D for Distribution

Thursday, May 24, 2007

What would be the end result of a terrific Product, fantastic Pricing, and an out-of-this-world Promotional strategy? A flop show! That is, if you forgot the most important factor: Place!


If there is one American invention that has rocked the world and been tried by almost everyone – it’s the ice-cold colas. If there is one war that everyone loves to watch – it’s the cola wars – between Coke and its long standing arch-rival Pepsi. While “blind tests” done time and again have revealed that not many consumers can differentiate between the taste of Coca-Cola and Pepsi once they are blindfolded, then how come it’s been such an uphill task for Pepsi to defeat Coke? In America, it’s someone else who is holding the strings of this old battle – it’s McDonald’s. Strange but true, if McDonald’s (which only sells beverages of the Coca Cola Company) decides to sell Pepsi instead of Coca Cola, then it would not take long for Pepsi to finally defeat Coke. Since 1955, McDonald’s has exclusively sold Coca-Cola products. It has offered Coca-Cola beverages with all its meals and combo offers.

However, with consumers becoming more health-conscious, the consumption of carbonated beverages seems to be decreasing and of water and sports drinks to be increasing. The non-carbonated drinks category has become the strong hold of Pepsi with its extremely popular brands like Gatorade, Tropicana and Mountain Dew. Guess whom are they turning to, to ensure their grasp on the market remains – yes, McDonald’s! With hardly any growth in the carbonated soft drink market, it seemed a win-win situation for McDonald’s too. So, for the first time in history McDonald’s has quietly started offering non-carbonated beverages made by Pepsi at some outlets in US. Has the time come for Pepsi to wear the crown of the market-leader?

With products becoming almost similar and pricing too being more-or-less the same, today the biggest ‘P’ of 4Ps – (Price, Product, Place & Promotion) is “Place”. Yes, with McDonald’s becoming the new battleground for the colas, it shows that distribution holds the key to success in most product offerings.

The fountain of success

The most innovative ways of distribution have been developed by the Cola companies. They introduced the vending machines which soon became very popular and gave a boost to their sales. Vending machines suddenly made it so convenient to buy products you would hesitate to pick up otherwise (like condoms). Of course, they also made cigarettes and alcohol easily accessible to the youth. Today vending machines are selling just about anything and everything. Companies are quickly realising the potential of new distribution techniques. In the United States, sales through snack and beverage vending machines grew by 150% over a ten-year period reaching $35 billion annually in 1999.

Apple even started distributing its iPods and other products via vending machines. From digital cameras to batteries to other accessories, all were available in a single vending machine. Who would have thought a whole store could be shrunk into a staff-less 6-foot wide space!

Like the vending machine, the “soda fountain machine” is the very heart of Coke’s US strength and the major reason for Pepsi’s weakness. It’s the fountains business, which accounts for nearly all the difference in the 12 to 13 share-point lead Coke has over Pepsi (in US). About 25% of soft drinks sold in the US are dispensed by fountains (at McDonald’s, Pizza Hut etc). It just goes on to show that good and unique distribution channels can really become a brand’s “fountain” of success.

The modern age vending machine

That’s what the “Internet” is being called today. A select-and-send is all you need to do to buy things today. The whole music industry is changing. The internet has made music available at the click of a mouse. Youngsters are hardly buying CDs and music cassettes – it’s all there on the internet now.

The favourite shopping destination seems to be fast becoming the internet. No wonder Air Deccan decided to tie-up with Reliance Webworld to make air-tickets more accessible. Now, all you need to do is log on to the website, buy a ticket online, take a printout and fly. According to Sachin Bhatia, Co-Founder and Chief Marketing Officer, Makemytrip.com, approximately 10,000 air tickets for domestic travel are being sold online every day!

Not just plane tickets, movie tickets are also available online. Log on to the PVR website, choose your movie, your show timing and even where you want to sit!

Banks are using the internet to increase both their business and customer satisfaction. Day or night, you can get your queries answered, you can check your account and do a whole lot of other transactions – all thanks to the net. The customer is looking for convenience and instant gratification and if companies can work out innovative and unique strategies to make their product reach out and be visible to the consumer, their sales are bound to increase.

The ‘Retail Revolution’ is all about distribution

Wal-Mart is not just a retail-wonder but also a classic example of a well-developed and well managed supply chain. Wal-Mart’s sophisticated distribution system and information technology to track inventory has significantly improved its efficiency and productivity – making it far more profitable than other retailers. With India sitting on the brink of a retail revolution, supply-chain management will soon have a prominent role to play. “Convenience” is the key word that consumers are looking for. Not surprising then that the very appropriately named “In & Out” stores at petrol pumps have become serious businesses for petrol companies worldwide. From BP to Shell to Caltex, all have very profitable convenience store chains the world over. Who thought that some day you’d get your laundry, your fast food, your calling card, your courier, and all at a petrol pump! When ITC entered into the biscuit business, it knew that if it had to make a place for itself among giants like Britannia and Parle, then apart from offering a large variety of products, it had to have a distribution network. It’s common knowledge that the FMCG products distribution channels are very important. So ITC used its old distribution network and soon all paan-beedi shops had stocks of biscuits too! Today, ITC has made a place for itself in the Indian biscuit business. Its brand is now available in nearly 1.8 million outlets – a little more than the 1.5 million outlets of Parle.

Dell’s unique distribution system (direct to home) helped it to gain a stronghold in the PC market. It helped it to reduce costs (no warehousing costs or middle man cuts) and overtake Compaq, which commanded a large market share.

From banks to biscuits to booking tickets, all have found a new way to destroy competition – a unique distribution strategy. If you want to stay ahead and retain your customer, you need to delight him with innovative ways – and in this case, it’s no big mystery... Just dial D for distribution!

STOP

Thursday, May 10, 2007

Obesity laden burgers, cancer causing cigarettes, liver damaging alcohol, pesticide infected cold drinks... advertising is unethically selling everything! It’s time we protested! Angrily!


We are so busy working, earning a living, spending, buying things, that many a time, we lose focus of the big picture. We see advertisements and confuse dreams with reality. Sometimes, these dream merchants sell us products, rather, manipulate us into wanting things we don’t really need. Sometimes they seduce us to buy things which are bad for us. More often than once, we find ourselves succumbing to dreams that these advertisers sell. Let’s take a few minutes to think – is it ethical?

All that glitters is not gold

Increasing competition, increasing clutter in the advertising space and increasing pressure force the companies to do almost anything, even making false claims just to sell. The softest targets and the easiest to convince are children – they may not have the purchasing power, but their persuasion power beats it all.

Back in 1979, it sold its first product, and since then, it has never looked back. The brand has created marketing history. Almost every country today sells McDonald’s Happy Meal. It started as a ‘Star Trek Meal’ – the first-ever toy promotion of a film. Today, the popularity of the Happy Meal toys even helps one judge the success or failure of the film at the box office. McDonald’s spends two billion dollars on advertising alone – most of it targetted at children. Yet, the not so happy fact is that its products are extremely high in fat/sugar/salt – one of the prime reasons for child obesity. A multinational analysis revealed that food advertisements comprised the major part of all advertising and 95% of them were foods high in sugar/salt etc. – all very harmful for children. Isn’t it time advertisers stopped using their commercial tactics on children?
Young adults watch the glitzy ads of cold drinks and guzzle down the images and the drinks – loaded with pesticides. The cold drinks sector in India is a big money-spinner, and its popularity has been growing among children and teenagers. It’s shocking, but the fact is “Thanda Matlab – Toxic Potion!”

Of the 34 brands of drinking water collected by a leading research and testing agency, none passed the test. From Bisleri to Aquafina to even the lesser known brands like Volga and Paras, all had high doses of pesticides. Yet, they are advertised as healthy and hygienic drinks. They are everywhere! Look around – in cinemas, department stores malls, parlours, restaurants, fitness centers. Today, a travel by car or train means – first, pack your mineral water. The fact is that pesticides are so harmful they can cause cancer and even damage the central nervous system. Yet, the ads want us to believe its “Boond Boond Mein Vishwas!”

Marketers or devil’s advocate?

It’s not that these companies are unaware of the damages and harmful effects of their products. They are as aware as tobacco companies are about the nicotine content in cigarettes. The 1999 film, The Insider, showed it all, when one of the employees of the company Philip Homes acted as a whistleblower and spilled the beans on a popular TV show called, 60 Minutes. It showed that tobacco companies intentionally targetted children and concealed the addictive nature of cigarettes. Thanks to him, Minnesota became the first state in USA to file an antitrust and consumer fraud lawsuit against the tobacco industry forcing the company to pay $6.1 billon as settlement charges – which is a helluva lot of money! Come to think of it, for years, the American Tobacco Company argued that “cigarette smoking is not injurious to health!”

Tobacco and alcohol advertising is banned in India. Then how do you justify the ‘Red and White Bravery Awards’ or the ‘Manikchand Filmfare Awards’? Teacher’s Whisky advertises for ‘Teacher’s Achievement Awards’, and Bacardi advertises its ‘Bacardi Blast Album’. Is such surrogate advertising right when the fact is that tobacco is the second major common cause of death and children start alcohol consumption at an age as early as 14 years?

‘Choice’ was advertised as a birth control pill with iron; however, it contained ingredients, which categorised it as a Scheduled H drug to be given only on prescription. Recently, Wings Pharmaceuticals flooded news channels with advertisements of a drug called ‘Diclowin Plus’, promoting it as an effective medicine for pain relief. However, what it hid from consumers was the fact that if the medicine was taken without a doctor’s prescription (and guidance), it could trigger off peptic ulcers, blood disorders, and ironically, even headaches.

Light at the end of the tunnel

It’s time companies did business with a sense of responsibility towards the society. The good news is that today, the consumer is becoming more and more aware. As David Ogilvy said, “The customer is not a moron... She is your wife!” Today, it pays to be ethical; and consumers are awarding ethical companies by both remaining loyal in the face of increasing brand choice, and sometimes even paying a premium for their products or services. Not just this, they are even punishing the unethical companies by avoiding their offerings and staging public boycotts. Today, the consumer wants to be sure that the product he is purchasing doesn’t harm the earth and the company is fair to the people who helped make it.

When local bottlers of Coca-Cola in Columbia used illegal paramilitary groups to intimidate, threaten and kill its workers, people the world over decided to boycott Coke. Students in British Universities removed Coke from their campus, gathered signatures against the ‘killer Coke’, and closed down so many bottling plants. Adidas too had to face the heat when consumers came to know that the company killed kangaroos to use their skin for manufacturing Adidas sneakers. Back in India, Pizza Hut claimed in its ads, “Our dough is fresh and not made in a factory like others!” – which was a false claim, and the ads were subsequently withdrawn. Sunfeast biscuits showed in their advertisements how the boy becomes taller instantly after eating the biscuits – conveying the message that biscuits were responsible for a person’s growth. The Advertising Council (ASCI) found it misleading and asked the company to withdraw the ad.

Customers have the power to purchase and to boycott products that are unethically made or marketed. As Sam Walton said, “The customer has all the answers... and all the money.” We, as individuals, have the power to choose. True advertising provides us choices, but as ethical consumers, we can decide what to buy and what not to. Erin Brockovich, a single unemployed mother whom no one took seriously, upturned the fortunes of The Pacific Gas & Electric Company and almost single-handedly brought the company down for polluting the city’s water supply. So go on, take charge – choose the right products, and for everything unethical, just say – STOP!