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WHEN THE TAIL WAGS THE DOG

Asbrand clutter increases and consumers leave the choice to the retailers, marketers resort to retail push.
But can this be sustained? Is there a way out of this impasse?

Sushil Menon stared at Bhailal, the retailer, in undisguised surprise. This man who had always bought Reach
toothpaste in large quantities, had just told Sushil: “I will take only two boxes. I have invested in Coke.”
Sushil’s jaw dropped as Bhailal continued: “This market has become more dynamic than the stock market.
Until recently, Pepsi and Coke were selling at the same price to me and I stocked both brands. Then Coke came
to me and said: “If you buy two crates, I will give you a bottle free.” So I bought more of Coke, but some Pepsi
too. Soon, Pepsi countered the offer, saying: ”Hang on, you buy two crates and we give you two Pepsis free.”
In less than four days Coke came with a counter-offer saying two crates, three Cokes free. Keep only Coke and
two more free. So I went and put all my surplus on Coke. The deal is very good”.

That did sound crazy to Sushil. Because Bhailal had bought 500 crates of Coke and was all set to rake in gold.
“Therefore, right now, I am not interested in toothpaste or sabun or jam,” he said to Sushil. With a lot of
negotiation, Sushil managed to put some toothpaste into the outlet. But not all variants of his Reach toothpaste.
Bhailal picked just one variant and refused the others.

Sushil’s mind was abuzz. It was becoming clear to him that with the influx of so many brands and variants in
the market, the retailer’s push energy would matter the most. But that did not take away his targets for Reach.
Worse, Gerfeers India was now planning to launch another variant, Reach Plus, a germ barrier toothpaste with
mouthwash. Sushil felt diffident about its future. Retailers like Bhailal were bound to give it a miss. Unless
Gerfeers joined the bandwagon and resorted to the push strategy.

The next day, Sushil called Radha Vats, the product manager of Reach. “Radha,: he said, “do you really think
the consumer is going to be excited about Reach Plus? Yes, we have a good toothpaste there, but there are good
brands in every category! Today, BPL is as good, so is LG and so is Whirlpool and so is everybody. You look
at automobiles, appliances, white goods. There is very little to choose from as far as technology and looks are
concerned. Today, everything is nearly similar and the consumer is fatigued with the choices and there is
tremendous confusion. So you go and seek advice from your friendly neighbourhood retailer who has always
been loyal to you and your mother.”

You ask him” “Which detergent is good?” and he says: “Surf le jao.” So, you buy that. If he says, “don’t buy
brand X atta, there are complaints,” you will not touch brand X atta. The brand is finished as far as you are
concerned and as far as that outlet is concerned. Therefore, how are you going to ensure that the retailer
nurtures your Reach Plus, along with Reach Active and Reach Supreme?”

Radha had been through a similar debate with marketing. In the last eight to nine months, she had been
increasingly seeing a commoditisation of brands. Typically, in categories where there was a huge brand clutter,
and hence, low consumer involvement at the brand level. It was gradually leading to a scenario where the
retailer’s recommendation was gaining supremacy. At one stage the choices were limited and the consumer
would ask for a brand by name.

That was a time when brand values were so strong in a consumer’s mind that she would ask for Dalda cooking
oil, for Lux Toilet Soap, for Shakti Bhog atta, for Amul Butter. Today, the consumer is simply asking for

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‘nahane ka sabun’. Naturally, she thought, despite so many brands and brand values, brands were unable to
achieve brand loyalty. Consumers were easily switching brands.

“Why.” said Sushil now, “if I had agreed to discount Reach to Bhailal, he would have pushed my brand happily
and successfully. The same way he is now pushing Coke”.

“What are we seeing, therefore?” asked Radha. “We are seeing a phenomenon where the retailer is becoming a
very important part of the marketing mix. Many marketers are aware that a retailer can choose not to sell their
brand. No matter how much you shout in the advertisements, if it is not available on the retail shelf, it will not
be bought. If you ask the retailer why he doesn’t have a given brand, he is verily going to tell you that either the
distributor is inefficient or that the brand has complaints. Somebody, somewhere is making it more viable for
him to stock one brand over another. Also, and this important, if he is not stocking all brands, it’s because he
knows that the consumer is also becoming indifferent across brands. Which is why he tries to get the maximum
margins out of companies. Which would explain why Coke and Pepsi are having to wage a war for every bottle
they sell. Because in their category, there is so little to choose from.”

“So, it is all a matter of who has the highest push energy with the retailer,” said Sushil. Radha had seen this just
two days ago when she bought a water filter. “I asked for Bajaj’s water filter because I carry the memory of it
being dependable, the name to trust,“ she explained. “But the dealer called for an OK water filter. I stopped
him and said: ‘Don’t give me OK, vokay, I want Bajaj. “I was taken back at the ease with which he said”
‘Believe me, it is the same. Bajaj is also manufactured by OK.”

“There you are!” said Sushil. “Educated, MBA, urban elite. And it took him two seconds to change your brand
preference”.

“I don’t think he changed my brand preference,” said Radha, “but he did change my buying decision for that
transaction. I can’t say if he was right about what he said, but for that moment I was willing to go by what he
said, because I was in a hurry and, that apart, my family has know him for 15 years.”

Now do you see the power of the retailer?” said Sushil. “You were spending a thousand rupees on a product,
and in few seconds he has got you to rethink your brand ideal. Think of the company now. The marketer, what
are his options? He can go the Pepsi-Coke way, but he will continue to lose money. Which is what is
happening in white goods, atta, biscuits, butter, salt, jams. All these are categories where the lack of a clear
rational, emotional differentiator has rendered them sheer commodities at the retail”.

Adil Mistri who had walked in a few minutes ago, was listening to the discussion keenly. He now said: “I too
have been experiencing this dissonance for sometime but I am unable to translate it into strategy,” he said. “My
friend who owns a large atta brand, is facing this very problem. All atta brands, he says are losing huge sums
of money in this struggle for retailer attention. Annapurna, Shakti Bhog, Rose, Pilsbury, Nihar, Aahar. Name
it. His own brand is on the brink of closure. Today, to survive, he is having to sell to the retailer, at one rupee
lower than the leader! Mind you, the leader himself is selling at a loss! If he sells at par, the retailer has no use
for him. If he sells one rupee above the leader, he is finished! So what is his choice? Sell, but at a loss, to
live.”

Sushil could understand that. After all, he had been with a biscuit company four years ago. “Look at what is
happening in the biscuit industry,” he said. “Every marketer is suffering losses. Every biscuit is at a 50%
discount to the retailer or has a consumer offer on it. Reason? In most of these there is very little to choose
from, no repeatable, reproducible differentiator. Same for colas, atta, edible oils, biscuits, jams, ketchups.”

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Adil nodded in agreement.

“Therefore, look at it from the company’s point of view, “he said. “Now if my atta friend doesn’t have a
discernible differentiator any more and he has only that much in his budget to spend, where should he put his
money? Should he put it into TV ads, or put it in the retailer? Which option has a surefire hit rate? Or should
he resort to consumer promotion?”

Therefore, Radha,” said Sushil, “consider the future of Reach Plus. The market has eight other toothpastes,
many of which are on the same platform as Reach Plus. And all these are comparable on price, packaging and
delivery. Where is my differentiator? Knowing I don’t have one, I have to push through the clutter and get the
consumer to prefer me over others. Moreover, I have to first get the retailer to prefer me, choose me over other
brands he could stock. Point is, how will this happen?”

“Now look at it from the retailer’s point of view. What does he do? Marketers have always kept their retailers
on a 5-7% margin on all branded goods. But give them a good deal – five bottles per crate – and they will
influence the buyer to switch. A retailer is in the business to make money. Your retailer said Bajaj and OK are
similar, yet he pushed an OK, right? Why? Because there is more money on an OK. Similarly, even if there is
a demand for, say, Lux, and it is available, he will buy maybe more of the deal-offering soaps, because he
knows that 80-90% of the times, the buyer will ask for a nahane ka sabun, not Lux, or Cinthol or Palmolive.

“Thirty percent of the times he will be able to get his consumer to switch to the deal-offering soap, and cause
substitution of the brand. In such a scenario, what does a marketer do? Irrespective of whether he puts money
on the TV ad or not, he still has to contend with whether the retailer will push his brand, because that’s where
his volumes will come from! Volumes are not coming from advertising pull any more’ these are highly salient
brands, with high recall. If that is so, then what will it take to increase sales to Reach from, say, four million to
five million?”

“The challenge is the retailer,” said Adil. “He decides what to sell, rather what consumers should buy.”

“Then what options do I, the marketer, have?” asked Sushil.

“One, I can go on the pull strategy – cover TV and magazines with my ads and say: ‘Buy mine, mine is the
best.’ Two, I can go to the retailer, give him a lot of money and say” ‘Push my brand and make a lot of money.’
Three, go and discount my brand to the consumer: ‘Buy one and get one free.’ Any promotion that offers value
for money (VFM).”
Radha shuddered at the idea of a VFM OFFERING.

“The danger is that you have to significantly discount your brand,” she said. “O.K. to get noticed, but not
sustainable in the long term. But to make a big difference as a VFM brand you had to offer big discounts, like
Baron Electronics. All others were giving you a 21-inch TV at Rs.20,000 , but Baron offered a 29-inch TV at
Rs.18,000. So, if you have a product that is equally good in terms of features, its deliverables, its output, but
can be put out at a 30-40% discount, then you are in business. So, even before I have launched Reach Plus, I
must discount it?” she asked incredulously.

“Then go through the retail, “suggested Sushil. “Many are doing it successfully, particularly the new entrants
who want to create a big market for themselves. The management of these companies is being evaluated on
their ability to achieve the initially forecast market potential. For that, if it costs them a couple of million
dollars, it really does not hurt them. Now a lot of these guys are saying, ‘forget the bottomline, but get the
topline (sales). Profits are not material at this state.’”.

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“Now, given the window of 8-10 years that these top managers were given by their foreign parents, each one of
them went berserk to get volumes. And what is the best way to do it? Go to the retailer / dealer and say, sell
my television, give me exclusivity, or sell my Coke, or sell only my atta, and for every unit of my brand that
you sell you get 20-30% more margin that you get on competition. That is what triggered this marketplace
madness. What the Cokes and Pepsis started is now being followed by everyone. Will you do it Radha?” asked
Sushil.

A silence pervaded the room, as they all considered the rhetoric. Then Adil said: “If you do that you will lose
the direct touch with the consumer.”

“How?” asked Sushil. “Very simply,” said Adil. ” Because between the end consumer and the retailer, it is the
retailer who is benefiting. A manufacturer strives at cost effectiveness, but instead of passing on the savings to
the consumer, he ploughs these back into the retailer, who now appears to be a better bet for raking in sales
volumes. The person who is gaining is the retailer, and he is not manufacturing, not distributing. He is simply
breaking the bulk. His contribution to the supply chain virtually tends to zero. And for this, he picks up 12-
13%! So is there something we are missing? Is this sustainable? Why is it that today, in the supply chain, the
biggest gainer is the retailer? What will happen if we don’t pamper the retailer?”

“But then what is a marketer supposed to do?” asked Sushil. “It is true that the retailer can be influenced with
money. I just had a taste of that from Bhailal.”

“Of course, he is,” said Adil. “How else do you think I managed to increase sales of Petal soap by 250% in
Delhi metro in just 12 months? Unprecedented? Yes. But how? Discounting my brand to the retailer, thus
giving him higher margins, so he bought my brand, sold my brand and made more money and keeps coming
back for more! Why? Is my brand better than that of my nearest competitor? No! I can do a hundred blind
tests; I can tell you no consumer will be able to tell my brand from brand X. And if I was able to achieve that
growth, it was simply because I found a differentiator – the retailer. Yes, today, I have the volumes, the growth,
the mileage I desire. But where do I go from here? How long can I sustain this trend? For the time being it is
an advantage because I have managed to decimate competition to a large extent in my market. Now, after 12
months of high, if I were to go back to my retailers and say: ‘Okay friend, now that brand acceptance levels
have been reached, now that I have displaced competition, let us get back to the earlier 7.5% margins, continue
selling my brand. Do you know what? He will go back to brand X even if he is also giving 7.5% and tell his
consumers: “Sorry, don’t buy Petal.’ There is a complaint about its quality. ‘I am finished!”

“Naturally,” said Radha. “I won’t be surprised.”

“And here is the bad news, “said Adil, “the last few weeks I am being pushed by my commercial department to
take a price increase of Rs.0.50, and my retailer is already saying, ‘nahin saab’. Because he knows that will
squeeze his earnings. And if I have to fight the way the market is demanding, then the only person who will
ever make money is the retailer, not the company! It’s a self-regenerating exercise, where, if you don’t
continue feeding the giant, he will eat you up. You will die.”

Sushil now turned to Radha: “So you see? If you have to do a successful business with a product that does not
have a plus, then you have to go through the retailer.There is no way out! You have shown your parent firm a
certain volume that you can achieve. To now say: ‘Hang on, I have to drop some of these volumes, get some
brand saliency, get some pull.’How can you? Does Reach have a pull in the market? Now Way! And if you
don’t have a pull energy, then you have to get it from pushing. If you do that, the retailer demands more than
his pound of flesh.You give him that and you go home without profits. So you cannot have a profitable business
solution with a push strategy.”
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Radha’s mind ticked away. Suddenly, the prospect of Reach Plus seemed forbidding. The Indian market had
become a huge basket of multiple offerings. Each begging for either consumer or retail attention.

The consumer was confused because he did not see any clear differentiator across brands. Branded
commodities, mused Radha. All these TVs or refrigerators, atta, salt, bread, jams, oils, shampoos, butters,
toothpastes, biscuits, low-priced detergents. And in all these there was zero brand loyalty. With zero brand
loyalty, the consumer was not king, the distributor was not king, the manufacturer was not king. The retailer
was king and master puppeteer. And then all hell breaks loose, because you have not control.

As if in sync, Sushil said: “For, the consumer is not showing clear loyalty, the brand is not showing clear
differentiator: the consumer is saying ‘Koi bhi de do’ and the retailer is saying, ‘give me a good reason and I
will push your particular brand. to any retail outlet and watch how people buy. The question usually is ‘offer
kis pe hai?’Why, my own wife walks into an outlet and looks around to see which toothpaste comes with a free
toothbrush!

The whole marketing mix is now becoming a challenge, especially for commodity brands where there is not
plus. With competition getting aggressive, it is the retailer who is making the difference. But in the long term
this is not sustainable, I know, I know. But the question is, how does one get out of that?”

“If there was an answer, Pepsi and Coke would have started making profits,” said Radha. “The reason why
there is no answer is because there is a big conflict between short-term and long-term gains. If you decide to go
for the long term, then in the short term you don’t even kickstart your brand! And everyone wants immediate
saliency and loyalty from the consumer. The other point is, there is not limit to greed. Today, the retailer will
ask for 5%, tomorrow he will want 5.5 very soon he wants 6. And if you are in an aggressively competitive
environment like Coke and Pepsi are, where your competitor is equally aggressive, then this carries on.”

“Which is why,” said Adil, “we are talking of an inflation figure of 3% even with petrol and diesel prices going
up! Which is why we are in a scenario where TV’s cost less than they did in 1991. Which is why we are talking
of scenarios where people are discounting everything that is available, because everyone is pumping in money
like never before. Where is this going to end? All I know is that I am fighting a price increase with my
commercial department and bravely even asking for 75 paise more to entice my retailer because I have to get
my sales volumes in! If I lose my job, it won’t surprise me!” he laughed.

“Look where it has taken you,” said Sushil. “It has come to a point where your own margins are not enough!
You are not asking for budgets to advertise or to run a promotion. You are not marketing any more. If this is
what you are doing, that means your brand building, your theme spends are going down, your spends on
creating an image for your brand are going down – can’t you see? Instead, you are spending on schemes, on
offerings. So, what is happening? You are no more building the brand and your soap has become a
commodity!”

“Now you are getting the point,” said Adio. “Yes, but I have to meet targets and retain my job.”

Radha sighed. “What do I do? Reach Plus does not have a differentiator. I am not putting up a Dove or a Fair
& Lovely. How do I launch a me-too successfully?”

And in the background they all could hear the retailer whining, “X Today, X Ultra, X Super, X Active, X
Supreme, New XX Plus. Why do you have so many types? In my small shop I have keep 2,500 SKUs, they
may get old, lost, invisible, stolen, obsolete, eaten by rats. You are adding to my complexities adding brand after brand. Shouldn’t
you give me a good reason to keep them all?”
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