Commodity Distribution Model

September 15, 2022November 4, 2022 by admin

Which Commodity Distribution Model to be used is the first key decision which a company has to take while entering a market. There are several models prevalent in the market. This decision dictates the marketing mix, logistics arrangement and often product specifications.

Selling Through Distributor/ Wholesaler

This is the most prevalent commodity distribution model, used by most of the conventional companies. Here the manufacturer appoints an Distributor for an area, who may or may not stock material in his godown. Together the Distributor and the company find potential retailers who can sell their material to the consumer.

The Distributor margins are set depending upon what costs are incurred by the company like secondary freight (freight from Distributor godown to Dealer shop), godown rent, material handling costs, etc.

The Distributor bears the risk of payment defaults by the Dealers. The Distributor, being small firms, are able to address the issues of the Dealers fast and keep the business running. Marketing is either directly done by the company or expenses are reimbursed to the Distributor. The branding guidelines are issued by the company for uniform message in the market.

Selling Directly to Retailer

In this commodity distribution model, the company does not have any Distributor. The retailers in an area are directly approached by the company and appointed as authorized stockists. These retailers sell the product to the consumer and company does the marketing activities in the area. This model is generally adopted in areas which are close to factory or depot of the company so that small load orders of the retailers can be serviced by the company. The Distributor margin, otherwise incurred by the company, is saved and spent on marketing or passed on to the customer.

Due to many retailers in the market and limited financial strength of the retailers, the churn rate in this model is high and companies have to keep looking for new partners.

Selling Direct to Consumer

This is a commodity distribution model in which the company opens retail counters on its own. In a few cases, company makes an existing shop in the marketplace its franchisee to sell its products exclusively in his shop. The franchisee shop cannot keep products of other brands and to a lay man, it will look like a company operated shop only. The engagement level of the company is very high and stock levels, branding and approaching the customers is done by the company personnel primarily.

Through online means, companies are trying to gather customer requirements and service them directly in areas close to their factories/ warehouses/ company outlets. The spend on digital marketing is significant. In this case, the role of logistics becomes very important.

It has been seen that companies do not adopt a single Commodity Distribution Model universally. Depending on the area, companies keep a mix of all three. It also acts as a deterrent from allowing any one player in the value chain to become dominating.

Distributor ROI

September 15, 2022November 17, 2022 by admin

Distributor ROI or Return on Investment simply put is the total return as a percentage of the investment. All companies want to understand the ROI of its distributors. This is done to ensure that the Distributor is neither working by charging the Dealers exorbitantly nor is making so little money that he might lose interest in the product later. The profit margin is a major consideration for the wholesaler motivation to be associated with a brand.

Uncertainties in business

In case of building materials, there are certain factors which complicate the actual Distributor ROI calculation.

There is seasonality in the product, which means that there is not a fixed sale every month. This also demands that Distributor has to invest additionally during some duration of the year on manpower, storage space and other infrastructure.
Product price changes due to seasonality or due to raw material cost changes or due to structural changes in the external environment (entry of a new market player, exit of an existing competitor, changes in application cost due to change in price or unavailability of some other component or accessory which is needed for fixing or applying the building material, etc.) leading to varied Distributor ROI in an year
There is no fixed storage/ handling/ transport charges per unit of the commodity as some material has to be stored by the Distributor for servicing the market and some material gets dispatched directly to the Dealers/ customers from the manufacturer’s premises, depending on the order size.
Distributor is engaged in wholesale of multiple products, so it is difficult to allocate the various expenses, like manpower, rents, account-keeping, fuel, equipments, etc. to multiple products.
Recovery of credit given by the Distributor from different dealers happens at varying periods. Credit terms also affect the price for the Dealer.
A contingency like fire in godown, market shut down, transport strike, bad quality of incoming material, disruption in invoicing infrastructure, etc., might affect business for some time. This can affect Distributor ROI drastically in an year.
Increase in cost of most of the inputs due to increase in sale is not a linear relation. Sale during the end of the month is higher than that in the beginning of the month due to increased activity by company sales personnel to achieve their targets, which means that the Distributor has to employ additional labour only for the last few days, arrange for vehicles at higher freights and get additional space for storage due to increase in incoming material from the factory.

Distributor ROI should be enough to cover for these costs and risks, plus yield a reasonable return for the Distributor to stay invested in the business. Else, he will stop making efforts to expand the business, which will hurt the commodity brand only.

Simplistic case to calculate Distributor ROI

We assume that there is there is a fixed sale every month. There are no price fluctuations during the year. The profit margin on every transaction is fixed, say 3%. The initial capital invested by the Distributor in the first month of the year gets rotated, say two times in a month and he gets back the money from the Dealers after fifteen days of material delivery. The Distributor is engaged in the business of wholesaling a single product and all the expenses incurred are loaded on this product. There is no variation in these input costs over an year.

In the above scenario, due to two rotations from the initial investment in the first month, the Distributor earns 6% on his investment every month. At the end of the year, his Gross ROI is 72% (i.e., 12*6%). Now subtract all the expenses he has incurred in the year from the Gross Return and Net ROI can be calculated by dividing this Net Return value by investment. The various expenses incurred by the Distributor are fixed for an year. Say, rent is 1.5% of monthly purchase value, Labour 0.2%, Freight 0.3% and other costs 0.25%. Cost of capital is 0.75% per month of initial investment. Net ROI will be 9%.

Distributor ROI- Simple case — Table 1: Distributor ROI calculation

More complex case to calculate Distributor ROI

In the more complex case, we will assume that sale is not uniform in a year, so the Distributor will have to make additional investments during the year and a some portion of the investment made during the peak month of the year, will be idle in off-season month of the year. Below illustration provides a tool to estimate the ROI. However, here also, rent has not changed over the year, assuming that no additional space will be needed even during the peak season. The increase in costs due to higher demand of material handling resources or decrease in costs due to economies of scale has not been captured in the model.

Distributor ROI- Complex case — Table 2: Distributor ROI calculation with fluctuations in price, sale volume and input costs

In the above examples, we have not included any Channel Incentive schemes which the company might be running for the Distributors or marketing expenses incurred by the Distributor for promoting the product in the market or for adding new Dealers to the network.

Commodity Handling Agents

September 12, 2022November 2, 2022 by admin

Commodity Handling Agents or Carrying and Forwarding Agents (CFAs) act as the bridge between the company and customers. Companies need them because they cannot manage the logistics in all the markets. Handling agents need to have a good liaison with the local labour unions, transporters, godown owners and often with the wholesalers.

Responsibilities of Commodity Handling Agents

The handling agents are responsible for receipt of material from the factories, upkeep of good stock in the godowns, data entry in ERP system etc.
They are responsible for the timely dispatch of goods to customers & invoicing.
If the material arrives by rail, handling agents also need to coordinate with local Railways Department officers for unloading of material from the wagons and transportation to the godown.
In case of damages in material during transit to the godown, commodity handling agents are responsible for the salvage or disposal of damaged material.
CFAs also have a role in controlling infiltration of material meant to be dispatched to one area but unloaded in other area, especially if CFA is also responsible for arranging the transport.

Commodity Handling Agents versus Distributors/ Wholesalers

A few large companies do not allow their CFAs to do wholesaling of their product or other brand in the same industry. This is done to avoid conflict of interest as the CFA might start using the godown premises or company’s transportation vehices to favour his own retailers over other those of other distributors serviced from the godown.

However, this has been implemented by a very few building materials companies as at the time of entering a new market, companies want to outsource the material handling work to someone who knows the product and industry well and an existing Distributor of the product in the area is well versed with the nature of the product. Also, it gives quick access to the retailers of that Distributor if he becomes his CFA also.

Market Research

September 12, 2022November 8, 2022 by admin

Conducting market research periodically is important for commodity companies. The market intelligence provides input for course correction in the marketing strategy. Survey can be with the channel partners, influencers and end users.

Attributes of Survey

The survey questionnaire for market research may not be very detailed. It need not be one involving several hundreds of respondents. However it should be systematic, fearless and unbiased.

Systematic means that the responses should be sought on similar questions from one type of respondents. There should be enough responses on any parameter to arrive at a conclusion from market research.
Fearless means that the respondents should be able to give their opinion in a free manner. Generally avoid to ask channel partners for feedback in front of company sales personnel as often they tend to give more negative feedback so to extract more benefits from the company. Some of them do not speak for fear of losing the goodwill of the company.

Ensure to cover all types of channel partners in the sample. This makes the survey unbiased. So, seek feedback from all types of respondents from the target segment in the survey- big and small, exclusive and multi-brand, young and old promoter-driven stores.

Objectives of Market Research

Collecting market intelligence can have various objectives. It can be done to understand customer preferences priorities. It can be done to estimate the market size. It can be done to evaluate the brand health or customer satisfaction with its products. It can be done to estimate the viewership or reach of its advertisement or what has been its impact on purchasing behaviour of customer. It can be done to gather competitor information.

Then companies also need to collect some information about the channel partners. They should be regularly updating their database of the retail counters and wholesalers present in the market, potential of each, financial background, brand preferences, market potential, etc. This will help in targeting specific channel partners who can add value to the existing network.

Company can conduct market surveys through its own staff or outsource the task to an agency.

Health Focused Campaigns

September 12, 2022October 31, 2022 by admin

Similar to sustainability, healthy living has also become an area of interest for the consumers. A few health focused campaigns have been done by companies in which the message has been that their product causes lesser hazard to health than other products in the market.

Messages in Health Focused campaigns

Campaigns like product is dust-free or does not release any VOC (Volatile Organic compounds) or does not emit any harmful chemicals during their lifetime have caught lot of tractions among the building material manufacturers. Asian Paints ran a campaign around their paints being dust-free, which caused a lot of interest among the buyers.

With several types of diseases/ pandemics arising due to microorganisms, building materials have also done their advertisement that their products do not allow mold development or does not allow bacteria/ virus growth. One of the three benefits advertised for Supercolour was that it is Anti-fungal and it helped in attracting the end users.

Then there are other properties which build on the product being favourable to healthy life. Easy to clean, good light reflectance, and abrasion resistance are a few of the features which promote comfortable living and are used by the commodity companies in their health focused campaigns.

Health is an ever-evolving field. All health focused campaigns need to be backed with proper market research and scientific study so that the campaign does not backfire later and cause damage to the brand image.

Product Packaging- Powerful or Dummy?

September 9, 2022November 11, 2022 by admin

Product packaging plays a very significant role for FMCG products. Can the same be said about commodities? Commodities are generally bulky and purchased in larger quantities. Their handling is quite unsophisticated. Their users are often different from their buyers.

Packaged and Unpackaged Products

There are a few commodities, which allow packaging, while others are of such nature that no packaging is possible and branding has to be done on the product itself.
Commodities which have packaging: Cement, glass, paint, electric wires, barbed wires, tiles
Commodities which do not have packaging: TMT bars, gypsum/ fiber cement boards, cement sheets, metal sheets, plywood, metal framework

It has been seen that for commodities, where packaging is not possible due to the size of the product, companies employ stickers or wrap arounds to convey their marketing message.

Product Packaging Benefits

Apart from the functional objective of protecting the product from weathering or causing harm to environment/ people around, product packaging informs the customer of major USPs of the product. Product packaging helps in establishing the premiumness of the brand. If the packaging is attractive, the recall value of the product is also higher. A good quality of packaging assures the consumer that the content inside will also be of good quality.

Usage and storage guidelines are sometimes mentioned on the packaging so that the customer does not need someone to guide him how to use it. There are customer care contact details or email IDs mentioned for contacting in case of any query or problem. It often lists the links (company website/ product micro site) to enable the consumer to gather more information about the product or its installation technique. Then there are few details like Maximum retail price, physical properties like weight, date and place of manufacturing etc. which have been mandated by the government for a few categories of items.

Packaging also gives space to advertise any offers being run on the product to attract the customer’s attention. Finally, if there are any standards like BIS, ISO, etc. which the company is complying to and wants to inform the customers about it, can be communicated through packaging. For a few commodities, it is mandatory by the government to comply to certain standards in manufacturing or testing and companies have to mention the standard on the packaging. For example, in India, cement manufacturers have to mention the IS code on the packaging itself, depending on the type of cement (OPC, PPC or PSC).

In a nutshell, packaging is the last medium for advertisement just before purchase decision if the customer has not been exposed to any advertisement of the product earlier.

Product Packaging- What to avoid?

Packaging is a sensitive media when it comes to communicating about the product. The text on the packaging can be taken to the court if the product does not deliver on the promises mentioned on the product packaging. Only those claims about the product performance should be mentioned for which the company has reports from test, internally conducted or at an external lab. However, words like “Best”, “Cheapest”, “Most effective”, “Highest selling”, “Fastest” etc. are acceptable adjectives for the product as this are subjective terms and depend on several factors, a few of which might not be even possible to measure.

A lot of iterations are done before the final product packaging is decided. It should look appealing, be sturdy enough to bear transportation, weathering and handling and not add a lot of cost to the product. Environment friendly packaging material has recently become a trend as packaging material does not go into construction and have to be disposed off.

Environment focused campaigns

September 9, 2022December 7, 2022 by admin

“Go Green” is the new buzzword and Marketing Communications cannot ignore the environment focused campaigns. Companies need to build a perception about themselves that they have a socio-environmental agenda. This increases the acceptance of their products in the market. Not only the product’s features or its manufacturing but also the other activities the company indulges in should have a positive bearing on the ecosystem.

Communication in Environment focused campaigns

There are several themes around which communications are developed for environment focused campaigns. Some are around environment conservation theme. A few companies advertise that their product does not cause any damage to the nature due their bio-degradable nature. They do innovations in the packaging to make it bio-degradable as discarding of the packaging material is a big challenge for the users. A few also advertise that they have reduced their dependence on natural resources and are using more of industrial wastes so that natural resources are conserved for future generations.

JSW Cement has built its marketing campaign around being an eco-friendly cement company. They are trying to take the pole position in promoting Portland Slag Cement (PSC), which is considered to cause lesser CO₂ impact to the environment than Ordinary Portland Cement (OPC). PSC manufacturing uses slag, an otherwise useless by-product from steel industry and gives better long-term strength than OPC.

Conservation of energy is another popular marketing message in the environment focused campaigns. Companies claim that usage of their brands will lead to lesser electricity usage at home. A few companies promote the fact that they are harnessing solar or wind energy or using recycled water for their manufacturing processes. Few companies have switched to technologies which allow for conservation of energy. For a few companies, it is not possible to conserve energy due to the nature of their business. So, they engage in activities which are towards providing renewable energy or clean environment to a community and use it for their PR activities.

Today’s consumer is more environment conscious and is willing to pay an extra buck if the product contributes to the cause of sustainability. Environment focused campaigns also help in bringing the influencers like architects and interior designers to the company’s fold. The role of architects becomes here more important as “Green Building” or “Net Zero” are good selling points for them when they are pitching to their clients and they are looking for products which helps the buildings designed by them achieve this. The support from the government bodies in promoting a particular product category is also more forthcoming if the product does not harm nature or conserves natural resources.

Internal challenges

Apart from advertisement, companies also try to imbibe being environment focused in their work culture, and not just do lip service to the environment. They undertake cleanliness drives and often encourage their customers to participate in them. Care is taken to ensure resources within the company are not wasted.

Environment focused campaigns need to be very carefully planned as any wrong claim can be challenged in a court of law and cause unnecessary damage to the company’s reputation. All claims should have proper data back-up.

Electronic Media Advertising

September 2, 2022November 1, 2022 by admin

TV, radio, theatres and other electronic media are widely used these days for commodity brands promotion. Each has its merits and demerits and companies need to be very prudent while deciding on electronic media advertising strategy.

Television

Television is an expensive proposition for electronic media advertising but has reach to almost every household. However, the space has become very cluttered due to too many brands running their advertisements on TV. On TV, there are two types of advertisements. First type is 15-30 seconds advertisement which is played between programs. In second type, during the program itself, an L-band or top/ bottom band advertisement is displayed. A third type also exists. There are dedicated TV channels, running advertisement for a product continuously for 15 minutes or even longer.

Cinema Theatres

Advantage of movie theatre advertisement is that there is a captive audience there who cannot ignore the communication. However, not everyone is a movie buff and do not go to watch movies to theatres very frequently. It is a cheaper medium and spot durations are generally longer than TV ads, though the cost of production is the same as TV ad.

Radio

Listening to radio is no more prevalant in the urban households and is on a decline in rural areas also. However, during travel, in shopping malls, in small mom-and-pop shops, in eating joints, and other public places, radios are still used.

Digital OOH

Digital Out-of-Home advertisement can be seen in malls, airports, railway stations, bus stands and now-a-days even in the lift lobbies of residential complexes. People read the advertisements while waiting for something. It can be a static image or a video. The content can be periodically changed remotely to keep freshness in the communication if the medium is on a network.

Product differentiation- 5 levels

August 9, 2020November 17, 2022 by admin

Companies are often in a dilemma to work towards physical product differentiation or perception creation of the same. If one goes into the manufacturing technology and quality measures employed by commodity companies, one will realize that there is not much difference in the product coming out from comparable size companies. Yet the perception in the consumer’s mind is different for each brand. The advantage of differentiation is two-fold. First the customer does not need a lot of convincing as he is already aware of the product. Also, he pays a premium for the differentiated product. Undifferentiated products are often not in his consideration set.

A lot of effort has gone into creating an aura of differentiation for their products in various categories by the brand leaders. Consumers view cement from Ultratech, steel from Tata, paint from Asian Paints, glass from Saint Gobain, tiles from Kajaria, etc. as reliable products to use. A simple way to find whether a particular product category is treated as a commodity or is identified by various brands in the market is by checking the price indifference of the customer to the various options available within the product category. If the customer is not willing to pay differently for the various brands available, it means that the product is still a commodity in the eyes of the customer.

The taglines, choice of celebrity endorsers, message in TV commercials, packaging, all go into creating a perception of a different product within a category. It is due to these efforts by the marketers that the customer builds a respect for the brand. Also, the way, a customer is provided services by the company in terms of timely supply, satisfactory response to his queries, sample packaging, all go in building an emotional connect with the brand. The customer might not have necessarily used the product till now, yet he has built a perception of the brand.

In cement, since the success of Ultratech, all companies are trying to be a preferred brand by the engineers. This is because among all the influencers, engineers are seen as the most learned lot. The brand in a way has given a promise of better or more reliable performance than its competitors.

When we say product differentiation, we do not necessarily mean that the product is different from the competitors in its technical specifications or has a better functionality or user interface. Often creating differentiation in the product itself is difficult, but there are opportunities to create the differentiation in the brand.

After-sales service, complaint attending speed, timely & transparent accounting system with the channel partners, fast delivery of material to the channel partners or customers, credit policy for the customers, ease of complaint registration by the end users telephonically or online, availability of the product in close vicinity of the consumers, etc. all help in creating product differentiation. The role of marketing communications is to emphasize that the company’s products are the best. This, play an important role in this perception creation. In a nutshell, it is possible to create product differentiation.

Product Differentiation levels

Below is the author’s classification of various types of commodities under one of the 5 levels of product differentiation as seen by customers. However, this might change region-wise. Also, a few brands within the category might be an outlier. That is, within a mostly commoditized category, there might be a few established brands and within a category dominated by brands, there might be a few unorganized sector players, catering to the needs of brand apathetic customers.

Undifferentiated: Sand, Gravel, Bricks, Seeds
Mostly undifferentiated: Cement, Steel, Glass, Petrol
Little differentiated: Cement sheets, GI sheets, Aluminum sheets, Barbed wires, Plywood
Medium Differentiated: Sanitaryware, Electric fittings, Fertilizers, Electric wires, Gypsum boards
Highly differentiated: Pumps, Paints, Tiles, Cement boards

Brand Architecture- 3 Types

March 29, 2020November 1, 2022 by admin

Most of the commodity companies have two or more brands. The question of which brand architecture to follow primarily arises at the time of introducing a new brand. The dilemma is similar to other industries:

Should you operate with Brand Extension strategy or Endorsed Brand strategy?

Should the identity of the new brand be completely away from the existing brand?

What is perception of the present brand in the consumers’ mind?

When to use which Brand Architecture?

Companies adopt various brand architecture for managing their brands, depending on their strategy.

Brand Extension or Branded House:

This brand architecture strategy is used when the brand equity of the existing brand is high and can be transferred to the new brand. It is generally used when a premium brand wants to introduce an even more premium brand.

Ultratech Cement launched an even more premium product Ultratech SUPER. The mass media advertisements were mostly for mother Ultratech brand, though at the retail counters, Ultratech SUPER was also promoted.

Endorsed Brand or Sub-brands:

For some companies, the trust level is high on the existing brand but it is seen more as a value brand than premium brand. The new brand to be launched is desired to be positioned in the premium segment. Then endorsed brand strategy is used. It is also used when the company is a conglomerate diversified in multiple products and wants to extend the brand equity to the new businesses.

When Lafarge entered India, it wanted to encash on the existing brand strength of Lafarge. So the brands it launched were Lafarge Duraguard and Lafarge Concreto. The focus on Lafarge was less, visible from the packaging of the product. All in-house developed Tata products have a mention of Tata in their brand name.

Standalone Brand or House of Brands:

This strategy is used when the image of the existing brand is quite negative and will have an adverse impact on the new brand if the consumers come to know that it from the same manufacturer. Alternatively, it is used when the brand perception of the existing brand is so strong that consumers will not be able to associate the new brand with a premium segment. A value brand from can potentially erode the premiumness associated with the existing brand.

Bangur Cement and Rockstrong Cement are from the same parent company Shree Cement but have no mention of Shree Cement on any of their marketing communications.

Brand Architecture- 3 Types

Mixed strategies:

Then there are variants which are midway between the strategies. The focus on the parent brand ranges from high to low and are used by commodity companies, depending on the market feedback and requirement.

Brand Architecture defines the communication on the product packaging, advertisement in media and in-shop promotion, along with other things.

Trade Partner schemes

March 29, 2020November 4, 2022 by admin

In the earlier post Dealer Incentives, we had discussed about the various types of schemes floated by the companies to increase the off-take by the dealers. The change in purchasing behaviour desired through these trade partner schemes has to be clear upfront. Then only they can achieve their objective.

Trade Partner scheme objectives

The desired objective of the trade partner schemes can be one or many of the following:

Increase off-take of the product by the trade partner over several months, sometimes even more than a year. Generally targets assigned to each stockist or dealer is for a minimum 3 months period. The targets should be set up at least 5% or 10% or as per the company’s objective higher than last year achievement in the same period. Payouts are generally grand as incentive accumulated over the scheme period is high. It can be in the form of tours, gold, electronic items, etc.
Motivate the dealer to stock up the product by the trade partner in a short span. This is often a special price scheme valid for a short span. Generally, there are slabs in trade partner schemes and payout is often in form of cash back or gift coupons. Sometimes, payout is in the form of product itself.
Incentivize the dealer to purchase value added products or new products launched recently. These type of trade partner schemes are often the most complicated. The major portion of the incentive is on purchasing the new or premium products, and a nominal or no incentive on the existing/ flagship product. The companies often introduce incentive multipliers during the scheme period to further boost the sales of the focus products.
Annual Turnover discounts to motivate the dealer to do business round the year and not switch to competitors. This is a volume-based discount. Objective is to motivate the trade partner to do business for the whole year. This incentive is seen by the trade partners as pure profit from the business as often they have passed on all other discounts to their customers.
Incentivize a competition dealer to switch loyalty or to increase the shop share. Single brand outlets are given additional incentive by a few companies over multi-brand outlets. Sometimes the shop also gets incentive of it keeps the advertisement for a certain period of time. This is a short-term scheme to increase the shop share.
Incentivize the channel partners if they bring other influencers to company fold. Companies track the sale activity through these new influencers. The tracking mechanism can be physical passbooks, mobile apps, physical coupons placed with the product, etc.

How to make Trade Partner schemes successful?

Trade partner schemes can be made successful if there is proper planning done during the scheme formulation, enough engagement is built with the channel partners during the scheme period and satisfactory closure of the scheme is done. The scheme should have simple terms and conditions for the sales team to be able to explain it to the dealers and for the dealers to understand easily. Constant communication about the scheme or about achievement by the dealers helps in making the schemes successful.

Equally important is the closure of the trade partner schemes. The disbursement of the payouts has to be as fast as possible and with good transparency so that the beneficiaries look forward to the next scheme. Internally for the company, it is necessary that it analyzes what went right with the scheme and what went wrong and where did the scheme fly and where it was a failure.

A sample Loyalty scheme is attached for encouraging the channel partners to do business with the commodity company regularly as well as not to switch to a competitor.

Commodity-Loyalty-Program Download

Competitive Intelligence- 5 Buckets

May 28, 2018November 23, 2022 by admin

Companies need to keep a tab on the competitor activities. Market research is the act of gathering competitive intelligence and is done by a company to find its own standing against the competitors or when a company is entering a new market or industry where there are already existing players. The most fundamental question being tried to answer is what is the market share of the various companies in the market. Market share by revenue might be different from market share by volume shipped.

Types of Competitive Intelligence

Research questions for gaining competitive intelligence can be one or more among the following but not restricted to these only.

Channel Partners	New products	Consumers	Market share	Self-assessment/ NPS
1. What are the competitors doing to attract new channel partners?	1. Have new competitors or alternative products entered any new market?	1. What category of consumers are targeted by the competition? Is there a niche market serviced by competition?	1. What is the market share of the major competitors or has there been recent changes in the market share of companies?	1. How efficient company’s systems are in terms of accounting, complaint redressal, scheme disbursement, etc?
2. What short term and long term schemes are being run for the channel partners?	2. Which innovations are the competitors bringing in their product?	2. What has been the recent changes in the competitor marketing communications?	2. What is the market share of the unorganized sector competitors?	2. How satisfied are the customers with the company’s marketing/ supply chain activities vis-à-vis those of the competitors?
3. What are the billing and wholesale prices of competitors?	3. What is the feedback on the product quality compared to competitor’s product?	3. What are the consumer schemes being run by the competition?	3. What activities by the company will have the highest impact to increase the market share?	3. How likely are the channel partners (promoters) to recommend our product?

Market Research questions pertaining to Competitive Intelligence

Though superficially all the research questions for getting competitive intelligence look different, there are deep relationships among them and response on one question impacts the response on another.

5 Business Risks

May 18, 2016October 20, 2022 by admin

Marketing of commodities involves several business risks. However, most of the business risks can be categorized in one of the 5 Business Risk categories. Below is the list of business risks and the possible risk management methods adopted by companies. The list is not comprehensive and certain industries might face business risks peculiar for that industry. Business risks can be seasonal or perpetual. Also, severity can be different for different companies for the same risk.

Classification of Business Risks:

5 Business Risks

Sl.	Risk Identification	Assessment of identified risk	Risk Severity	Risk Management
1	Manufacturing Risks
a	Non-availability of raw materials/ consumables	Company did not identify multiple sources for raw materials	High	Alternate vendors/ mines should be identified.
b	Breakdown in machinery	Equipments might face breakdown	High	Scheduled preventive maintenance should be done on time. Spare parts should be stocked.
c	Labour issues	Labour might go on a strike or might be unavailable for a few days due to a festival in the region or might get infected with a pandemic at the same time.	Low	Labour should be trained on multiple tasks to bring flexibility. Automation will also help in bringing down the dependence on manual labour.
d	Disruption in power, water supplies, gas, etc.	There might be disruption in public utilities.	Low	Back-up for a few days for power, water, gas, etc. should be ready with the factory.
e	Quality spills	The quality of the product might deteriorate.	Low	Staff should be encouraged to undertake quality improvement/ defect reduction projects.
2	Risks in Marketing
a	Change in preference/ Technology disruption	Company did not foresee the changing preferences of consumers or a new player has entered which has changed the way customer was earlier doing transactions.	Medium	Company should routinely survey customer satisfaction with the company’s services/ products and track any changes in the market trends.
b	Inadequate promotion	Company might not be spending enough to build awareness for its products or to convert interest into sales.	Medium	Right mix of the various advertising media along with right timing needs to be strategized for maximum return.
c	Weak USP/ Incorrect marketing communication	Benefits highlighted for the product might not be resonating with the consumer or the message is not very clear.	Medium	Market survey should be done to understand stated as well as tacit needs of the customer/ influencer.
d	Wrong choice of channel partners	Distributors and retailers selected might not be enterprising enough or have too little financial strength to promote the product	High	Financially stable, enthusiastic and preferably well-connected channel partners should be selected in a new market.
e	Misdirected advertisement	Marketing communications might not be reaching the correct target audience	High	Proper selection of advertising media should be done.
f	Wrong pricing strategy	Pricing might not have been set correctly for the customer to see correct value of the product	High	Pricing should be done keeping the value perception, competitor pricing and customer purchasing power.
g	Insufficient sampling	Company might not be distributing enough samples in the market or not	Medium	Provide enough samples and proof of concept in the market.
h	Poor after sales experience for the customer	Company might not have put in place a robust after sales customer support team or might not handhold the customer during installation	Medium	Dedicated after sales team should be built. This job should not be left to regular sales team.
3	Material Handling & Logistics Risks
a	Carrying & Forwarding Agents (CFA) not executing orders not time.	CFAs might not be very efficient in servicing customers, leading to delays in customer service.	Medium	Payments done on monthly basis, so there is incentive for CFAs to perform well.
b	Inefficiency in clearing stock from rake point resulting in higher demurrage & wharfage charges	Difficult to monitor whether the CFA is working efficiently or not.	Medium	Logistics officers appointed in major markets to oversee such issues.
c	Claim of higher shortages & damages by CFAs	Difficult to inspect the entire incoming material, especially from rake.	Medium	Logistics officers appointed in major markets to oversee such issues.
d	Transport vehicle meeting with accidents on the way.	Possibility of trucks meeting accidents on the way due to negligence of drivers or other reasons.	Low	Drivers asked to stick to speed limits by the transporters.
e	Stealth of material by transporter	Trucks not tracked on the way to the destination.	Low	GPS tracking system installed on trucks.
f	Transport Unions strong in certain markets	Transport unions make secondary movement expensive or difficult in certain markets.	Medium	Complying with the local requirements
g	Natural calamity at godowns	Calamities like earthquake, floods, fire, etc. can strike the godowns and damage the material stored.	Low	Swift action taken by company to salvage the stuck material.
h	Illegal land/ restrictive areas	Depots can be located in areas where government might impose transport restrictions or land can be declared as illegal possession by landlord.	Medium	Marketing officers do due diligence while recommending godowns. All papers checked as per legal requirements.
i	Stealth of material from godowns	Difficult to monitor to godowns round the clock.	High	Material in depots audited periodically by marketing team, Cameras installed in godowns.
4	Risks from Customers
a	Credit risk	Customers given much higher credit than the security deposits	Medium	Credit limits set and increased only after due diligence.
b	Outstanding	For some customers, outstanding is high and might be difficult to collect.	High	Constant follow-up done with customers for timely payment. Bank Guarantees available for major Non-Trade customers.
c	Material against concessional tax rates	Clients might not be able to give the required documentation in time.	Medium	Constant follow-up done with customers.
d	Supply issues	Supplies might not reach the customers as per promised schedule or not match their quality requirements.	Medium	Officer following up with the transporters and separate quality team functional.
e	Market price dilution by big wholesalers	Big wholesalers might try to average out their earnings.	Low	Discounts structured to not allow a big wholesaler influence market prices.
f	Inadequate profit margin to channel partners	The competition might be offering better ROI for the channel partners.	Medium	Frequent checks by the company to assess the profitability of the channel partners need to be done.
5	Risks from Environment Changes
a	New players entering the market	Can affect our market share and prices in the market	Low	Constant market feedback taken from regional offices.
b	Non-availability of other associated commodities like sand and gravel for cement, etc.	Can affect sales of commodity	Low	Constant market feedback taken from local marketing people.
c	Economic recession/ Natural calamity	Can affect spending power of consumers	Low	Company closely watching the economic scenario.

Table showing the 5 Business Risks

The various steps in risk management plan are enlisting all the possible risks, their likelihoods of occurrence, their expected impact or severity and making preparations for risk mitigation.

Market Price Control

May 14, 2016November 17, 2022 by admin

One of the key requirements of the commodity companies is to have effective market price control. Once the pricing strategy is decided, next step is the control. When there is no price uniformity in the market, doubts start creeping in on the business practices of the company and ultimately the quality of the product. Channel partners begin questioning the modus operandi of company officials and start drifting away from the brand. Proper market price control

The material flows from the company to the end user through several intermediaries and market price control at each stage is important for the company.

Material flow

Challenges to Market Price Control

Several factors in the business environment can be impediments to a company for market price control. Companies must have robust systems to control the elements causing variation of prices in the market. A few factors causing variations are here.

1. Great variation in quantity lifted by wholesalers. Big wholesalers will be able to avail high quantity discounts and pass it on to the market while small wholesalers might not be able to do so. Companies must try to keep a balance between small and big dealers. In any market, the company should not be dependent for more than 30% of sales one wholesaler. It is a good practice to restrict big wholesalers from doing retail sale.

Finally, a reliable retail network is needed so that the material reaches the end customer. Often the handling agents for the commodity companies can also sell material. The handling agents are generally moneyed people because the volume of work they do for the companies needs money and muscle power. While trading, they are able to trade much more quantities than other wholesalers because they can give material on credit to retailers for longer periods.

2. Diversion of low priced material to high price markets because of no control on the transport. Logistics is the key for commodities. If the route to low price market is through a high price market, some dealers can show on paper that they are booking the material for the low price market but unload the material in the high price market, thereby having an arbitrage opportunity in the high price market. Commodity companies must have control on the material logistics. The material billed for a certain place does not get unloaded at a different place. The company needs to develop some system for this. This does not necessarily mean that the company arranges the transport vehicles.

3. Sudden price rise or fall when enough material already exists in the market. Prices are changed by commodity companies overnight. However, all the material is not consumed in the market. Old priced product is still available with some sellers. They do not mind selling it according to the old purchase price. Companies must be very vigilant and announce immediate price discounts to the existing material in the market when they reduce the price or announce the new wholesale price in the market immediately when they increase the price.

4. Variation in perception of a commodity brand in various pockets of the market. This will however not cause variation in the wholesale price within a pocket.

5. Availability of institutional material at select retail counters. Generally material for institutional sale have “Not for resale” marked on them. It is mostly sold at concessional rate by the manufacturers. The problem arises when this institutional material creeps into the retail market and disturbs the market prices. Companies must have a good vigilance system to monitor any outflow of institutional material into retail market.

6. Availability of counterfeit material in the market. This is applicable more for the known brands. The counterfeit material causes confusion in the market. Their price tends to be lower than the announced market price as sellers can average out their earnings.

7. Other factors: Stealth of material from the godowns without the knowledge of the company, cartelization by low price brands and leakage of impending price change information to selected channel partners are other causes which can hamper market price control measures of the company. Companies should develop full-proof systems for effective market price control mechanisms. Companies need to immediately and effectively communicate any price changes, especially hike to the traders and distributors. For this, technology can be the best medium as letters or updated price posters or salesman visit will have a lag time.

Apart from market price control, there are other risk factors also. For this, read the blog on Risk Management.

Retail presence- 4 Ways to conquer

May 14, 2016November 1, 2022 by admin

At the endpoint of the supply chain of commodities are the retailers. Initially restricted to influencing the wholesalers only, commodity companies are now-a-days trying to improve their retail presence. They are increasingly engaging with the retailers directly. They are trying to reduce their dependence on the push sales from the wholesalers only. With increasing use of technology, it is now easier for very big companies also to directly interact with the retailers.

4 Ways to conquer Retail Presence

The retail shops are generally located in busy markets. Here, due to high rents, brands do not have too much of display space. Apart from Advertisement for Commodity brands, effective marketing also includes ensuring the display of the company’s product in the most visible position. All cement, paints, tiles, etc. brands try to be in the front, not stacked in the backyard godown of the retailer.

Attractive Packaging

The product packaging, if attractive, sometimes forces the retailer to display the product. Certain products are such that it is not possible to make brand name very visible on the packing. This is due to the product structure, like in the case of steel, glass and asbestos sheets. Hence, companies will put prominent advertisement at the retail counters. To ensure retail presence, companies are giving extra incentives to retailers to display the products at the most visible position.

Retailer Schemes

To ensure loyalty from the retailers, companies run Trade Partner schemes. Reward of the scheme is in the form of shiny metal, tours, white goods and often cash. A lot of companies are even servicing the retailers directly, bypassing the wholesalers. Organizations are incentivizing the retailers if they maintain a certain percentage of their sales with the company’s brands or grow it by a certain percentage.

Often, companies run short term competitions to drive retail visibility. At the end of the competition period, the highest achiever retailer is recognized in front of other retailers. Relationship building activities like family get-togethers, festival/ birthday/ anniversary gifting, training sessions for product knowledge enhancement, etc. are conducted by commodity companies to keep the retailers to the loyalty-fold.

Relationship building

To emotionally bind the retailers so that they stock the product, commodity companies are engaging with them in non-business ways also, like birthdays, festivals, get-togethers etc. This helps in ensuring the retail presence at the the outlets even though the sale might not be very high from them initially.

Strong retail reach is a prerequisite for commodity marketing success. Heavy advertisement will make the brand visible but if the brand is not present even in small quantities at a multitude of retail shops, it will not be a success story. To ensure retail presence, companies must engage with the end customers and make them feel so much comfortable with the brand that they ask for it at the retail shops.

3 Types of consumers

May 14, 2016October 20, 2022 by admin

Most companies do not sell material directly to the end user. There are often channel partners in between. But they have realized the importance of various types of consumers because end customers will recognize the commodity as a brand only if they have had an experience with the brand. As a result, companies are trying to have touch points with all types of consumers.

The engagement with the customers happens sometimes even before they start using the product. For instance, building materials companies are getting information from retailers about new construction activity to start in their area and sending handbooks on good construction practices to the house builders. The handbooks also promote a specific brand.

Similarly, when the house builder is doing roof-casting, the companies are sending their technical personnel to supervise the work. At the site, the technical person is also demonstrating how their brand is superior to the customers. A paint company is providing complete house painting as a service. Customers just need to call their customer care and the company sends its personnel with the catalogue for colour selection. After the customer has made his choice, the company arranges for painters to paint the house under their supervision.

It is due to the recognition of importance of consumers that commodities companies are now-a-days participating in trade shows. There is no guarantee of getting any order there but it will increase their brand recall. Company personnel also get an opportunity to interact with the house builders and understand the latent needs of the market. This also gives an opportunity to gather Competitive Intelligence.

Companies are trying to even make the purchasing of the commodity also an experience for the customers. Case in point, Ultratech Building Solutions shoppe, where the customers just don’t get cement only, but also all other building materials like paints, white cement, steel, etc.

It is due to the recognition of the importance of consumers that companies are conducting awareness meetings with the customers, wherein they explain their products’ USP. To incentivize them to taste their product, they are running short-term offers like freebies, scratch cards, etc. Surveys are conducted with the customers to understand the brand’s strengths and weaknesses to get pointers for any course correction if needed. End users are gradually becoming the primary focus for commodity companies and those who realized it first are the brand leaders now.

Types of Consumers

While it is important to recognize the importance of consumers, it is also imperative to understand the types of consumers. Customers come in all shapes and sizes and have to be dealt accordingly.

Types of consumers

Followers: Most of the customers will fall in this category. They are looking for functional need satisfaction. Their dealings with a brand very transactional. They enquire about the various options available from the retailers or influencers and purchase the best option. They are more influenced by the influencers like masons & retailers, advertisements, celebrity endorsements, etc. If they like the product after usage, they keep this to themselves. If they don’t like a product, they follow up with the company’s customer complaint redressal channel and are satisfied with refund or replacement.
Independents: Apart from hearsay, the independent customers also gather information from other sources like online reviews or talking to users known to them. They have more specific functional needs than the followers and compare the various options available in the market on various parameters.
Promoters: The promoters are emotional customers. They go an extra mile to actively promote a product if they like it. They will post messages online on why they are liking the product, like social media pages of the company and actively promote the product to their acquaintances/ followers. In case of a dissatisfaction also, they will go an extra mile and do negative propaganda of the product.

Despite a few distinct characteristics of each type of consumer, it is difficult to bucket every consumer in one type. Also, the characteristic changes for different types of products.

Advertisement for Commodities

May 14, 2016November 1, 2022 by admin

Advertisement for commodities plays a major role in forming perception of a brand, especially because the quality of a commodity is not easily measurable or visible. All cement brands are grey in colour, all glass look equally transparent and all steel rods look equally strong.

Proper choice of media to ensure maximum reach is very important. In their zeal to advertise, companies often reach out to those people who are not the potential buyers or influencers, leading to spillage.

Drafting the message in the advertisement for commodities is a very skillful task. The communication should strike the tacit needs of the customers. In my experience of cement, I observed that strength has become an over-used word in the industry. So, at the time of launch of Solid HD+ cement in Odisha, we tried to distinguish enduringness of structures from the initial strength of concrete. Also, market study told us that aesthetics had become an important consideration for home builders. So cement also has to contribute to the aesthetics of the house. This led to High Durability & High Designability as the positioning USP for the brand and all marketing communications harped on these two promises of the product.

Tag lines and USPs to be promoted need a lot of consideration before finalization.

Media of advertisement for commodities

There are several media of advertisement for commodities, which can be broadly classified under one of the three types.

Above the Line (ATL): Untargeted like TV advertisement, newspaper, radio, hoardings, etc.
Below the Line (BTL): Targeted to a specific audience or region like fliers in newspaper in a specific area, customer meetings, in-shop advertisement, email marketing, trade shows/ exhibitions, event sponsorship, targeted Search engine optimization (SEO), etc.
Through the Line (TTL): It is an integrated approach where both ATL and BTL advertisement strategies are combined. Digital marketing where objective is both brand building among a large audience as well as targeted marketing for a specific online customer is an example of TTL.

All media, including print, electronic (TV/ radio/ theatre), out-of-home, online, marketing literature, point-of-purchase, events etc. have varying roles to play in the advertisement for commodities. Selection has to done basis the their reach and type of consumers. If there is need of mass coverage, consciously select print or TV media. The thumb rule is to advertise at least in the top two newspaper publications if print is the selected medium. Similarly, advertise in TV channels with good TRP if electronic media advertisement is the requirement. Celebrity endorser, if any, has to be in-line with the ethos of the brand.

OOH and POP advertising need proper recce of the geographies to ensure maximum visibility. Advertisement for commodities should also ensure that the captive audience gets the message sound and clear from the advertisement.

Digital marketing and development of brochures & leaflets should be done by specialized agencies if the expertise is not there in the company because among all media, they provide the most detailed information about the product and should achieve the correct positioning of the brand. Promotional events like trade shows, on-ground activation, customer/ influencers meetings, cause marketing activities and public relation events are opportunities where the customer gets to interact with the company personnel. In all these events, a uniform messaging is a must. The brand equity should not get diluted.

Advertisement is often the second largest expenditure for sales promotion, after channel discounts. So, it requires close monitoring during execution. Companies often depend on the agencies for execution of marketing activities. They do not monitor the execution closely. Later, reality strikes and they is no clue as to why there is no uptick in sales, despite such heavy spend.

Advertisement for commodities

Effective Marketing Communications

May 14, 2016November 3, 2022 by admin

Due to increasing tussle between the companies, marketing communications have become important even for commodities. Effective message delivery helps a brand distinguish itself.

Messages in Effective Marketing Communications

Most of the companies are still promoting themselves basis their superiority in the fundamental attributes of the commodity. But a few companies have taken the lead and come out of the clutter. Some of the impactful communications recently are hinged on technology/ quality, environment-friendliness or customer-service. Companies have adopted innovative ways to drive home their USP. Ambuja Cement using heavyweight Khali to show that houses built with its brand have good strength became an online craze.

A lot of companies also use communications centred around happy family, value for money, legacy and scale of operations, etc. However, very few communications leave any recall in the consumers’ mind. But at the same time, it is getting more difficult to drive home the point of uniqueness with these approaches. A very recent trend has been commodity companies talking about aesthetic beauty. For example, Solid HD+ cement is harping on High Designability as one of its two USPs, the other being High Durability. Ultratech Cement is promoting its brand through its Build Beautiful campaign.

Themes for Effective Marketing Communications

Objectives of MarComm

Marketing communications should achieve two objectives. First objective is to tell the target audience what are the benefits of using the product. Second objective is to communicate how is the product unique from the competitors.

MarComm is not restricted to churning out product literature only in the form of brochures/ leaflets/ in-shop posters, TV/ radio commercials, sign boards/ hoarding/ OOH media advertisements, etc. Marketing Communications also include using innovative ways of sampling, product packaging, social media advertisements, email marketing content and CSR initiatives to drive home the point.

A glass company wanted to communicate that its glass sheets are actually of the thickness as promised in the specifications against the non-compliant ones by its competitors. So, it distributed a small U-shaped tool to all its retailers to measure the thickness of a set of 5 or 10 glass sheets. This helped the retailers in demonstration in front of the end consumers. Several cement companies have mobile technical labs or toll-free customer care numbers. They make it a point to advertise about these customer services.

Having realized the importance of each of the elements for promotion like advertisement, targeted marketing, customer meetings, wholesaler meetings, etc., the companies are adopting Integrated Marketing Communications for branding their products. Companies use TV commercials, newspaper advertisements, radio jingles, brochures, leaflets, outdoor displays, retail shop branding, etc. to communicate their USPs. Previously each medium was treated as a silo. Different message was coming from each medium as there was no Centralized or Integrated planning. But now trends have changed. It is Marketing Communications department (MarComm) responsibility to achieve coherence in all the communication campaigns.

A commodity brand might have been introduced at a certain price in the market but if the communications strategy is not aligned with the marketing objective, the desired positioning in the market cannot be achieved. Also, proper market research has to drive the marketing communications planning. Research will let us understand what the consumer desires. As a result, commodity companies are using market survey companies now-a-days before embarking on a new marketing campaign.

Pricing Strategy for commodities

May 14, 2016December 8, 2022 by admin

Pricing strategy for commodities, especially right at the time of introduction is another important element of the marketing strategy. Typically in commodities, there is a range of brands available for a wide spectrum of prices. Generally there are one or two price leaders in a market. As we go lower in the price spectrum, the number of brands increases at each price level. After introduction of the brand, most of companies follow market-based pricing strategy for commodities.

Types of Pricing strategy for commodities adopted by companies

Below are the various pricing strategies adopted by commodity companies. Cost plus pricing and competition based pricing are the most prevalent ones in the market and easy to ascertain. Value based pricing needs some research into the usage patterns of the product by the consumer and can change with geography. Penetration pricing and price skimming are used during production introduction phase.

Types of Pricing strategy for commodities

Initial Pricing strategy for commodities

Initial pricing is determined by what does the company want to achieve. If it wants quick sales numbers, then pricing at the lower spectrum makes sense (penetration pricing). However, so strong are the perceptions in the minds of wholesalers, retailers and customers formed about a product that it is very difficult to drastically change price relative to alternatives/ competitors after a certain period. Prices of commodities are always determined with respect to the price leaders. The price gap with the price leader remains more or less the same for long period despite the market seeing price fluctuations several times. Also, it is prudent to initially make more profits when the competition is not intense (price skimming).

Price Leader vs Volume Leader- Whom to follow

There are generally two types of markets, one where the price leaders are also the volume leaders and second where the lower-priced brands command the major market share and the premium priced brands have limited presence. Penetrating the market and getting some early sales is easier in the first scenario than in the second. However, positioning in the premium segment requires a whole lot of marketing effort. The switching costs are higher for consumers in the premium segment. The brand equity and thus loyalty of premium brands is already high. Company will have to invest heavily in advertisement as it will help in image building.

In markets dominated by low price leader, without a comparable price, entering the market itself is an uphill task. However, at low price, the new entrant might not be profitable as its costs might be higher than an established player in the market. The pricing strategy for commodities have to be such that the users see that the new product is giving a better value to the customers despite a higher price. Influencers like contractors and architects in case of building materials will have to be lured to promote the new brand. To operate at low price means that the input costs also have to be low, which means that all cost centers have to be very efficient.

Discounts for channel partners- Important aspect of pricing strategy for commodities

The pricing strategy for commodities becomes more complicated because of the various types of discounts floated by competitors. Often the billing price of the company has no correlation with the existing wholesale prices in the market. What is more important is the landing cost for the wholesalers. As part of the pricing strategy, companies need to closely monitor their wholesale and retail price. This will help to maintain the desired positioning in the market. Companies need to periodically adjust the billing price and discounts. This ensures that price fluctuations do not affect the wholesalers and retailers earnings per unit. They need to conduct marketing activities appropriate to maintain the brand positioning in the market.

Pricing strategy for commodities must also consider the influence of a few stakeholders in the market. Companies must also ensure that a big wholesaler does not disturb the prices in the market as it shakes the confidence of small retailers in the control mechanisms of the company. There should not be arbitrage opportunity for the wholesalers by way of bringing material from one region and selling in another. This becomes important because commodity prices vary drastically every few kilometers due t high freight involved in their transportation.