A STORY OF DISTRIBUTION EXCELLENCE OF ASIAN PAINTS

Asian Paints (AP) is the market leader in the Indian paint industry, holding a
market of 38% in decorative paints and 33% overall in the organised sector.
Its annual sales turnover exceeds Rs. 1,300 crore, way ahead of all the
competitors in the industry. In profits too, AP is far ahead. APs market
leadership in the decorative paints segments can be grasped correctly
when we take note of the relative position of the various players in the
industry. Whereas AP has a market share of 38 per cent, its nearest rival,
Goodlass Nerolac, commands a share of just 14 per cent. All others have
only less than 10 per cent. Such an achievement by a company that is
wholly Indian in capital, management and technology and in an industry
historically dominated by multinationals is certainly a commendable feat.
How did AP achieve this success?
APs success is the combined result of its strong corporate and marketing
strategies. Maximum credit should, however, go to its marketing strategy.
Within marketing, it was distribution excellence that took AP to the
enviable position, which it holds today in the Indian paint industry. This
case study explains APs distribution strategy.
DISTRIBUTION EXCELLENCE
This case study, in fact, depicts the distribution strategy adopted by AP in
the early years of its operations. The interesting point is that this strategy
serves AP well even today, when the context has somewhat changed. In
the earlier years, in the decorative paint segment, a wide product range in
terms of colour and pack size was a crucial factor for success. AP literally
leapfrogged and overtook all its competitors, and offered the widest range
of products. It also created the distribution outfit that was necessary for
reaching the wide range of products to customers in every nook and corner
of the country. In later years, technology came to the rescue of the players
in this regard. Customers could get the colour of their choice through
mixing at the retail outlet. With the help of an automated machine kept at
the retail outlet, paint is given the desired colour by mixing different shades
and stainers in the required proportion. The paint companies need to
maintain only half-a-dozen basic colourants with retailers; mixing can

create the other variants. The new arrangement helps the companies to
manage with a narrow range of paints. They can reduce the number of
SKUs handled and cut down inventory holding costs.
The above shift has no doubt reduced somewhat the importance of the
physical distribution task in the business, compared to the position in the
earlier years. At the time AP entered the Indian paint business, the physical
distribution and channel management task was the most crucial one in
paint marketing. This context is elaborated in one of the sections in this
case study. We can appreciate the lessons of the case study better, if we
keep in mind this contextual position. Even now, physical distribution and
channel management continue to be crucial functions in the business. In
the matter of product range too, companies are not able to totally dispense
with the need for variety in view of the many practical limitations of mixing
at retail outlets. It is no easy task to provide mixing and computers. Before
we actually go into APs distribution strategy, let us have brief profiles of
the company and that of the paint industry, so that the contextual setting
of the case is clear. Let us start with the industry.
THE INDIAN PAINT INDUSTRY
The paint industry of India is 100 years old. Its beginning can be traced to
the setting up of a factory by Shalimar Paints in Kolkata in 1902. Till the
advent of World War II, the industry consisted of just a few foreign
companies, and some small, indigenous producers. The war led to a
temporary stoppage of imports leading to many more local entrepreneurs
setting up manufacturing facilities. Nevertheless, foreign companies
continued to dominate the industry. Even now, they remain active
contestants, though their foreign shareholdings stand reduced, with two of
them having become totally Indian. Currently, the industry has a sales
turnover of about Rs.3, 600 crore. In terms of volume, it corresponds to 5
lakh tonnes. The industry is composed of two sectors, the organised and
the unorganized. The organised sector controls 70 per cent of the total
market. The remaining 30 per cent is in the hands of the unorganised
sector, consisting of 2000 odd small-scale units. The industry is not capital
intensive. It is however working capital intensive. The demand for paints is
fairly price-elastic and is linked to economic and industrial growth. Demand

is somewhat seasonal in nature-low during monsoon months, high during

festival seasons.

AP STRIKES A NEW PATH IN DISTRIBUTION

At the time AP entered the Indian paint business, distribution was the most
crucial task for any new entrant. Both physical distribution and channel
management posed formidable challenges. The foreign companies and
their wholesale distributors dominated the business.
The foreign
companies appointed a few traders as their wholesale distributors and
allowed them to perpetuate a situation of monopoly. Each distributor was
assigned a large territory and was given the right to operate as the
exclusive channel of the company in the assigned territory. The trade
terms were also very liberal. The companies also extended virtually
unlimited credit to the distributors. The credit outstandings for the
supplies made throughout the year were required to be settled by the
wholesale distributors only at the year-end, at Diwali time.
These distributors had neither the compulsion nor the motivation to invest
in distribution infrastructure. They were not required to move out to semiurban and rural areas. They concentrated on big cities where they could
make the sales without much investment in distribution infrastructure and
market development. Also, they were shutting the doors on any new paint
company seeking an entry into the business. In other words, these
distributors controlled the paint business and were making it impossible for
a new paint company to enter and establish itself n the business. AP sized
up the scenario correctly and formulated a unique distribution strategy. In
the normal course, a firm entering the industry in this scenario would have
opted for the low risk strategy of gaining a limited access to the wholesale
traders and be satisfied with a small share of the existing business. But AP
went in for a strategy that differed totally from the existing pattern. APs
strategy in fact, meant the polar opposite of the established/existing
pattern.

Chart 1: Elements of APs Distribution Strategy

AP bypassed the bulk buyer segment and went to individual
consumers of paints.
AP went slow on urban areas and concentrated on semi-urban and
rural areas.
AP went retail.
AP went in for an open-door dealer policy.
AP voted for nationwide marketing / distribution.

AP BYPASS THE BULK BUYER SEGMENT AND GOES TO INDIVIDUAL

CONSUMERS
Bulk buyer segment was the major segment of the paint business in the
earlier days and any paint company needed a share of this major segment
for sheer survival. Though, this segment was dominated totally by foreign
companies and their wholesale distributors, a new entrant to the business
like AP would normally have rushed to this segment and tried to garner a
share of it. AP, however, had a totally different game plan. Seeing that this
segment was not a growth segment, though it was certainly the major
segment at that point of time, AP decided to ignore this segment for the
present and go to individual consumers. And that was a crucial decision. It
influenced every subsequent decision AP took in the realm of distribution.
Over time, AP proved to the paint industry that there existed a large and
bottomless segment in the paint business of India, outside the bulk buyer
segment, comprising of individual consumers.
AP GOES TO SEMI-URBAN AND RURAL AREAS
Along with the decision to go to individual consumer segment leaving aside
the bulk buyer segment, AP also decided that within the individual
consumer segment, semi-urban and rural areas would constitute APs
priority market. Prior to APs entry, the paint business was by and large
concentrated in the urban areas. All the major paint companies and their
wholesale distributors were content with the market that was available in
the urban areas. In contrast, AP clearly saw that a large market for paints
was emerging in the semi-urban and rural areas, and felt it wise to tap this

market. AP also understood that a new entrant like AP had also a

compulsion to go to the semi-urban and rural areas. The major companies
and their wholesale distributors were not giving any worthwhile opening in
the big cities for new entrants. AP found it difficult to attract the
wholesalers in the cities to deal in its products. It had to necessarily turn to
the semi-urban and rural areas for support. AP wisely decided against
committing all its resources on a head on collision with the foreign
companies and their big wholesale distributors in the urban areas.
AP GOES RETAIL
Going directly to retail dealers was the next major strategic decision of AP
in the realm of marketing and distribution. Here too, AP totally broke with
the prevailing distribution practice. As mentioned earlier, the foreign
companies, who were the main players, were practising a wholesale
distributor-dependant marketing system. AP did not see any great merit in
the system. It totally bypassed the well-entrenched wholesale distributors
and went directly to the retailers. While APs competitors remained
content with their linkage with a handful of wholesale distributors, AP
preferred direct contact with hundreds of retail dealers.
AP GOES IN FOR AN OPEN-DOOR DEALER POLICY
AP followed an open-door policy in the matter of adding retail dealers to its
network. The prevailing trend in those days was to limit the number of
dealers to the barest minimum. AP broke this trend and chose to use
practically everyone in the trade, who was willing to function as its dealer.
It was as a combined result of the policy of going directly to retailers and
the policy of open door to dealership that APs dealer network swelled
rapidly. Even after achieving stability and maturity in distribution, AP
continued to follow a policy of continuous expansion of dealer network. By
1990, AP was having a 7,000 strong dealer network. By the year 2000, the
number had swelled to 12,000. And even now, on an average, AP is adding
200 to 250 new dealers every year.
AP VOTES FOR NATIONWIDE MARKETING/ DISTRIBUTION
AP took yet another important and strategic decision in the realm of
distribution. Those days nationwide distribution/marketing was not the
standard practice in the paint business. On the one side, there were the

1,000 odd small paint companies who, as a class, believed in marketing

their paints in limited territories in and around their point of production.
On the other side were the big companies, who as a class, believed in
limiting their distribution to the big cities. In contrast to both these existing
practices. AP voted for a nationwide distribution/marketing. It wanted to
have an active presence throughout the country, in all the geographical
zones, states and territories.
THE IMPLICATIONS OF APs DISTRIBUTION STRATEGY
APs distribution strategy described in the preceding paragraphs had its
associated implications. AP had to take due note of them and face them
squarely.
GOING TO INDIVIDUAL CONSUMERS IMPLIED WIDE PRODUCT RANGE
AND COMPLEX DISTRIBUTION
Had AP concentrated on the bulk buyer segment, it could have managed
with a limited product range, at least, in the initial years. But, APs decision
to turn to the individual consumers necessarily meant a wide product
range. In the nature of things, the individual consumer segment involves a
very wide choice in terms of products, materials, shades and pack sizes. On
top of this, AP believed in making products based on the preferences of
consumers. It gathered feedback from the consumers and turned out
products, shades and pack sizes on the basis of such feedback. This policy
resulted in a further burgeoning of the product range.
SMALLER PACKS PROLIFERATED THE PRODUICT DEPTH FURTHER
At the time of APs entry, paint companies were supplying paints in
containers of 500 ml or larger. AP saw that there was a felt need in the
market for paints in smaller packs. All end uses did not require a large
quantity. Moreover, it was common practice for consumers to buy paint
initially in a larger quantity and supplement it with small size purchase to
complete the job. AP decided to harness the business opportunity and
started supplying it paints in small packs- in 200 ml, 100 ml and 50 ml
packs. This proliferation in pack sizes also contributed to APs growing
product range. AP was by now manufacturing and marketing as many as
2,000 distinct items of paints, none of which was strictly a substitute for the
other.

WIDE PRODUCT RANGE IMPLIED EXPENSIVE DISTRIBUTION

The policy of having the widest range of products, colours and pack sizes
had its implications on APs distribution. When 2,000 different items had to
be made available to the consumers, it automatically meant that the
company had to be prepared for high inventory holding in its various
depots/retail outlets. Accounting and sales arrangements had also to be
provided for on a matching level. Naturally, distribution was becoming
more complex and expensive for AP.
GOING TO SEMI-URBAN / RURAL MARKETS FURTHER ENLARGED
DISTRIBUTION
The decision to go to the semi-urban and rural markets instead of confining
to the urban markets also meant enlargement of the distribution function.
AP had to go in for more dealers in order to serve the scattered semi-urban
and rural market. The decision also meant that AP could not opt for a
simple, centralised distribution of its products from its factory. It had to go
in for a decentralised, field-focussed distribution, with a network of depots
located all over the country/marketing territory. Without such extensive
and intensive distribution network, it would not have been possible for AP
to cover the semi-urban and rural markets.
Chart 2: Main Steps in the Implementation Process
AP created a large network of
dealers
It established a network of
company depots to service the
dealers
It created a marketing
organisation that matched its
distribution

It successfully resolved the costservice conflict in distribution

(i) A strong commitment to
distribution cost control,
without
compromising service level
(ii) Effective inventory
management
(iii) IT initiatives in distribution
cost
Control

GOING RETAIL IMPLIED DEEP INVOLVEMENT IN CHANNEL MANAGEMENT

Through its decision to go retail, AP was getting deeply involved in physical
distribution and channel management. In the system chosen by AP, the
physical distribution-cum-channel management task was far more
demanding, compared to the wholesaler-oriented system practised by the
other paint companies. While, for companies that embraced the
wholesaler-oriented system, it was enough to service a handful of
distributors, AP had to service a network of thousands of retail dealers.
Having taken the decision to go retail, AP necessarily had to create and
service a vast dealer network. It also had to create the physical distribution
facilities required for servicing such a large network.
National Marketing Necessitated Nationwide Organisation
Extent of marketing territory and complexity of distribution organisation
are interrelated. The moment AP voted for nationwide marketing, it was
getting into intensive as well as extensive physical distribution and channel
management. AP thus had to create a nationwide distribution-cummarketing organisation.
DISTRIBUTION BECOMES APS SHOWCASE FUNCTION
APs strategies made distribution the most important element of its
marketing mix. And, AP gave to distribution all the inputs that were
demanded by it. In fact, the rest of this case study is essentially a
description of how AP managed its distribution activities how it chalked
out its distribution programmes, how it implemented them, what problems
it encountered in this task, how it tackled them and how through
distribution success, it achieved marketing and corporate success.
THE IMPLEMENTATION PROCESS
We shall see how AP went about the actual management of the distribution
function. The main steps in APs implementation process are shown below:
AP Creates a Large Network of Dealers
An extensive network of dealers and a matching physical distribution
infrastructure play a crucial role in the decorative paints segment. This is
essential for ensuring easy accessibility of the product to customers. In this,
Asian Paints scored over its competitors with a massive network of 15,000

dealers spread over 3,500 towns across the country. AP has the largest
distribution network among all the players. Goodlass has a network of
8,000 dealers.
AP Established a Network of Company Depots
AP established a large chain of company operated depots/stock points
throughout its vast marketing territory, from where the retail dealers could
conveniently pick up their requirements. APs basic strategies explained in
the earlier sections necessitated a liberal approach in the matter of stock
points/depots. It also meant that the depots had to be company operated.
After all, AP did not have any wholesale distributors to whom the
responsibility for operating the stock points could possibly have been
assigned. AP established a network of 30 company-run depots, spread
through out the country and serviced its retailers from them. The number
of depots varied from city to city. For example, Bangalore had just one
depot while Mumbai had four depots. The depots typically provided to
about 200-300 dealers.
AP creates a Marketing Organisation that Matched its Distribution
Intensity
Effective control of the large number of depots, each having substantial
stocks of 2,000 odd distinct items necessitated a matching marketing
organisation structure. AP set up a marketing organisation consisting of
four regional sales offices, 35 branch sales offices and a large number of
sales supervisors and sales representatives spread all over the country. The
marketing organisation of the company is presented in Exhibit 4. It can be
seen from the chart that a very extensive structure has been created in the
consumer division. It is primarily meant for taking care of the massive
distribution task involved in this sector. Each branch sales office has its own
depots and the various items are stocked in the depots under the control of
the concerned branches. The branches service the dealers and customers in
their territories.
These are supported by six regional distribution centres, which cater to 55
depots. Each depot has a branch manager for supervision of several
salespersons who cater to more than 14,500 dealers in the more than 3,500
big and small cities all over the country. AP faced many challenges. Of

these, the cost-service dilemma was no doubt, the most important one.
And, that is the aspect in which we are mainly interested in this case study.
Exhibit 4: APs Marketing Organisation
General Manager
(Marketing)

Sales Manager
(Trade)

Regional
(1) (2)

Sales Managers
(3)
(4)

Manager
(Export)

Product
Manager
(1)

Product
Manager
(2)

Sales Manager
(Industrial)

Product
Manager
Zonal Managers (4)

Branch Managers
or
Depot Executives (35)

Sales Supervisors (13)

Sales Representatives (168)

Product
Executives (6)

Product
Executives (6)

Service
Representatives (4)

Sales Representatives
(Industrial Paints)
(27)

AP Successfully Resolves the Cost-Service Conflict in Distribution

Managing the cost-service conflict was the main challenge that AP faced in
the implementation of its distribution strategy. AP met this challenge
successfully.

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We have seen that AP has over 15,000 dealers in 3,500 towns in India. AP
caters to all of them directly. As a result, for AP, the distribution task gets
tremendously extended and distribution cost becomes a significant
business parameter.
Demand for decorative paints is characterised by seasonality. Demand
drops during monsoons and picks up around a mouth-and-a-half before the
festive season. Major part of the sales take place in the second half of the
financial year. Manufacturers have to carry huge inventories during the
lean period. As a result, distribution cost becomes all the more significant.
Naturally, distribution cost emerged as a major hurdle that AP had to cross.
The strategy adopted by AP necessitated expensive distribution. In
addition, AP took another basis decision. It went in for a very high service
level in distribution. Service level is measured in terms of the number of
stock keeping units (SKUs) available in stock as a percentage of the number
of SKUs that should have been in stock. APs service level is more than 85
per cent whereas that of other large paint companies falls between 50 and
60 per cent. This meant a further rise in APs physical distribution costs. AP
had to resolve this cost-service conflict.
In the chapter on Physical Distribution and Logistics Management, we had
seen that a cost-service dilemma is inherent in any physical distribution
situation. A high service level in physical distribution-in transportation,
warehousing, order processing and inventories necessarily means a high
level of costs. Every firm has to face this cost-service dilemma and work out
a compromise. AP voted for a high service level and without compromising
this service level, it tried to contain the distribution costs. Interestingly, AP
succeeded in this endeavour.
When we go in to the details as to how AP actually resolved the costservice dilemma, four factors stand out:
A strong commitment to distribution cost
compromising service level
Effective inventory management
Effective control of credit outstanding
IT initiatives in support of distribution cost control

control,

without

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Strong Commitment to Distribution Cost Control

While following a totally customer-oriented distribution strategy. AP could
not afford to ignore the cost angle. AP was in no position to pass on any
additional costs to the consumers. APs marketing philosophy demanded
that the consumer price of its paints should be on the lower side, so as to
suit the pockets of the average Indian. Moreover, APs business growth
demanded more and more investment in manufacturing and distribution.
AP had to find the resources. This apart, the intensity of competition had
also been on the increase. Naturally, profitability was coming under
greater strain in these circumstances. AP had to control its distribution
costs in order to maintain its profitability and market leadership. The
question was how to control the costs without sacrificing the service level.
IT INITIATIVES IN DISTRIBUTION COST CONTROL
APs IT initiatives in respect of distribution-inventory control and control of
credit outstanding, in particular-helped it to control distribution costs
without lowering the service level. AP went in for a fully computerised
distribution system. AP did this not only with an eye on distribution cost
control, but also for the sake of distribution effectiveness per se. But for
such an approach, APs distribution management would have gone haywire.
Here was a situation where 2,000 different items of paints, manufactured
at four different plants, had to be distributed to 15,000 dealers in 35,000
towns spread all over the country, through 55 depots. AP accomplished
this, maintaining the average service level at 85 per cent, a clear 25 per
cent above that of competition. The IT initiatives also ensured prompt
billing, accurate customer accounting and effective control of credit
outstanding.
Computerisation also enabled AP to process recent sales data for the 100
fastest moving SKUs. This analysis was used to project sales of specific
products, which helped plan production and raw material purchases. With
computerisation, AP was able to analyse past trends to arrive at a 90 per
cent accurate sales forecast. Corrections were made every month between
the sales projections and actual sales. Production was thus evened out
month-to-month. Sales statistics were maintained, classified by product,
month, salesman, branch, region and dealer. Such computerised planning

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and control of production, sales and inventories helped AP cut distribution

costs without compromising on the high level of service sought by it in
physical distribution.
AP later hired from the Department of Telecommunications, satellite time
and got all its offices in the country networked. They transmit data daily to
the corporate head office in Mumbai, which uses it for sales and production
planning. AP has consistently improved its IT systems over the years. It has
linked al its factories and 55 depots through C-SAT terminals, and derived
big benefits in terms of streamlined distribution. More recently, AP has
implemented supply chain management software from 12 technologies. AP
plans to upgrade its communication infrastructure through VSAT leased
lines and ISDN lines all over India. It is also implementing an ERP solution
from SAP to be completed in 2001.
CO-ORDINATION & COMMUNICATION BETWEEN PLANTS, OFFICES &
VENDORS
Asian Paints has harnessed the powers of state-of-the-art supply chain
system using cutting edge technology to integrate all its plants, regional
distribution centres, outside processing centres and branches in India. Eight
of the company's paints plants in India, 2 chemical plants, 18 processing
centres, 350 raw material and intermediate goods suppliers, 140 packing
material vendors, 6 regional distribution centres, 74 depots are integrated.
Asian Paints always make sure the technology it implements is cost
effective and increases employee productivity. It has deployed SAP R3, i2
supply chain planning suite, ERM employee platform formula management,
product lifestyle platform, and so on. Its very essential to adopt new
technologies, since IT is an enabler to service retailers. Also, the supply
chain effectiveness has helped to capture more of the enterprise platform.
The i2 software, which was deployed nearly in 2001, has helped to increase
productivity from 3 tons to 8 tons.
LEADERSHIP THROUGH DISTRIBUTION EXCELLENCE
The story of Asian Paints is a story of distribution excellence. AP achieved
an enviable leadership position through the distribution route. While AP
did not ignore any of the other functions of marketing, it was by mastering
the distribution function that APs gained a distinct and powerful

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competitive advantage. APs distribution strategy was truly innovative; it

broke new ground in every aspect of distribution. In the final analysis,
excellence in distribution led the company to marketing and corporate
excellence.

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