Generating fortune from colors

Most paint companies, mind you, are still dependent on urban markets for up to two-thirds of their sales. The economic slow down has impacted towns and cities worse than villages. And this has dealt them a severe blow. For instance, ICI, now a part of Akzonobel of the Netherlands, grew just 7 per cent in the quarter ended June 2009. Others have fared little better.
A paint manufacturing company Asian Paints has turned conventional industry wisdom on its head. Its volume growth has been driven largely by Tier II and Tier III cities, which today fetch approximately 65 per cent of its revenue. Even though the company has to deal with customers, dealers and painters in Hundreds of cities and towns, it has done a good job of building relationships with all of them.
The company was perhaps the first to realise that aspirations have risen in such markets because of the media over-reach and rising disposable incomes, and that consumers are no longer overawed by brands. With this in mind, Asian Paints positioned its Royale brand in such markets. Result? Royale sells as many cans in smaller towns as it does in metros, the premium image of the brand not withstanding.
Pricewaterhouse Coopers Leader (retail practice) says that Asian Paints has gained in the slow down by offering good brands at competitive prices and across price points. There are smaller construction firms which tend to look for less expensive brands at times like this. So even if the cost of distribution increases as you move down the value chain, they offer the products, though maybe in a limited range.
The Asian Paints range has always retailed at a premium to the competition even today it commands an average premium of 5 to 10 per cent. But it is careful to see that volumes don’t suffer. Judicious price increases have been taken when it needed to pass on the higher cost of inputs. For instance, when costs went up last year in the wake of soaring crude oil prices, the company raised prices 16.7 per cent, but spread it over six takes. And when the government cut excise duty to stimulate the economy, it dropped prices by about 12 per cent in five cuts. The planned phase-out of lead by 2012-13 is expected to raise the industry’s costs by 3 to 4 per cent. Its sheer size, rivals feel, will give Asian Paints an edge over them.
They have never been reluctant to pass on the benefits of lower input costs and don’t believe in special rebates or promotions; they feel that everyday low prices work best. Asian Paints President (Decoratives) says it doesn’t make sense to cut prices too much because the competition inevitably follows suit.
Also, the success of Royale in the smaller markets and the fact that that emulsions now sell more than distempers indicate that more customers are upgrading. In this scenario, a price war is hardly advisable. Asian Paints wants to make the most of the upgrade. And for this it is important that the customer interface with the brand improves. The idea is to bring in more customers into the shops; old-style cramped hardware stores are no longer acceptable.
In a recent initiative, Asian Paints has opened a 6,000-sq feet signature store in Bandra, an up-market Mumbai suburb, to show customers how a home can be done up. Incidentally, the place doesn’t sell a single can of Paint, it is merely a meeting ground for customers and interior designers. The idea is to expose customers to new ideas and concepts that aren’t always possible in a small store, most of which are packed with tins of paint and don’t even have a wall free.–