Signalling a significant change in the traditional way of doing business, consumer goods majors have begun looking at cross-category distribution tie-ups in a big way to share costs and tap consumers.
Consumer durable companies like LG, Sansui, Samsung, FMCG giants like HLL and Colgate and auto majors like Mahindra and Mahindra, Hero Honda are understood to be evaluating tie-ups with each other as non-competing partners to propel their sales numbers and profitability. The idea is to tap the partner's point of influence, especially in smaller markets, at the distribution level and influence consumers.
Initially, some companies may not be very open to the idea of their distributors getting into multiple marketing, since that would diffuse their focus but it could make good business sense for the distributors, who may eventually convince companies. As a start, distributors may initally tie-up with allied products. For instance, a rural two-wheeler dealer would tie-up with a diesel genset manufacturer, as there are frequent power shutdowns in the villages.
Increasing competition and falling trade margins may also see distributors venturing into multi-product marketing. Salil Kapoor, head (marketing) of LG, said they are exploring the idea of a tie-up with FMCG market leader HLL or two-wheeler major Hero Honda to have an effective distribution and consumer reach in the smaller markets. The earlier plan mooted by some FMCG companies, where non-competing companies will tie-up with each other did not take off in a big way.
“We are open to non-competing companies to use this platform as it will give us scale and make Shakti stronger, we can even look at sharing costs at a later stage. HLL is in dialogue with bulbs and battery makers, products that HLL does not make, and black and white TV makers and moped companies to sell through the Shakti network to rural customers,” MS Banga, former non-executive chairman of HLL and president (foods), Unilever, said.
Companies will increasingly have to look at innovation in distribution to be cost-effective. “We are certainly looking at these possibilities. Cross-category tie-ups will certainly pick up in a big way. In addition to good products and right pricing, effective distribution is most crucial,” he said.
The twin forces of increased competition (large number of dealership points as well as emerging alternative channels) and a higher customer expectation is forcing distributors to look at their business afresh. The old ways of managing distributors would need to change if dealers are to add value to the sales and service processes and protect their margins. Greater process orientation and innovation in critical business functions is the need of the hour, says a two-wheeler manufacturer.
Dealership having a wide geographical selling territory especially in semi-rural/upcountry areas have appointed external agencies to increase sales. The distributors of a two-wheeler company, for instance, would encourage family members or trade associates to stock up a particular brand or venture into product distribution in a particular area. In smaller markets, there are always a couple of such trade distributors who are strong influencers. Senior industry officials said that the distributors in the smaller markets would know their area and consumers well and help trade tie-up in these markets through word of mouth reference and customer influence.
Strategic alliances, as manufacturers are fast realising, would go a long way in driving down critical cost elements like that on input, production processes, marketing and distribution.