Distribution Management of Hindustan Unilever LTD

A Study on Distribution Management of Hindustan Unilever Limited

SubmittedTo
Prof.SGovindrajan
By
PRADEEPNARAIN SANJEEVKUMARJHA SATADRUBAGCHI SOUMITRADHALI
TARUNKUMARSAHA

2
Content

Page
3 4 5 12 14 16 18 26 33
1. Introduction–HindustanUnileverLimited 2. DistributionNetworkofHUL 2.1.Evoluti
tailOverview 3. ChannelDesign
4. InitiativestakentoImprovetheDistributionNetwork 5. FieldForceManagement 6. An
ework 7. FinancialAnalysis 8. References

3

1.Introduction‐HindustanUnileverLimited
Hindustan UnileverLimited(‘HUL’),formerlyHindustanLeverLimited (itwasrenamedin
ndia slargestFastMovingConsumerGoodscompany,touchingthelivesoftwoout of three
distinct categories in Home & Personal Care Products and Foods & Beverages.Thes
ecompanywithascaleofcombinedvolumesofabout4million tonnesandsalesofnearlyR
of the country s largest exporters; it has been recognised as a Golden Super S
heGovernmentofIndia. The mission that inspires HUL s over 15,000 employees, in
0 managers, is to "add vitalitytolife."HULmeetseverydayneedsfornutrition,hygi
thbrandsthat helppeoplefeelgood,lookgoodandgetmoreoutoflife.Itisamission
nilever, which holds 52.10% of the equity. The rest of the shareholding is dis
,675individualshareholdersandfinancialinstitutions. HUL s brands ‐ like Lifebuoy,
el, Rin, Wheel, Fair & Lovely, Pond s, Sunsilk, Clinic, Pepsodent,Close‐up,Lakme
an,Knorr‐Annapurna,KwalityWall s–arehousehold names across the country and span
s, detergents, personal products, tea, coffee,brandedstaples,icecreamandculinary
eproductsaremanufacturedover40 factoriesacrossIndia.Theoperationsinvolveover2,
ociates.HUL sdistribution network comprisesabout 4,000redistributionstockists,cove
illionretailoutletsreaching theentireurbanpopulation,andabout250millionruralco
lyzedthedistributionnetworkofHULfromthefollowingaspects: 1. EvolutionofHUL’sdi
. Transportation&Logistics 3. ChannelDesign 4. Initiativestakenforchannelmemberma
5. Fieldforcemanagement 6. AnalyticalFramework 7. FinancialAnalysis

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2.DistributionNetworkofHUL 2.1.EvolutionoverTime
TheHUL’sdistributionnetworkhasevolvedwithtime.ThefirstphaseoftheHULdistributi
rsplacingbulkordersdirectlywiththecompany.Largeretailersalsoplaced directorder
most30percentofthetotalorderscollected.Thecompany salesmangroupedalltheseord
heHeadOffice.Goodsweresentto thesemarkets,withthecompanysalesmanastheconsign
ctedand distributedtheproductstotherespectivewholesalers,againstcashpayment,and
tedtothecompany. The focus of the second phase, which spanned the decades o
e desired productsandqualityservicetothecompany scustomers.Inordertoachieveth
chmarketwasappointedasa"RegisteredWholesaler,"astockpointforthecompany sprodu
mpanysalesmanstillcoveredthemarket,canvassingforordersfromtherest ofthetrade.
ksfromtheRegisteredWholesalerthroughdistributionunits maintained by the company.
ed Wholesaler system, therefore, increased the distributionreachofthecompanytoa
tomers. Thehighlightofthethirdphasewastheconceptof"RedistributionStockist"(R
The RS was required to provide the distribution units to the company salesman.
cteristic of this period was the establishment of the "Company Depots" system.
pedintransshipment,bulkbreaking,andasastockpointtominimisestock‐outsattheRSl
ificantchangehasbeenthereplacementoftheCompanyDepotbyasystemof thirdpartyCa
s(C&FAs).TheC&FAsactasbufferstock‐pointstoensure that stock‐outs did not take
s also resulted in cost savings in terms of direct transportation and reduced
ry. The most important benefit has been improvedcustomerservicetotheRS. The
Redistribution Stockists includes: Financing stocks, providing warehousing facilit
roviding manpower, providing service to retailers, implementing promotional activit
xtending indirect coverage, reporting sales and stock data, demand simulationand
ransitdamages.

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2.2.DetailOverview
ThedistributionnetworkofHULisoneofthekeystrengthsthathelpittosupplymostpro
ntryfromSrinagartoKanyakumari.Thisincludes,maintainingfavorable trade relations,
nnovative incentives to retailers and organizing demand generation activitiesamong
rthings.EachbusinessofHULportfoliohascustomizedthenetwork to meet its objecti
s function of providing the logistics support is to get the company’sproductto
DistributionSystemofHUL
HUL s products, are distributed through a network of 4,000 redistribution stock
ng 6.3 millionretailoutletsreachingtheentireurbanpopulation,andabout250million
re are 35 C&FAs in the country who feed these redistribution stockists regularl
radecomprisesgrocerystores,chemists,wholesale,kiosksandgeneralstores.HindustanUn
des tailor made services to each of its channel partners. It has developed cus
and supply chain capabilities for partnering emerging self‐service stores and sup
ound2,000suppliersandassociatesserveHUL’s40manufacturingplantswhichare decentra
nsquaremilesofterritory.
(Fig.1–SchematicofHUL’sDistributionNetwork)
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DistributionattheVillages:
The company has brought all markets with populations of below 50,000 under one
nisation.Theteamcomprisesanexclusivesalesforceandexclusiveredistributionstockists
cusesonbuildingsuperioravailabilityofproducts.InruralIndia,thenetworkdirectlyc
illages,reaching250millionconsumers,through6000sub‐stockists.
(Fig.2–RuralDistributionModelofHUL)

HUL approached the rural market with two criteria ‐ the accessibility and viabi
his segment, HUL appointed a Redistribution stockist who was responsible for all
ll businesswithinhisparticulartown.Inthe25%oftheaccessiblemarketswithlowbusi
gnedasubstockistwhowasresponsibletoaccessallthevillagesatleastonceinafortn
ets.Thissub‐stockistdistributesthecompany sproductstooutletsin adjacentsmaller
ortationsuitabletointerconnectingroads,likecycles,scooters ortheage‐oldbullockc
nUnileveristryingtocircumventthebarrierofmotorable roads. The company simultan
olesale channel, suitably incentivising them to distributecompanyproducts.Themost
radingremainsthegrassrootsbuy‐and‐sell mode.ThisenablesHULtoinfluencetheretaile
ssoldthroughcreditextension and trade discounts. HUL launched this Indirect Cov
960s.Under the Indirect

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Coverage(IDC)method,companyvanswerereplacedbyvansbelongingtoRedistributionStock
icedaselectgroupofneighbouringmarkets.
DistributionattheUrbancentres:
Distribution of goods from the manufacturing site to C & F agents take place
rucksorrailroadsdependingonthetimefactorfordeliveryandcostoftransportation.G
uring site is located such that it covers a bigger geographical segment of Ind
,thegoodsaretransportedtoRS’sbymeansoftrucksandtheproductsfinallymake the‘
apmodeoftransport.
Newdistributionchannels
ProjectShakti This model creates a symbiotic partnership between HUL and its co
ed in the late 2000,ProjectShaktihadenabledHindustanLevertoaccess80,000ofInd
L s partnership with Self Help Groups(SHGs) of rural women, is becoming an exte
ompany s operation in rural hinterlands. Project Shakti has already been extended
states ‐ Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Tamil Nadu, Chattisg
adesh, Orissa, Punjab, Rajasthan, Maharashtra and West Bengal. The respective sta
ents and several NGOs are actively involved in the initiative. The SHGs have c
ith HUL as a business venture, armed with training from HUL and support from
s concerned and NGOs. Armed with micro‐credit, women from SHGs become direct‐to‐
ralmarkets. Themodelconsistsofgroupsof(15‐20)villagersbelowthepovertyline(Rs.
o‐credit from banks, and using that to buy our products, which they will then
umers.Ingeneral,amemberfromaSHGselectedasaShaktientrepreneur,commonlyreferred
esstocksfromtheHULruraldistributor.Afterbeingtrainedbythecompany, the Shakti
lls those goods directly to consumers and retailers in the village. Each Shakti
sually service 6‐10 villages in the population strata of 1,000‐2,000. The Shakti
venHULproductsona cashandcarrybasis. ThefollowingtwodiagramsshowtheProject
L.

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ProjectStreamline
To cater to the needs of the inaccessible market with high business potential
reamlineinitiativein1997.ProjectStreamlineisaninnovativeandeffectivedistribution
alareasthatfocusesonextendingdistributiontovillageswithlessthan2000peoplewith
ockists/Star Sellers who are based in these very villages. As a result, the di
kdirectlycoversasofnowabout40percentoftheruralpopulation. Under Project St
tributed from C & F Agents to Rural Distributors (RD), whohas15‐20ruralsub‐st
fthesesub‐stockists/starsellersislocated in a rural market. The sub‐stockists
driving distribution in neighboring villages using unconventional means of transpo
s tractor and bullock carts. Project Streamline being a cross functional initiat
Seller sells everything from detergents to personalproducts. Higherqualityservi
quency, creditandfull‐lineavailability,istobeprovidedto ruraltradeaspartofth
. ThediagraminthenextpageshowsthemodelofProjectStreamline.

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HindustanLeverNetwork(HLN)
It is the company s arm in the Direct Selling channel, one of the fastest gro
It alreadyhasaboutseverallakhconsultants‐allindependententrepreneurs,trainedand
tmanagers.HLNhasalreadyspreadtoover1500townsandcities,covering80%ofthe urba
2 offices and 240 service centres across the country. It presents a rangeofcu
ome&PersonalCareandFoods. The New Compensation plan for HLN partners provides
earning substantial income in addition to offering rewards like revenue sharing
nnovative concept of “pools”
MotherDepotandJustinTimeSystem
Inordertorationalisethelogisticsandplanningtask,aninnovativestephasbeenthefo
tandJustinTimeSystem(MD‐JIT).CertainC&FAswereselectedacrossthecountry to act
them has a minimum number of JIT depots attached for stock requirements.Allbra
dforthesetofmarketswhichtheMDandJITsservicein a given area are sent to t
ring units. The JITs draw their requirementsfromtheMDonaweeklyorbi‐weeklybas
LeveragingInformationtechnology
HULcustomersareservicedoncontinuousreplenishment.ThisispossiblebecauseofITconn
he extended supply chain of about 2,000 suppliers, 80 factories and 7,000 stock
isticated network with its voice and data communication facilities has linked mo
cationsalloverthecountry,includingtheheadoffice,branchoffices,factories,depots
butionstockists.TheyhavealsocombinedbackendprocessesintoacommonSharedService i
hich supports the units across the country. All these initiatives together have

10
enhanced operational efficiencies, improved the service to the customers and have
closertothemarketplace.
RSNetInitiative:
TheRSNetinitiative,launchedin2001,aimsatconnectingRedistributionStockists(RSs)
tbasedsystem.ItnowcoversstockistsoftheHome&PersonalCarebusinessandFoods& B
ities.Togethertheyaccountforabout80%ofthecompany s turnover. RS Net is one o
rce initiatives ever undertaken in India. It provides linkages with the RSs’ ow
tems, enables monitoring of stocks and secondarysalesandoptimisesRS’sordersand
sisthroughonlineinteraction on orders, despatches, information sharing and monito
T‐powered system has been implemented to supply stocks to redistribution stockist
ous replenishment basis. Today, the sales system gets to know every day what H
sold to almost a million outletsacrossthecountry.Informationonsecondarysalesis
eryday. RSNetispartofProjectLeap.ProjectLeapbeginswiththesupplierrunsthroug
eachesuptotheRSs.ThisensuresHUL’sgrowthbyensuringthattherightproductis avai
he right quantities and at the right time in the most cost‐effective manner. L
cing inventories and improving efficiencies right through the extendedsupplychain
easaforcemultiplierforHULWay,thecompany saction‐plantonotonlymaximise the n
t also to achieve leadership in every outlet. RS Net has enabled stockists to
ntinuous Replenishment System. This in turn has unshackled the fieldforcetosole
rysalesfromthestockiststoretailersandmarketactivation.It hasalsoenabledRSsto
oretailoutlets.Simultaneously,HULisservicing theruralmarket,keyurbanoutlets,an
gleconcern.
AdexaiCollaborationsuite
In 2000, HUL identified improved supply chain management as a critical business
aunched a comprehensive initiative, “Project Leap,” tasked with increasing supplie
or responsiveness,reducinginventorybuffers,andoptimizingplanningandscheduling.HUL
xaiCollaborationsuiteforfacilitatingcentralizedmonitoringoftheSCM,livecustomer/
boration, and integrating demand and distribution planning with production schedul
h theaggregatedviewofdataprovidedbytheiCollaborationsuite,HULwasabletocombin

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distributioneffortsonthediverseproductlines,whichresultedinsignificantsavingson
ventories and distribution. HUL updates inventory positions, shipments and custome
onadailybasiswiththesesoftwarepackagesandcangetapulseonthemarketrealtime.
(Fig.3–HUL’sTurnoverComparedwithCompetitors,2006)

(Fig.4–HUL’sMarketLeadershipacrossvariousFMCGCategories)

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3.ChannelDesign
HindustanLeverLimited(HUL)hastwotypesofchannelselling‐ i. Regular(traditional)
ii. DirectSellingChannelinthenameofHindustanLeverNetwork(HLN). HUL has a we
tribution model which comprises of C&FAs, Redistribution Stockists,wholesalersand
asshownearlier).HindustanUnilever sdistributionnetworkis recognizedasoneofitsk
usesonProductavailability,Brandcommunication,and higherlevelsofbrandexperience.
roughdifferentchannels:
Sales Break-up Through Different Channels
7% 33%
60%
Modern Retail
Urban General Trade
Rural Areas
ChannelStructure(SpecialFocusisonJamshedpur)

Typically,thegoodsproducedineachoftheHUL s40factoriesaresenttoadepotwithth
gagent(C&FA).Thecompanyhasitsdepotineverystateofthecountry.The C&FA is a
g fee for stock and delivery of the products. In each town, thereisatleasta
S)whotakesthegoodsfromtheC&FAandsellsthemto retail outlets. In Jharkhand th
shedpur is serviced by 3 Redistribution StockistsatSakchi(M/sOmPrakashAgarwal),
dih. TheHULmanagementrealizedcertainproblemswiththeexistingsalesmodel.First,
e for small towns with small population and small business. HUL found it expen
e stockist exclusively for each town. Secondly, the retail revolution in the co
edthepatternthecustomersshop.Largeretailselfserviceshopsarebecomingcommonplace

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In response of these problems, HUL redesigned its sales and distribution channel
stemisknownas diamondmodel inthecompany.Atthetopendofthediamond,therearet
hconstitute10%ofthetotalFMCGmarket.Themiddle,fatterpartof thediamondrepresen
lesteam.Inthebottomofthepyramidistherural marketing and distribution which a
usiness. As a result of the new distributionplanthecompanyhasplannedtoreduce
. RedistributionStockists: TotalnumberofRSinJamshedpur=3(atSakchi,Bistupur,
educedto onlyonewitheffectfromnextmonthofthisyear. Sales Margin: 4.76% whic
, unloading expenses from depot, distributionexpensestoretailers,incentiveschemes
ntalexpenses. Modesoftransportused:Rickshaw,tempo. Incentiveschemes:Before2000h
ndtoursbutafter2000nonon‐monetary incentiveforRS. Software systems and Informa
.3 (Developed by IBM & CMC). This softwareneedstobesynchronizeddailyandthesy
ion/incentive schemes/salesfiguresetctoandfromthecommonsharedplatform. Areas
achoftheRS. SellingOperations:RSssellsthegoodsto‐ o o Wholesaler: Getscash
otedbyHUL(getspointsunderVijetaScheme). Retailers: TotalretailerbaseinJamshe
70. SalesMargin:Dependsontheproduct o o o Soap,detergents‐ Cosmetics
S) Retailers(gets1.0%max.discountfromRS)
Incentiveschemes: Companyprograms(SchemeDiscounts+CashDiscounts) TPRschemesba
taschemeisnotforretailers. FieldSalesForce:
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To meet the ever‐changing needs of the consumer, HUL has set up a distribution
s availability of all their products, in all outlets, at all times. This inclu
favourable trade relations, providing innovative incentives to retailers and organ
mand generationactivitiesamongahostofotherthings. Theimportantactivitiesthat
re(i)targetchasingand(ii)reportingona dailybasis.Accountinformationismaintain
.Duringourresearchand informalsurveyofHULfieldsalesforce,wecametoknowthatf
t beinggivenatalltothesalesforce. HULhaslimitedthenetworkchannelsellingto
HPC)andFood products with exclusive brands for this channel. That is, these pa
products) are all exclusivetoHLN,specificallydevelopedfortheDirectSellingchanne
eintheretail channel. The general trade comprises grocery stores, chemists, who
s and general stores.HindustanUnileverserviceseachwithatailor‐mademixofservice
4.InitiativestakentoImprovetheDistributionNetwork
HULhastakenthefollowinginitiativestoimproveitsdistributionnetwork: Setting up
s organisation comprising key account management and activationtoimpact,fullyeng
odernretailersastheyemerge. ServicingChannelpartnersandcustomerswithcontinuousd
ent. LeveragingscaleandbuildingexpertisetoserviceModernTradeandRuralMarkets.
cetoimproveresponsetimesandservicelevels. Revamping of its sales organisation
ts to fully meet the emerging needs andincreasedpurchasingpoweroftheruralpopu
ionnetworkinrural India already directly covers about 50,000 villages, reaching
ion consumers throughabout6,000substockists.

15 Implementationofsupplychainsystemthatconnectsstockistsacrossthecountry,andal
ndsystemconnectingsuppliers,allcompanysitesandstretchingrightupto stockists. I
eployed for connectivity across the extended supply chains. Backendprocesseshave
ntoacommonSharedServiceinfrastructure. LaunchingofProjectShaktithroughwhichthe
enditsoperationsin villages. HUL has also included several NGOs and state gove
tiative helps ruralwomentoimprovetheirfinancialposition. LaunchingofHULNetwork
elofdirectsellingbypresentingcustomised offeringsin11homeandpersonalcareandf
n2003,italreadyhasa baseof300,000consultantsacrossthecountry. Startingoffran
sandAyushTherapycentrestoofferstandardised services, in line with the strategy
uity of its brands through relevant services. Finding out Innovative ways to re
nsumers, particularly in rural areas by leveragingnon‐conventionalmedialikewallp
avans,weeklymarkets(haats), fairsandfestivals. InitiatingtheconceptofSuperValu
reastopartnertraditionalstores to provide a range of services ranging from man
tory to setting up POS (pointofsale)banners.Inadditiontothis,toboostuptradi
asing in‐roads made by large, modern retailing chains like Spencer’s, Reliance F
Lissqueezedharderfordiscounts),HULstartedrestructuringsomeoftheselectedSVSs i
eretailshopsalamodernretails.Thisistoprotect&maintainthe competitiveadvantag
ompetitorsintheothermarkets(e.g., P&G),withitsverydeepdistributionreachthroug
LaunchingtheUnicareschemewithupmarketpharmaciesandretailerstosaleitspremium br
gseveralinitiativesfortraditionalchannelsinordertoimproveitscapabilitiesat the
gskillsforstockists salesforce.Under ProjectDronacharya ,the FMCGmajorcontinuou
ningtoover10,000stockistsalesmen. Launching of several promotional schemes for
salers and distributors. For instance,ithasstartedthe‘Vijeta‐RishtaJeetKa’sch
or thewholesalerandHULtogrowthebusinessbyearningpointsandredeemingthem.

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5.FieldForceManagement
TheworkingcycleofatypicalHULfieldforcememberisfrom21stofeverymonthtothe20
odheisgivenvarioustargetsthathelpstoachievecompanyobjectives andgiveshimach
elativetoother. Tostartwiththefieldforcememberisgivenaparticularareaandhis
theretailersinthatarea.Whiledecidingtheareaforeachmemberofthefieldforce,the
ratingareaofeachfieldmemberdoesn toverlapwithhisothercolleagues. Therearevari
panytoincentivizethefieldforce‐MonetaryandNon Monetary. InHUL,thefieldforce
fContribution).Itconsistsof4components‐ 1.SecondarySale(Maxpoints=2.5) 2.E
ts=0.5) 4.FCS(MaxPoints=0.5) SECONDARY ECO QOC FCS FOCUS

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Secondary Sale ‐ Based on the operating area, each member is given a specific
ue(e.g.,Rs.15lacs)fortheoperatingmonth(21st–20thofnextmonth).Ifheachieves
chieves95%targethegets1.5points.Thesepointsareusedto addtothetotalQOCscore
ive. ECO/WidthpackTarget–Thisisusedforthepenetration/reachofcertainproducts
wingisatypicalECOtargetassignedtoafieldforceagent: LuxInternational PearsSoa
U ‐104outletsx1SKU ‐100outletsx1SKU
BreezeSoap
Theoutletsmentionedarewithintheoperatingareaofthepersonand1SKU=Rs.27/‐.Bas
esnumberofpacksheshouldselltotheretailers.Theconcernedagent receivesthistarg
dhastocompletethistargetwithinthe5thdayof next month. Upon completion he ge
added to his QOC score along with monetary incentive associated with it. Howeve
et within 5th, he looses the opportunity. Focus/DepthPacktarget–Thisismain
eofcertainproducts.A typical‘Focus’targetisgivenbelow: LuxInternational Life
This target needs to be achieved within 20th of next month. Upon achieving the
ersonisawarded0.5pointswhichisthenaddedtohisoverallQOCscore. FieldCapabili
hefieldforcepersonsarerequiredtoensurethat the scheduled visit/outlet billing
st 15 items are demanded per order. If this is achieved the retailer gets a
lled amount and on the other hand the field person gets an additional score o
o his QOC score. Each scheduled visit per outlet is one per week. For example
ets within the operating area of a field personthenthenumberofvisitperweeki
onth=100x4=400.

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Thesalespersonisrequiredtoachieve90%successratetoget0.5pointsforhisQOCscor
yperformance. NonMonetaryMethods TheotherpurposeoftheQOCscoresistohighlight
ersonamonghis peers. Based on the QOC various awards are distributed to the f
nd of every month. These awards are also known as ‘MOC Star’ awards. MOC stan
Cycle. IfQOCscore>4.5–Thepersoniseligiblefor7staraward IfQOCscore>4–
seligiblefor3staraward In the event of exceptional performance, management rep
m the regional office cometothezonalofficetodistributetheawards.Thephotograph
layed intheofficeasasourceofinspirationforothersalesperson. TargetSettingM
eregional officemonitorstheperformanceofvariouszones.Athoroughanalysisisdonea
and based on that the weak products are identified or those for which the dem
hebasisofsettingECOandFOCUStargetsforthefieldpersons.Each fieldpersonisgive
ntriesonthespotwherethetransactionis done.Thissolvesbasicallythetwopurposes‐
hetedioustaskofmaintainingcumbersomerecordsandcanthen concentrateonthejob(thu
ieldforceorotherchannelmembers), b)Thesolditemisimmediatelyupdatedinthecompa
6.AnalyticalFramework
WetriedtoanalyzeHUL’sdistributionnetworkinthelightof20mostsignificantvariable
ution part of channel management for any organization in the business of market
ods.Thevariables,theirexplanationsandtheirimpactontheHUL’sdistributionnetwork
rofConsumers In retail business dominated by traditional stores like Kirana Sto
retail business falls in this category), higher the no. of consumers, higher wi
hannel intermediaries.Theimplicationofthisisthattherewillbemanylayersinthech

19 situationandmanagingsuchacomplexdistributionnetworkbykeepingtabsoneveryplay
k. Moreover, Transport & Logistics (“T&L”) support provided by the organization
zed. ImplicationforHUL HUL’skeystrengthliesinmanagingitsdistributionnetworkin
MCG company with unmatched distribution network, which is built over a century
ditional retail. HUL s distribution network comprises about 4,000 redistribution s
s, covering about 6.3 million retail outlets reaching the entire urban populatio
50 million rural consumers in India. It’s said that HUL is able to touch the
ery 3 Indian consumers. This achievement is due to the sheer strength of its
rk(productsshouldbegoodasalways,otherwisetheywillfindnobuyersinthelongrun).
rgestFMCGmajor,doesnotfinditsnameinthelistoftop5 FMCGmajorsinIndiaasits
biggestexample,Wal‐Mart), butnottraditionalretail.
2. GeographicDispersionofConsumers Again,thisiscloselyrelatedwiththepreviousvar
ge,geographicallydiverse country like in India. With the increase in this dispe
re intermediaries and more layersarerequiredinthedistributionnetworksoastoeff
th&breadthof the country. Obviously the T&L management for such an organizatio
l to accomplishthis. ImplicationforHUL For a country as geographically diverse
an presence & market leadership can only be possible when products reach even
s of the country. HUL is very successfulinachievingandmaintainingthisreachdue
ork. 3. FrequencyofPurchase If the frequency of purchase is high, then transpor
e last mile” (i.e., from distributortoretailers)increasesmanifold.ForFMCGproduc
kethat themeantimebetweentwopurchasesis~90days.Withtheintroductionofsmaller
Ggoods(Re.1/‐shampoosachetsbeingaverygoodexample),thetransport intensityincre
ImplicationforHUL
20
HUL has about 4000 redistribution stockists, who supply to approx. 6.3 million
India.Sincemanufacturingisdoneat40plantsaroundthecountry,rationalizingthelogis
ugetask.AninnovativestepinthatregardhasbeentheformationoftheMother Depotand
ainC&FAswereselectedacrossthecountrytoact as mother depots. Each of them has
depots attached for stock requirements. All brands and packs required for the s
ich the MD and JITs serviceinagivenareaaresenttothemotherdepotbyallmanufa
equirementsfromtheMDonaweeklyorbi‐weeklybasisandsupplytostockistsinthat are
s. 4. TendencytoPostponePurchase Ifthetendencytopostponepurchaseislesser,the
istribute.For example,products/serviceslikeFireExtinguishers,LifeInsuranceetc.are
ghthese are needed, the overall tendency for the consumers is to postpone the
ducts/services can be termed as “necessary evil”. For this kind of products, re
tinthemindsofconsumersbecomesnecessary,salesfieldforcebecomescritical anduse
place. ImplicationforHUL Since FMCG products are used regularly and these produ
sary evils”, distributionnetworkofHULdoesnotrequireanyexpertfieldforcetosell
t diversification of HUL into Home Water Purification business (“Pure It” brand)
eldsalesforce. 5. LevelofFamiliarity/Knowledge(ofconsumer)abouttheProduct Ifth
yofconsumerwiththeproductishigher,lowerwillbetheimportanceof fieldsalesforc
ceofchannel. ImplicationforHUL SinceFMCGgoodsareverymuchfamiliartoconsumers,
embersare very much important to HUL and field sales force’s function is mostl
managementandensuringavailabilityofproducts.
6. DegreeofBrandLoyalty
21
If the consumers are more brand loyal, then less “push” will be required from
ltheproductsastherewillbesufficient“pull”ordemandfromtheconsumers. Thisimpli
tomerbase,effortsfromthechannelmemberscan bemuchlesserforfinaloff‐taketohapp
rginstothechannel members for those products. For faster moving products (mostl
ll), retailers maynotbeaversetoslightlylessermarginsasrotationoftheproductsi
rotected. Retailer’sROI=
M arg in × Rotation Investment
ForaFMCGplayerwithanon‐establishedbrand,marginstochannelmembersandpointofsal
mportant. ImplicationforHUL AsHULenjoysleadershippositioninmanyFMCGsegmentslik
,PersonalCare productsetcwithstrongbrandswithcontinuous“pull”,HULhaslesstowo
bersorPOSadvertising.Butthissituationcanchangeconsiderablyinthefaceof riseof
avingalmostthesamereachasHULhas(e.g.,ITCasit’seating intoHUL’smarketsharec
ment). 7. PurchasedonImpulse Theimpulsepurchaseproductslikechocolates,toffees,co
tc.followSay’sLaw whichstatesthat“SupplyCreatesDemand”,implyingavailabilityoft
tical aspect for these to be sold and consumed. This stresses on the fact tha
ctsbecomesveryimportant. ImplicationforHUL HULhasonlyoneproductinthisimpulse
alls(icecream).HULis #2afterAmulinthisFMCGsegment.Toincreasethisbrand’ssale
isibilityandconsumermindsharehastobeincreasedandimprovedaswell. 8. LevelofIn
f involvement (i.e., time & effort spent by the consumer) generally depends on
. If LOI is higher, lower is the importance of availability and more critical

22 supply of information as consumer decision process depends more on elaborate
search. ImplicationforHUL AsFMCGproductsaregenerallyLowInvolvementProducts,HUL
uring availabilityoftheproducts,ratherthansupplyofinformation.
9. PurchasedasaBasketofGoods Theproductswhicharegenerallyboughttogetherbycons
.g.,Rice, Flourpowder,Cookingoiletcatthebeginningofthemonth)aretobemadeava
ke. ImplicationforHUL ThisaspectpartlyappliestoHUL’sproductsassomeproductslik
ents mayfallinabasket.EfficientdistributionnetworkofHULensuresavailabilityofa
ellingpoint(individualretailer). 10. Speed&ComplexityofDecisionMakingProcess If
nthecomplexityofthedecisionmakingprocessishigherandgreateris theimportanceof
spersons’skill,knowledgeandquality. ImplicationforHUL ForFMCGproducts,complexity
rocessisnotthereandso,speedofdecision makingishigh.ThismeansthatforHUL,fie
onalusage. 11. PresentofExpertInfluencerintheDecisionMakingProcess Roles of sa
ry depending upon whether expert influencer (e.g., doctors) is present in the p
f present, then consumer buying behavior may become subcontractedandtheexpertin
sanothercustomerofthenetwork,apartfrom the end‐user. In that situation two gr
needed to cater to both the segments. ImplicationforHUL ForFMCGgoods,roleofe
ed.Butcompaniestrytoassociatebrandswith regulatory bodies/authorities and show
th experts commenting upon superior virtues of a product in an attempt to make
our shift from picking/variety‐

23 seekingtosubcontractedandmakeconsumersmoreloyaltothebrand.Thesearetruefor
ute).
12. ElementofCrisisPurchaseExists If element of crisis purchase exists in the
f a product (for example, bulbs & tubes),thenitsavailabilitybecomescritical. I
one of the products of HUL fall under this category. Nevertheless, availability
HULisnecessaryforotherreasons. 13. ElementofRiskAversionExists If the level o
consumer in buying decision process is higher, risk taking tendency of the cons
er or consumer will be more risk averse. In such a situation,channelmembersca
icitorimplicitsuggestions. This implies that in such a case, selling depends o
e company is taking care of channelmembers(“keepingthemhappy”)suchthattheyare
r directedbygrievancessoastounsellthebrand.Thissituationisprevalentmostlyin
,Refrigeratorsetc.).InFMCGgoods,thesituationdoesnotexistperse. Implicationfor
tsFMCGproductsbythisvariable.Forwaterpurifier“PureIt”,thiscan haveconsiderabl
enthroughchannelmembersratherthanby fieldsalesforceasishappeningnow. 14. Peri
t Iftheproductisperishable(havingsmallshelflife;examples–newspaper,milk,fruit
f“speed”inreachingtheendconsumersbecomescritical&T&Lassumesgreat significance
onforHUL The FMCG products that HUL sells are not perishable by nature, but
his aspectisnotcriticalforHUL. 15. TimeBandAssociatedwiththePurchaseofthePr
lity/cyclicity for the demand or purchase of the product (examples – newspaper,
emand in the 1st three hours of the day; cooking oil, rice etc

24 grocery items are most on demand in the 1st week of the month), then high
ralrequirementsareneededforthe“lastmile”forthetimebandwhendemandis maximum.
pacity in the areas mentioned above outside the peak requiredtimeband. Implica
heproductsofHUL,theabovestatedvariableissignificant.Forexample,inFood segment
gmentslikeLaundryDetergents,Shampoo&HairOil etc. this element of demand time
in extent. This underscores the importance of T&L for HUL as the transport int
stributors and retailers increasesinthe1st&4thweekofamonthfortheproductsmen
bovetheregularreplenishmentofstocksatretailersdonebydistributors.Festivalslike
ncrease the demand for personal care items like soaps, shampoos etc for a shor
utionnetworkshouldbegearedupnottomissanysuchopportunity.
16. Fungibility Fungibility is the property of a good or a commodity whose indi
e capable of mutualsubstitution.Examplesofhighlyfungiblecommoditiesarecrudeoil,
e, preciousmetals,andcurrencies.Fungibility hasnothing todowith theabilitytoe
yforanotherdifferentcommodity.Itrefersonlytotheeaseofsubstitutionofoneunit
tofthesamecommodityforallintentsandpurposes. Fungibilityisdifferentfromliquid
dableifitcanbeeasilyexchanged for money or for another different good. A goo
t of the good is substantiallyequivalenttoanotherunitofthesamegoodofthesame
ce. It is said that commodities are fungible, goods tangible, services intangibl
esmemorable&transformationsareeffectual1. As an example, one Rs. 100/‐ bank n
e with another. Cash is fungible. A barrelofWestTexasIntermediatecrudeoilisf
e)withanotherbarrelof thesamecrudeoil.Oil(ofthesametype)isfungible. Fungibi
,andliquiditydoesnotimplyfungibility.Jewelscanbereadily bought and sold (the
individual diamonds, being unique, are not interchangeable (diamonds are not fung
ian rupee bank notes are interchangeable in London (they are fungible there), b
asily traded there (they are not liquid in London).Incontrasttodiamonds,goldc
realsoliquid,especiallyundera

25 gold standard. The combination of fungibility and liquidity is one of the re
as successfullyservedasmoneyforthousandsofyears. Further,afungiblethingcanbec
mecircumstances.Forexample,an old coin or a currency note may assume a value
ace value’ due to historical reasons or due to some defects in it which makes
rom a viewpointwhichseesitdifferentlythanitsintendedpurpose. Theoutcomeofpro
emorefungibleaproduct becomes,higher isthe chancethatpartsofthedistributionc
.Agoodexampleofthisis dematerialization(Demat) routeforsharetrading nowwhere
nceof shares. ImplicationforHUL As branded FMCG goods are not fungible per se
ecommoditize” & differentiatetheproduct),theimportanceofchannelmemberswillcontin
17. DegreeofCustomizationPossible Degreeofcustomizationdirectlyaffectseconomiesof
rthecustomization,lesserthe economiesofscale.Also,criticalityofsalesfieldforce
mizationlevelsofthe offering. ImplicationforHUL ForFMCGproductsofHUL,whichar
mizationsarenotpossibleand thus with higher economies of scale, lower criticali
es from the standpoint of customizationofproductofferings,costsarelowerinthese
. NegativeorPositiveReinforcingProduct Negative reinforcing products are those
t to avoid/reduce the problem (ex. – insurance, washing machine, car battery et
forcing products are those which gratify the senses (ex. – Perfumes, Chocolates,
Shopping experience becomes a criticalaspectforpositivereinforcingproductstoreaf
vefeelings. ImplicationforHUL “Axe” & “Rexona” deodorants are distinctly positiv
s from HUL, including others like Lux, Lakme etc. So these are seen in most
th high visibility displaystoreaffirmthefeelings.Consumersarewillingtopayhighe
19. Value/VolumeRatio(ValueDensity)oftheProduct
26
Thisratioisveryimportantforboththecompanyandtheretailerforitstwocriticalasp
OI/sq. cm (retailers are actually in real estate business in true sense). Highe
tisforbothcompanyandtheretailerashigherratiosignifieslesserT&L costperunit
anyandgreaterROIperunitofshelfspaceforthe retailer. ImplicationforHUL Inge
l,valuedensityisrelativelylower.Inadditionto this fact, increasing trend towar
ack sizes increases the packaging density (increased packaging density increase c
extent, but favours mechanized handling greatly,reducinghandlingcosts).Sincevalue
s,transportationcostswillbehigher andthusitisofeconomicsensetohavemanufactur
etomajormarkets. ThisisthereasonHULhasvariousmanufacturingplants(40intotalit
is is a pointer to the fact most of the major FMCG players (including HUL) u
turing dispersed across the geographic spread so as to lower transportation cost
7.FinancialAnalysis
We have taken data from CMIE database while analyzing the performance of market
luding distribution) functions of HUL and comparable companies. By ‘comparable‘,
mpanies whose main economic activity, as defined in the CMIE database, is the
ple,maineconomicactivityofHULasdefinedinthatdatabaseis‐“Cosmetics,toilet pre
rep”. Obviously, one major FMCG company in India, ITC, does not comeunderthis
icactivityisTobaccobusinesswhichisnearly85%ofits totalrevenue.Butforthesake
dITCalsoasitsnon‐tobaccoFMCG businessrevenueinFY‘08wasRs.2511Cr.,nearlyas
er HULinHUL’schosencategory.Butthefiguresforadvertising,marketing&distribution
entages to its total sales may not be directly comparable to those figures of
gories are different and the impact of above mentioned variables on these two
ibutionfunctionisdissimilar.OthermajorFMCGplayersnotincludedinthe analysis are
tannia & Tata Tea, which are mostly into the Food & Beverages

27
segmentwhereHULhasrelativelylesserpresence(ProcessedFoods&Ice‐creamsegmentstoge
lyapproximately5%ofHUL’stotalsales).InTea,HULispresentsignificantly,though. I
tising,marketing&distributionexpensesofmajorFMCGgoods(inHUL’s categorymostly)a
erstoodherethatmarketingexpenseshereinclude commissions, rebates, discounts, sale
nal, expenses on direct selling agents & entertainmentexpenseswhereasdistribution
ludeoutwardfreight. Exhibit1:AnnualSpendinAdvertising,Marketing&Distributionfun
Annual Rs. Crore Mar-08 Sl. Company Name No.
1 HUL
Annual Rs. Crore Mar-08 Advertising expenses
1422.9
Sales
14937.88
Advert. Exp. As % of Sales
9.53
Annual Rs. Crore Mar-08 Marketing expenses
6.07
Marketing Distribution Exp. As % expenses of Sales
0.04 731.41
Annual Rs. Crore Mar-08
Dist. Exp. As % of Sales
4.90
2 3 4 5 6 7 8 9 10 11 12
Nirma Dabur Colgate-Palmolive Reckitt Benckiser P&G Home Godrej Emami P&G Hygien
e & Health Henkel Henkel Marketing ITC
2651.15 2128.17 1597.3 1334.76 1079.57 922.78 586.42 556.02 430.33 417.79 21467.
38
40.96 248.1 256.51 207.85 119.45 61.4 102.92 57.95 0 0 427.83
1.54 11.66 16.06 15.57 11.06 6.65 17.55 10.42 0.00 0.00 1.99
71.87 21.4 0 9.34 44.31 42.37 27.46 40.85 40.94 65.64 68.17
2.71 1.01 0.00 0.70 4.10 4.59 4.68 7.35 9.51 15.71 0.32
136.91 66.84 35.36 55.88 70.54 32.27 14.86 37.24 16.4 17.63 548.4
5.16 3.14 2.21 4.19 6.53 3.50 2.53 6.70 3.81 4.22 2.55

Exhibit2:AdvertisingExpensesaspercentageofSales
Advertising Expenses as % of Sales 20.00 17.55 16.06 16.00
18.00 15.57
Advertising Exp. as % to Sales
14.00 11.66 11.06 10.42 10.00 9.53
12.00
8.00 6.65 6.00
4.00 1.54 0.00 0.00 HUL Nirma Dabur ColgateReckitt Palmolive Benckiser P&G Home
Godrej Emami P&G Hygiene & Health Henkel Henkel Marketing ITC 0.00 1.99
2.00

28
We can see here that Nirma, Godrej & Henkel (ITC also) have less advertising
es)thanHUL.Importantly,Henkelhaszeroadvertisingexpensesin2008,whichmayexplain
slevelinconsumersforHenkelbrandsislow.HULadvertisingisdonemainlyin case of
mainly to reaffirm that it’s not a soap!), shampoos, deodorants (“Axe”), laundry
el”, “Rin”) etc. With the introduction of home waterpurifier(“PureIt”),consider
lexpenseshavegoneintoit. Oflate,weseeverylittleofNirmaadvertisements.Thisi
xpenseas % to sales, which is very low (only 1.54%). ITC is altogether a dif
tes & other tobacco related products which constitute approx. 85% of its sales,
oxication” or habitual consumption patterns having intensely brand loyal consumers
most no advertising(surrogateadvertisingisdone)isneededeithertoreaffirmthebran
nsumers to the brands (there is regulatory angle as well). Current consumers of
roducts are the biggest advertising agents that ITC has and of course, they do
d without knowing what they’re doing. But while moving faster into non‐tobacco
ghighonitsstrengthofdistributionnetworkmatchingorsurpassinginsomecasesthatof
ressive advertising campaigns (“Fiama Di Wills” shampoo, “Vivel” soap, “Sunfeast”
rectlyfocusingonmarqueebrandsofHULlike“Sunsilk”& “Lux”,increasingtheheatonBr
re”&othersnacksandchips fromPepsi,Cokeandothers. Advertising expenses as perc
est for Emami, which owns brands such as Navratnahairoil&talc,Boropluscream&
ir&Handsome,SonaChandi Chawanprash,Menthoplusetc,eachofwhichisadvertisedheavil
,TV)with famous & expensive celebrity endorsers like Amitabh Bachchan, Kareena
a etc. On the other hand, we see regular advertising streams for Colgate tooth
ral care products, in which category Colgate‐Palmolive is the market leader. Rec
dvertises considerablyforitsbrandslikeHerpic,Mortein,Vanish,Clearasil,Dettol,Str
chisthe reasonforitshighadvertisingcostaspercentageofsales. MarketingExpens
arketingexpenseshereincludethefollowing– commissions rebates
discounts salespromotional expensesondirectsellingagents entertainmentexpenses
ketingExpensesaspercentageofSales
Marketing Expenses as % to Sales 18.00 15.71
29
16.00
14.00 Marketing Exp. as % to Sales
12.00
10.00
9.51
8.00
7.35
6.00 4.59 4.10 4.00 2.71 2.00 0.04 0.00 HUL Nirma Dabur ColgateReckitt Palmolive
Benckiser P&G Home Godrej Emami P&G Hygiene & Health Henkel Henkel Marketing IT
C 1.01 0.00 4.68
0.70
0.32
Here we see that the marketing expenses of HUL are among the lowest in the
lowest after Colgate – Palmolive which has very good brand pull for its “Colga
vesthatHULisabletomaintainconsiderablebrandpullthroughadvertising. ITCagainco
baccoproductsrequireverylittle‘push’andhaveveryhigh rotations.Also,ITCmostlyd
istributors(‘paan‐cigaretteshopsowners’) whohavemarginalbargainingpower. Anotherr
kel,whichhaszeroadvertisingexpenditure,hasthehighestmarketing expenses among al
is strategy to ‘push’ the products through the channel partners may not be a
ight be losing out for the lack of visibility and thus consumer mind share an
o, Fa, Neem toothpaste etc are losing out in the market. Further, it is also
hat Henkel’s largest business share is in industrial

30
chemicals (adhesives, sealants – e.g., popular brand “Loctite”; this segment cons
ldwide sales of Henkel) and for B2B, advertising per se is not that much impo
rtant is direct‐selling approach, which generally requires negotiations, volume di
c, whicharereflectedinhighestmarketingexpenses(aspercentagetosales)comparedto
ween the extremes and with considerable advertising expenses also, it is unable
cientpullforitsproductsinIndia(asevidencedbythefactthatmarketingexpensesare
) or it’s getting stuck for the lack of sufficient distribution muscle a la H
linIndiaandsuffersfromlackofreachandavailabilityattheendconsumerlevel. As
lgate‐Palmolive and Reckitt‐Benckiser both enjoys very good brand loyalties and m
ip for their key brands like Colgate toothpastes and Dettol (#1 in antiseptics)
tc.Thisiscorroboratedbythefactthatthesecompanieshavesomeof thelowestmarketin
osales)inthegroup,asshowninthechart. DistributionExpenses Distributionexpenses
eightcosttothecompany. Exhibit4:DistributionExpensesaspercentageofSales
Distribution Expenses as % to Sales 8.00
7.00 6.53 6.00 Distribution Exp. as % to Sales 5.16 5.00 4.90 4.19 4.00 3.50 3.1
4 3.00 2.53 2.21 2.00
6.70
4.22 3.81
2.55
1.00
0.00 HUL Nirma Dabur ColgateReckitt Palmolive Benckiser P&G Home Godrej Emami P&
G Hygiene & Health Henkel Henkel Marketing ITC

31
WehaveseenthatT&LplaysaveryimportantroleforHUL&otherswhohavepan‐Indianpres
molive,Emami&ITChassomeofthelowestdistributionexpenses(as %tosalesfigures)&
hisrespectthanNirma&P&G,buthigher than Henkel. This can be explained somewhat
e variable, Time Band of purchase,ontheincreasedtransportintensityforHULinthe
uctslike householdpersonalcare,laundrydetergent,brandedattaetcinthefirst&last
cco),Henkel(largelyB2B)aremostlyprotectedfromthisimplicationofthevariable. Ano
gtorememberthatvaluedensityofFMCGgoodsisrelativelylower,causing share of tra
he overall cost structure to be relatively higher. This implies dispersed manufa
ating manufacturing plants nearer to major markets. So one location manufacturing
er economies of scale and on the other hand, trying to serve geographically di
not be economically attractive for FMCG sector. Compared to HUL’s 40 manufacturi
s India, Nirma, the 2nd largest FMCG major in soaps and detergents category, h
g plants, all located in and around Gujarat. So, transportationcostofNirma,if
anmarketwillbehigher.Thisissupported bythefactthatNirma’s higherdistribution
rP&G,thesamereasons significantlyaffectitsdistributioncostwhichishighestforth

32
8.References
1. B.JosephPine,JamesH.Gilmore(1999),TheExperienceEconomy:WorkisTheatre& Ever
shedbyHarvardBusinessPress,254pages. 2. HULWebsite(http://www.hul.co.in/) 3. HUL
ce,InvestorPresentation(24thSept.,2008). 4. Reckitt–BenckiserWebsite (http://www.
kiser.com/site/RKBR/Templates/Home.aspx?pageid=1) 5. Colgate–PalmoliveWebsite (http://
ww.colgate.co.in/app/Colgate/IN/HomePage.cvsp) 6. EmamiGroupWebsite(http://www.emamig
roup.com/Brands) 7. CMIE 8. Wikipedia

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