At the time Asian Paints (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 credits outstanding for the supplies made throughout the year were required to be settled by the wholesale distributors only at the year end.
These distributors had neither the compulsion nor the motivation to invest in distribution infrastructure. They were not required to move out to semi-urban 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 in 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. APâ€™s strategy, in fact, meant the polar opposite of the established/existing pattern.
AP bypasses 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.
Elements of APâ€™s Distribution Strategy:
* AP bypassed the bulk buyer segment and want to indi0vidual 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.
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 the 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.