTTING
As in most fast moving goods, ASIAN PAINTS also faces some channel
conflicts. The problem of undercutting is also present. Although the
wholesalers are not a formal route to distribution by the company, they are
very much a part of the distribution structure. The presence of a huge
wholesale market leads to obvious channel conflicts. In addition to this, the
various margins given to the different categories of WSS leads to stock
inflows. The various channel conflicts faced by the company today are-

WHOLESELLERS

The wholesalers in this market are a very active link in the distribution of
ASIAN PAINTS products and area involved in bulk purchase from the WSS.Let
us take the same price point of 112.30, which the WSS gives to the retailers
as well as the wholesalers. The wholesaler sells the product to the retailer at
lesser than 112.30, the price which the WSS offers them. There are primarily
two reasons for this undercutting-

I. The wholesaler wants the retailer to buy the other non branded
products too, at which he charges heavy premium. This more than
offsets his loss in selling the ASIAN PAINTS product below purchase
price.

Eg: A retailer dealing in hardware and paints will have to buy

other products like Plywood Mica, Nails etc In order to woo the
retailer, the wholesaler will sell the ASIAN PAINTS SH at Rs111,
which is lesser than what the retailer would have got from the
WSS (112.30).in this way he is able to retain him and persuade
him to buy other non branded products. On these non branded
products, he gains margin of 3 -4%, hence making the deal very
lucrative for himself.

II. The wholesaler also avails the benefits of discount in various primary
schemes meant for volume retailers, as the wholesaler buy in Bulk.The

5
 Company offers bulk discount and gold jewelry at various volume
slabs. By availing these regular schemes, the wholesalers are able to
make up any losses from selling at lower than cost price. Eg;

SLAB SCHEME

 >30 Kg 1 Re /Kg off

 >50 Kg 2 g Silver

 >1 Tonne 2 g Gol

RETAILERS

At the retailer level also there are variations in price and undercutting. The
major reasons for undercutting at the retailer level are-

Many retailers keep the branded products because it increases credibility of

their shop. They are primary dealing in non branded products like Mica,
Plywood etc. Hence, they give discounts on the ASIAN PAINTS products and
woo the consumer to buy other products too. He charges a high premium on
the non branded product, which more than offsets the discount given on the
ASIAN PAINTS product.

B. STOCK INFLOW
Many times, a class B or C WSS of different territory sells his product in the
area charging lesser price because the company offers him more margins, in
order to support his infrastructural costs. As explained in sect, the class C
WSS gets 4% margins by company. Hence in order to increase sales, he at
times goes to other territories and sells at lower price than the class A WSS
available there.

Eg:

Company Selling price(own Selling price (WSS A Selling price

price area) area) (SP)
Class A WSS 108.93 112.3 112.3 118

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Class C 107.82 112.3 110 116
WSS

In this way, two retailers in the same area end up selling at different prices as the
product bought by one retailer has been supplied by a different WSS of different
territory.

RESEARCH METHODOLOGY

The problem statement:

Channel Conflict in Brief Multichannel systems are a way of life for

manufacturers today. Whether you are managing a mix of direct and indirect
channels or a spectrum of high-support to low-support resellers, the reality is
that channel conflict will be an ongoing issue in your marketplace. As the
number of internet sites (potentially including your own) that offer your
product for sale proliferates, this multi-channel structure becomes more
complex and the channel conflict potential more pervasive.

A limited amount of channel conflict is healthy. It indicates that you have

adequate market coverage. However, once the balance between coverage
and conflict is lost, destructive channel conflict can quickly undermine your
channel strategy, market position and product line profitability.

Objectives of this study:

 Understanding the Inter Territory Sales Dynamics and Undercutting in

Indore and other cities of Madhya Pradesh.
 Identifying whole sellers involved in the process of inter territory sales.
 Analyze the products and circumstances that significantly contribute to
undercutting.

The Methodology:

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The methodology which will be used for carrying out the report will be used
as follows:-

Types of Data Source: - For present research work, primary as well as

secondary data will be used. Research will be broadly classified into two
sections. Detail analysis of the data is done to conclude the study.

Tools of collecting Primary Data: - The information will be collected

directly from the organizations SOP’s like Area sales manager, Interim sales
representatives, distributors, Wholesaler stockiest etc.

Survey: This will include structured and non-structured interviews.

Tools of collecting Secondary Data: -

A) Document review: - Obtaining the official and unofficial published

documents by the company and third party sources like independent study
institutions.

B) Observations: - Analyzing reports and press releases, verifying the

statements made during the interviews.

C) Web search: - Different literature presented on internet and similar

studies carried which may be helpful.

D) From the study of individual case studies from different organizations

facing similar problems.

E) Sampling like records, reports, operational logs, data entry documents,

complaints, and various types of forms.

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 ASIAN PAINTS WSS SURVEY: INDORE
Name of WSS: M/S Asian Paints Ltd

TYPE A WSS

Experience: 3 years

Asian Paints Ltd is one of the prominent wholesale suppliers in INDORE area.
Apart from ASIAN PAINTS, he also keeps the products of him following
companies-

1. Airtel

2. Amul

3. Godrej

As we can see, none of the other products are competing with ASIAN
PAINTS products.

The Infrastructure

Asian Paints Ltd are Type A was, hence they have a very good infrastructural
facilities. The facilities available at Asian Paints Ltd are-

a. A 20 by 10 sqr feet front office with two telephone lines and one
Fax machine.

b. An unbranded computer(assembled) with 128Mb RAM and 40 GB

hard disk, which is as per the requirement of the
Company

c. A huge godown

d. 3 -Three wheeler auto- Bajaj Tempos

e. 2 Hand Rickshaws

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Sales Staff

Asian Paints Ltd have one ISR (Interim Sales Representative) , working for
ASIAN PAINTS products. In addition, Mr Bansal himself along with his younger
brother work as sales executives.

Retailers Covered

Asian Paints Ltd covers around 150 Retailers. The various kinds of
distributors falling in his area are-

1. Class A - 10 To 15

The class A retailers is catered by Mr. Ankur Bansal himself. Around two
times a Week he visits these retailers and takes their orders.

2. Class B – 35

Class B WSS is visited by the ISR and Mr. Bansal’s brothers, again

3. Class C – 100

The class C retailers are catered by ISR. Around two times a week he visits
these Retailers and takes their orders.

Credit Policy

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The WSS sells the goods at credit to the retailers for a 20 day perioud.The
retailer has to pay within the limited period or the 1% cash discount which is
offered by the company, is not given to the retailer. As already explained,
out of 2%CD (Cash Discount) given to the retailers, 1% is given at the time of
delivery and 1%if the retailer pays back within 20 days.

In case the payment is not made in 20 days, an interest n the money @4%is
charged by the WSS.

If the retailer does not pay by the end of the month, the remaining goods are
confiscated by the WSS, as a accompany policy. This, however, has never
happen at Asian Paints Ltd.

Lead Period

The lead periods in providing stocks to the dealers differs from the SKU and
quantity ordered; some SKU’s are delivered correspondingly with taking
order but some are sent from the warehouses. A higher quantity ordered has
to be replenished from the warehouse.

Stock Policy:

As per the company regulations the distributor is supposed to maintain a

stock of 3 weeks; the distributor maintains a stock of 3 -3.5 weeks in
monetary terms it equals to Rs. 30 lakh for the distributor.

The stock is formalized by the company; the dealer can negotiate on 3-4 end
days, the stock policy is formed for the month.

Return Policy

The company follows a policy of return when the product has not been sold
for six months, is damaged or has defects. The replenishment is done with
cash and happens at the end of every six months.

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Return on Investments

The company does not give any guarantee to the distributor with regard to
returns on his investment which is in line with the market credentials of the
company; the distributor has invested Rs. 3 lakhs as security money and
around 30 lakhs in the infrastructure.

Promotion Policy

The trade promotions are mostly secondary schemes, which are primarily for
the retailers. These schemes are notified to the WSS around 7 of every
month and then are passed down to the retailers.

CHANNEL CONFLICT: STOCK INFLOW

As already explained, different class of WSS are given different margins on

the products. The B and C class WSS are given higher margins in order to
help them meet their infrastructural costs. This difference in margins, at
times, drives the C class WSS to push their products in the territory of WSS A
at a lower price. This has happened at the Asian Paints Ltd and there is no
effective check which can be done to stop this Inflow.

DUMPING

Another issue, which the WSS told us, was the case of dumping by the ASM
under pressures of meeting targets in certain months.

He said that it is a tacit understanding between the company and him that at
times he shall keep more stock than required in order to meet the targets of
ASM.He says it is a bit of problem, but most of the business is run by
relation, which cannot be spoilt.

5
 ASIAN PAINTS RETAIL SURVEY: INDORE

RETAILER 1: Anils Hardware

(UNDERCUTTNG TO PUSH UNBRANDED GOODS)

This retailer is a hardware store who deals primarily in paints, warnishes and
plywood. He buys his ASIAN PAINTS products from an authorized WSS in this
area at the price fixed by the company.

The sales representative visits him once in a week .The delivery of the
demand is done the next day only. He prefers WSS rather than the
wholesaler in his area because he can return the unsold goods to him.
Whereas the wholesaler gives him at a discount, he will never return the
goods unsold.

UNDERCUTTING

This retailer sales the ASIAN PAINTS SH at below his cost price from the
WSS.The reason for doing so is that he primarily deals in unbranded goods
like plywood,mica,paints etc.Hence two main benefits are derived by doing
undercutting-

• He is able to woo the customer to buy other non branded

commodities by showing them discount on ASIAN PAINTS products.
On these unbranded goods, he heavily charges premium, which
more than offset his loss in selling ASIAN PAINTS below cost price.

• Presence of a strong brand like ASIAN PAINTS increases his shop

visibility and credibility.

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RETAILER 2: Dave Paints

(UNDERCUTTING BY BUYING FROM WHOLESALER)

The retailer is a hardware shop, who keeps many ranges of ASIAN PAINTS
products. Also he keeps a range of hardware products. Rather than buying
the Class A WSS in his area, he buys from the wholesaler, Agrawal and Sons.

Since he buys in bulk, the discounts given by the wholesalers gives him large
margins. The price points which is offered by the WSS and Wholesaler is

WSS (Asian Paints Ltd): 112.30

Wholesaler (Agrawal Brothers): 109

This huge difference forces the retailer to buy from the wholesaler. This
retailer also buys the non branded products from the same wholesaler. Since
he buys from the wholesaler at a lower price, he charges lesser to the
consumer, thus resulting in undercutting.

RETAILER 3: Nitco Paints Pvt Ltd

(UNDERCUTTING BECAUSE OF STOCK INFLOW)

This retailer is a paint shop which keeps a whole range of ASIAN PAINTS
products. This shop buys from Sharma Traders, a Class C WSS, who
encroaches in the territory of Asian Paints Ltd (Class A WSS).

The prices offered by the two WSS are

Sharma Traders: 110

Asian Paints Ltd: 112.30

This type of stock inflow results in the undercutting at the retailer level.

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 OBSERVATIONS

1. As seen earlier, the wholesalers are a cause of conflict in the distribution

system. However, the company does not objects to the unwarranted
existence of wholesalers as they serve as means to improve the distribution
of company’s products and the undercutting done by them helps to push up
sales in the long run at times.

An example in this context is that of Decorative paints. The sales of Asian

paints were disappointing in mid years due to strong competition from MNC
players and some local brands, in spite of various attempts by the company
to alter packing, size, prices etc. Then the company offered the wholesalers
QPS (Quantity Purchase Schemes) margins (or even T.V.s) on bulk buying by
them over a period of time.

They pushed the product into the retail channel and once sold at the
retailer’s end, repeat purchases followed. Henceforth the official route set in,
the distributor could ensure repeat sales by building upon the previous
successful sales of éclairs by the retailer.

2. The company introduces contests to motivate their channel partners

regularly.

In 2010 the company had launched a contest “Khulja Sim Sim - Supper
awards for super achievers” similar to “Proud to be Asian Paints”.

3. Training of Sales force of Distributors should be taken over by Asian Paints

to ensure optimal performance.

4. The company dumps huge stocks of slow moving SKUs to achieve targets,
but in the long run, it results into dissatisfaction of distributor and losses for
the company.

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 5. The selection of Distributors is a very crucial decision for the company.
A lot of time and effort is spent to train them. Also, they are not
frequently changed.

RECOMMENDATIONS

1. APPLYING SPLIT RANGE DISTRIBUTION:

A split range distribution strategy has been successful in similar

cases of large SKU sizes co existence of 2or more main brands where each
needs separate attention. A case of Perfetti can be taken for understanding
where split range distribution had been largely successful. In a nutshell,
Perfetti has three main brands with 10-12 SKUs for each i.e. Alpenlibe,
Centre Shock and Centre fresh. They applied split on an equal value – equal
volume basis. The same was done at Britannia to provide focus and thus
increase sales.

At, ASIAN PAINTS, for FE division we suggest a split among the range of
adhesives for sticking and those used for binding in paints. Then again, to
provide almost focus, we suggest that separate WSS for the two unlike the
same handling the entire range and not being able to concentrate on all
SKUs.

Let’s say, P1: is the range of Hardware adhesives (for sticking plywood’s,
mica etc)

Then, P1a, P1b, P1c etc are the different SKUs in hardware.

Similarly, P2: is the range of Paint Adhesives (binders distemper etc).

Then, P2a, P2b, P2c etc are the different SKUs in paint adhesives.

– Separate salesman for the splits

• Before split, 3 salesmen, 2 beats each all products

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 • Now 3 salesmen, 6 beats each, 1/3rd the products
(one split group)

Now, as the WSS for hardware and paints are different, the ISRs under them
also concentrate on separate SKUs. Thus their beat frequency would increase
as the products range has largely reduced resulting in more focus and higher
no. of visits to dealers.

Area Sales Manager

(ASM) for P1a, P1b, P2a,
P2b.

Distributor for P1a Distributor for P2a

and P1b. and P2b.

Salesman for Salesman for

P1a P1b

Salesman for Salesman for

P2a P2b

APPLYING SPLIT RANGE DISTRIBTION AT PIDILITE

2. CONSUMER PROMOTION SCHEMES:

The company should start consumer promotion schemes like scratch cards
etc, which will have gifts like watches, radio etc.This can woo the carpenters,
painters to buy and recommend ASIAN PAINTS over other brands.

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3. “ASIAN PAINTS SHOPPE”:
Since ASIAN PAINTS has strong brand equity even among children and
stationary consumers, it can open up shops specifically for selling home
consumption products. This may not drive sales but will be a right step in
distribution to do brand building.

Conclusions
“While retailers and manufacturers cautiously cross from channel conflict
into the demilitarized zone of channel cooperation, consumers readily move
between the different camps, sometimes even visiting manufacturer’s sites
more than retailer sites.” These two camps must do the following if they
hope to survive in today’s business environment:

(1) Satisfy mutual needs, (2) reduce redundancy, and (3) share costs.

Why must manufactures and retailers come together and work with each
other? “Coexisting with retailers online, manufacturers will sell less than
their retail channel partners,” However, manufacturers will “influence sales”
by affecting both on- and offline retail sales

Conflict is not only problematic but also it brings opportunities which

can be evolved into a more dependable efficiency and prominent marketing
channel system. There are many ways to resolute conflict but strategy which
is used resolve the conflict is more important. There will be conflict if there is
more than one member in any system but at the end of the day how we can
influence the conscious the conflict is what matter.

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5
 REFERENCES

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ECommerce,
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