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.

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.

B2B Marketing of Commodities

September 9, 2022November 4, 2022 by admin

B2B Marketing of commodities, especially building materials, is distinct from retail marketing in that in B2B marketing, the company sells directly to a large buyer like a developer, commercial organization or government for building a commercial space, factory, warehouse, public building, infrastructure, etc. Purchase decision is often after vetting the options in the market and involves inputs or influence from several stakeholders.

A few stakeholders or influencers in B2B marketing are Architects & Interior Designers, Builders & Developers, Project Management Consultants (PMCs), specialist consultants like structural consultant, facade consultant, etc. and Government officials (for Government funded constructions).

Types of B2B marketing of commodities

Broadly, two types of B2B marketing of commodities happen in an organization.

Project specific pitch: The sales person has information of an upcoming project and he wants to influence the stakeholders to use his/ her company’s material. The sales person will start from one lead and try to gather information about all the influencers and decision makers for the product and try to get appointments with them. Project specific products are only discussed. It is explained to them how the product can contribute to making construction cheaper/ faster, more energy efficient building, aesthetically improved look or improve in some other pain area. If needed, samples are sent or mock-ups are done for the client to get the touch & feel and to do any performance test.

The sales person, often needs to be accompanied by people in technical or manufacturing department from his company where the usage of the product is not straight forward and needs some designing activity or change in manufacturing process before supply. Feature – Advantage – Benefit (FAB) framework is an optimal way to pitch for a specific project.

General influencer marketing: This is like sowing the seeds for future crop in B2B marketing of commodities. In-house presentations, sample delivery, get-togethers, gifting to influencer, loyalty programs, etc. are a few ways used by commodity companies to impress the influencers and get leads of projects. Generally all the products available in the company relevant for the type of projects done by the influencer is showcased. The influencers need to be periodically met so that the recall for the brand stays in their minds. The discussion with the influencers can be on any relevant topic and internal trainings go a long way in preparing the salesforce for such meetings.

Apart from these, a lot of companies participate in events like trade shows, design competitions, award functions etc. so that at a single platform, they get leads for multiple influencers.

Value Proposition

Most salespersons when given an opportunity to present on their product, enlist all the benefits which their product offers, without knowing much about the customer preferences or project requirement. This often is like a wild goose chase and does not result in order closure mostly. In B2B marketing of commodities, it is important to know the customer needs and aim for achieving customer delight.

One of the better framework used in B2B marketing of commodities to show the value proposition of the product portfolio is Feature-Advantage-Benefit model. FAB approach is a data driven approach where the benefits are quantified to justify the price. It has to be preceded by a questionnaire to understand the customer profile, preferences and needs.

A second approach which can be used by salesperson, especially when the client has already decided or specified a competition brand is the Points of Difference model. In this, the focus is primarily on the superiority or exclusiveness in our brand vis-à-vis the competition brand.

In all the approaches, case studies of projects completed with our product and snaps of completed projects help in convincing the client/ specifier. In B2B marketing of commodities, it is very important to convince the specifier of long term durability or weather resistance of the product.

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.

Why should we have Data Driven Approach

April 5, 2020November 4, 2022 by admin

Data is a collection of numbers, labels, or symbols, collected through observation. It can be qualitative or quantitative variables about one or more persons or objects. When there is no structure to data, nobody can make meaning out of the numbers and names. Data organized in rows and columns carry specific meaning. A commodity company with a data driven approach takes decisions basis the data. Its transition to a brand will be faster than one which ignores data, other factors being constant.

To look at data and to make meaning out of it needs focus. It has to be inculcated as a culture in the company. It is necessary that all decisions are based on a data driven approach. All reviews must be backed with data.

Types of data

Types of data available with the company fall in three categories:

System data: This includes data registered in company’s system through a standard software. Chances of error in data due to human estimation is minimal. A few examples of system data are sales volumes of customers, number of outlets selling our brand, purchase frequency of the customers, company’s production figures, number of quality complaints logged, etc. Company’s ERP system captures this data from the invoices.
Market data: This includes data where the employees make estimates of numbers like competitor brands’ sales volume or shop share, retailers profile, number of outlets selling competition brands, production volumes of competition, quality of the competition brands, competition pricing, etc. are examples where of market data where the employees make estimate basis the interaction of people operating in the market. This is often accepted with a pinch of salt by the management as the biases of the sales person creep into this data collection.
Agency data: This includes data collected by agencies either independently or for a commodity company when asked to do so. Data collection happens either by sample survey of consumers or through interaction of the trade partners/ influencers. Changes in consumers’ consumption behavior, growth trend of the industry, market share of the various brands, media consumption trend of the consumers, etc. are examples of agency data. This data is considered more credible by the management as there are no biases from the market research company.

Benefits of Data Driven Approach

There are several decisions which can be taken with more diligence if data is looked closely. They will yield better results. A few examples are below:

Sales planning- If the sales team closely follows the purchase frequency of trade partners/ consumers, seasonality of the product and recent growth trends, it will be able to predict the sales forecast with more accuracy.
Trade scheme devising- Last scheme’s achievement, timing of the last scheme, type of scheme influencing various types of trade partners, are important parameters, which if tracked will help in devising the next schemes. Often companies do not evaluate the scheme’s performance after scheme closure, thereby not learning from the failures.
Pricing decision- The pricing strategy of a commodity company will be successful only if it has information of the price waterfall existing in the market vis-à-vis competition or various element of the value chain.
New product launch or capacity expansion- Companies should invest in new production facilities or storage facilities only if it has concrete information on the existing market size and competition market share. Basis this information only, the company will be able to decide the positioning strategy for its product. Similarly, when coming out with new products, the company must have all market data including consumers’ changing consumption trends.
Advertising strategy- An important input is the media consumption data of the target audience. This data driven approach helps commodity company strategize media campaign diligently.

Importance of Data Driven Approach

In a nutshell, data driven approach avoids decisions being taken on a gut by an individual. In a way, the decision maker takes the responsibility of the decision.

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

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.

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.

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.

Role of influencers

May 14, 2016November 17, 2022 by admin

No industry will be so peculiar like building materials wherein the consumers’ decision is shaped so much by the influencers. The role of influencers like masons/ glaziers, engineers, architects, retailers, shop managers, friends, family members, contractors and star endorsers is immense, not to forget the influence by the wholesalers/ distributors. Their influence is because consumers do not know much about these products and there is no second opportunity for them to build a house. It should not come as a surprise if the mason is insisting on a specific cement or steel brand or the contractor is insisting for one paint brand.

The role of influencers is so high that companies are running incentive schemes for these influencers so that they promote their brand more often. Companies are sending the engineers & architects for foreign leisure tours, giving white goods to masons and shop managers and felicitating high sales volume retailers.

Role of influencers varies with awareness level of end user

Role of influencers

Masons, glaziers, plumbers, electricians, painters etc.

Role of influencers, who have become specialists in their job, because of their know-how earned through years of experience, have a lot of clout among the customers. Their influence is higher in rural areas. As these people have worked with the commodities like cement, steel, pipes, cables, paints, etc., consumers think that they will provide correct feedback. Consumers often go against the other influencers and well-wishers’ advice to procure the brands suggested by this lot. Their influence reduces in urban places where they act on the recommendations of the contractors.

Contractors

Individual house builders are now-a-days outsourcing construction to contractors. Here, the contractors becomes the biggest influencer. The contractor recommends brands with which cost of construction is minimum or there is a special incentive for promoting a brand.

Engineers & architects

In urban areas, it is a trend to hire engineers and architects/ interior designers for house construction. These technical people often recommend certain brands according to the durability and design needs. Brands try to bring them under their loyalty fold by creating awareness programs for them and through referral programs.

Retailers & Shop managers

Role of retailers or shop managers appears at the point of purchase, especially if the customer has not come with a pre-determined brand in mind. They are often able to influence him to the brand which is most profitable to the store’s business.

Other influencers

There is another set of influencers like friends and family, and celebrities promoting a brand in advertisements. That is why we see that several actors and sportsmen now-a-days are advertising for cement, steel, paints, etc. The role of influencers varies with awareness level of end user.