Sales and Distribution Project ReportHindustan Unilever v/s Reckitt Benckiser Submitted To: Prof. Subhashis Ray Submitted By: Subhranshu Sekhar Mandal (110) Sujit Kumar Sahoo(111) Swarup Kumar Kar(112) Sweta Sah(113) Thendral (115) Udaya Bhanu Satapathy(116) Vibhav Kumar(117) Vikrant Krishan Mahajan (118) Zubair Jiwani (120) Contents Contents..........................................................................................................2 Reckitt Benckiser (RB).....................................................................................4 Organizational Background.............................................................................4 Product Portfolio and Distribution overview for RB...............................................................5 Sales Force Structure......................................................................................6 Sales Force Recruitment..................................................................................8 Recruitment of Territory Sales In-charge..............................................................................8 Distributor Sales Representatives (DBSR)............................................................................8 Company Sales Person.........................................................................................................8 Area Sales Manager.............................................................................................................8 Sales Force Compensation..............................................................................8 Sales Force Training........................................................................................9 Measurement and Appraisal of Sales Force Productivity.................................9 Territory Allocation........................................................................................10 Measurement of sales force productivity and distribution efficiency at RB........................10 Budgeting and Target Setting.......................................................................12 Annual budgeting and Target setting at RB.......................................................................12 Channel Conflict............................................................................................13 Conflict 1: Conflict because of unequal members in distribution chains.............................13 Conflict 2: Modern trade selling to retail outlets.................................................................14 Automation in Sales Force.............................................................................14 Hindustan Unilever Limited...........................................................................15 Organization Background..............................................................................15 Product Portfolio for HUL...............................................................................15 Sales force structure.....................................................................................16 Channel Design ............................................................................................17 Territory Allocation........................................................................................20 Sales Force Recruitment................................................................................20 Sales Force Compensation............................................................................20 Sales Force Training......................................................................................21 Measurement and Appraisal of Sales Force Productivity...............................21 Budgeting and Target Setting.......................................................................22 Channel Conflict............................................................................................22 Automation in Sales Force.............................................................................23 Financial Analysis..........................................................................................23 Acknowledgment...........................................................................................26 References....................................................................................................26 Reckitt Benckiser (RB) Organizational Background Reckitt Benckiser India Ltd (RBIL) is a fully owned subsidiary of Reckitt Benckiser Plc., world’s No.1 Company in Household, Health and Personal Care. Reckitt Benckiser Plc came into being with the merger of Reckitt & Colman Plc with Benckiser NV in 1999. The company has operations in 60 countries, sales in 180 countries and has had net revenues in excess of $6.6 billion (2008). Reckitt Benckiser India Ltd (RBIL) manufactures and markets a wide range of products in Personal care, Pest control, Shoe care, Antiseptics, Surface care, Fabric care and other categories. Amongst its many well-known brands are Dettol, Mortein, Harpic, Cherry Blossom, Lizol, Disprin, Robin powder, Colin, etc. Most of these brands are either number 1 or number 2 in their respective categories in India The company has sales of over £ 6.6 Billion consistently growing ahead of the industry due to its leading brands, its operations in over 60 countries and sales in 180, & its highly motivated multinational management.1 Product Portfolio and Distribution overview for RB Source: Strategm Case study Document,2009 Source: Strategm case study document, 2009 Sales Force Structure The national sales department of RB has divided India into four zones consisting of four zonal managers reporting to a National Sales Director. Area sales managers report to Zonal Sales Managers. Each Area Sales Manager (ASM) has 8 Territory Sales In charge (TSI) reporting to him. Each TSI has about 7-8 Distributor Sales Representative reporting to him. Each of the Area Sales Executive supervises about 9 Pilot Sales Representative. On the other hand, for the channel involving modern trade, the sales force is a centralized one. The ASMs for modern trade are separate from those for the normal channel. The TSIs are also different for modern trade. The Sales Force Structure for Reckitt Benckiser is as given below: Sales Force Recruitment The following points outline the sales force recruitment procedure for RB: Recruitment of Territory Sales In-charge Territory Sales In-Charge has the responsibility of one territory under him. TSIs are MBAs recruited from Tier-3 B-Schools. They are mostly students having no work experience. On promotion, TSIs are deputed as Area Sales Executives. Distributor Sales Representatives (DBSR) Distributor Sales Representatives are employed by the distributor to escort the company sales person during their sales pitching. DBSRs are provided incentives based on the distributor reaching the sales target. Company Sales Person Company sales persons are experienced people recruited from the sales force of competitors and other FMCG companies. Area Sales Manager ASMs are recruited from the campuses of reputed B-schools of India. Both experienced and non-experienced people are given due consideration. Sales Force Compensation The pay structure for the company is a combination of fixed and variable components. The pay for a distributor sales representative is approximately Rs. 2050/- per month. The company gives incentive to Distributors’ Sales Representatives on quarterly and yearly basis. If the target set for the quarter is met by the sales representative, they get a quarterly incentive of Rs. 1100. The incentive given by the company for meeting the annual target is Rs. 4000. The fixed component of the salary makes most part of the pay that a person gets from Reckitt Benckiser. The incentive structure accordingly increases or decreases as a person moves up or down the hierarchy. The Territory Sales In-charge gets 85% fixed pay and 15% in the form of incentives. In the same way, the Area Sales Manager receives salary with 75% of fixed component and 25% forming the incentives. Sales Force Training Quarterly workshops and training sessions are conducted on a regional basis to train the sales persons with regard to sales pitching, understanding the brand identity and the schemes. During launch conferences of new products, rehearsal sessions of sales pitching are done under the guidance of ASM, RSM and ZSM. Measurement and Appraisal of Sales Force Productivity Measuring sales force productivity is valuable because these measures provide a basis for improvement programs. Measuring the productivity of a sales force is a subjective task, it can vary from company to company depending upon the business it is in. The parameters on which productivity can be measured are as follows: 1. How much time the sales force actually spends selling. 2. Database techniques 3. Sales force structure 4. Study sales process & Track each step 5. Competency and impact The first task of a program to measure sales force productivity is to determine how much time the sales force actually spends selling. Factors such as poor call rates, travel time, sickness, and vacations all serve to reduce potential sales time. Database techniques can improve sales performance by enabling analysis of comprehensive sales support information and facilitating stronger control. A comprehensive customer database can build a complete picture of customers and their response to various sales and marketing initiatives. This data can be used to focus the sales force on the most important customers and prospects. The database improves control by supplying reports on performance, sales costs, and the effectiveness of sales support programs. The leverage of various technologies—such as laptop computers, pervasive Internet access, and teleconferencing (as well supporting functions like telemarketing)—can also greatly enhance sales force performance and productivity. Sales force structures like geographical structures can help in evaluating the productivity of a sales team. For example, regional direct marketing could be integrated with a local sales drive to improve business in a high potential territory. The productivity can be improved by Breaking down the selling process into milestone events and then making sure the sales force knows them and understands their objectives. Territory Allocation The eastern zone has been divided into 7 territories based on geographical space and no of outlets to be covered. The beat plan of RB is thus: 30-40 outlets per day, 6 days a week from Monday to Saturday. However there are about 20-22 calls ( average productivity per day) Measurement of sales force productivity and distribution efficiency at RB At RB, the appraisal of the sales force is done on the following parameters: • Sales Force Productivity: Sales Force productivity is defined as the percentage of successful calls out of total calls made in a day by a sales person. On an average, a sales person is expected to make around 35-40 calls per day with a productivity of about 60-70%. Sticking to Budget: The sales manager is responsible for keeping the costs and expenses of maintaining the sales force under control. Unjustified budget overruns may have repercussions in the form of low variable component of salary. Achievement of Sales Targets: Every member in the sales force is responsible for the achievement of personal sales targets. While the • • ASM and subordinate sales force focus on increasing the top line, RSMs and people above them focus on the bottom line. • Market Coverage: Market coverage and penetration both in terms of types and percentage of possible retail outlets covered is an important parameter for measuring sales and distribution efficiency. Brand Salience: Brand salience for one or more brands of RB also impacts the sales efficiency. Other Key Performance Indicators: Stock outgo Increase in coverage Case specific • • Budgeting and Target Setting In order to bring an objectivity to evaluate the performance of a salesperson, targets are a must. Targets once set, provide a quantitative standard to measure the productivity at the same time it helps in achieving better sales and having a greater control over the expenses. These targets act as a cue for the salesperson to perform by keeping targets in their mind and try to outperform or at best achieve them. In this way setting up of targets help in motivating the sales force and makes them believe that by achieving these targets they would be performing at the expected level. Targets are set on the basis of geography or the industry or the products. Some of the ways of setting up targets are through the following: • Sales volume quotas • Rupee quotas • Unit quotas • Profit quota • Activity quota • Credit quota • Area covered quota However these quotas cannot be fixed randomly and they are based on the estimates of market size and potential and also based on the past experience of the manager. Again while defining these targets the manager has to first divide the market to be covered in territories and then sales person working in each territory would be assigned with a target. The purpose of dividing the market in territories is to ensure that the coverage of market is done in the best possible manner at the same time it becomes easy for the manager to evaluate the salesperson based on its targets related to a territory he/she is working on. For a salesperson it gives a sense of belongingness that a particular region of market is his territory and it increase his morale and helps in improving coordination among salesperson of different territories. Annual budgeting and Target setting at RB The annual budgeting and target setting exercise takes place at RB during Dec-Jan. The forecasting is done for one year territory-wise based on the sales figures for the last 3 years. ASMs, RSMs, ZSMs and higher ranked managers co-ordinate at the corporate head quarters to come up with the budget and targets. These targets are then allocated to the sales force according to the territory and the kind of products that are being sold. Channel Conflict Conflict 1: Conflict because of unequal members in distribution chains One kind of channel conflict occurs in RB because of price undercutting between different channels. Distribution of products to retail outlets occurs through two chains: Channel 1: Channel 2: Sub-distributor (Channel 2) gets products at a higher price than Distributor (Channel 1). This is because in Channel 2, there is one additional member (which adds to the price) between the company and the sub-distributor. Because of this price difference, the distributor (Channel 1) often takes advantage of its lower prices to attack the retail outlets catered to by Channel 2. Very often, the retailers themselves refuse to take stock from the sub-distributor because of higher prices. Solution RB has not yet strategized any specific solution to the above problem owing to the fact that it is very difficult to keep a check on such activities. One solution can be to strictly restrict the catered areas to separate channels and monitor them. Conflict 2: Modern trade selling to retail outlets Modern trade includes organized retail chains like Big Bazaar, Metro etc. Because of their higher bargaining power owing to high volume purchases, modern trade outlets like Metro command a higher discount on the price as compared to other channels. The final price offered by them is thus lower. Thus, retailers often prefer to buy from modern outlets in bulk, thereby bypassing the normal distribution channels. Solution The schemes are different in case of modern trade and other channels. Thus, RB often plays upon these schemes to lure retail outlets to the conventional distribution channels. Automation in Sales Force The degree of automation in the sales force for RB is very low. Order booking is done manually in a Beat book by the sales person. One Beat book is maintained per distributor. At the end of the day, the orders are entered into the sales system from the Beat book, bills for the retailers are created and the sales van is dispatched the next day with the ordered stock. RB is currently planning to automate the sales force by providing the sales persons with internet enabled palm tops/PDAs so that order logging directly takes place at a central server. Hindustan Unilever Limited Organization Background Formerly known as Hindustan Lever Limited (renamed in late June 2007) HUL is India's largest Fast Moving Consumer Goods. HUL's brands, are spread across 20 distinct consumer categories, touch the lives of two out of three Indians. The Brands endow the company with a scale of combined volumes of about 4 million tonnes and sales of Rs.13,718 crores. 35 Power Brands The operations involve over 2,000 suppliers and associates. HUL's distribution network, comprises about 2,500 redistribution stockists, covers 6.3 million retail outlets reaching the entire urban population, and about 250 million rural consumers. Product Portfolio for HUL Sales force structure The Sales Force Structure for HUL is as given below: Each Regional Sales Manager (RSM) is assigned around 3-4 Area Sales Manager (ASM) under him. About 5 Sales Officer (SO) report to each ASM. Each SO further supervises about 2 Territory Sales In-charge (TSI). Channel Design Hindustan Lever Limited (HUL) has two types of channel selling ‐ i. Regular (traditional) retail channel, ii. Direct Selling Channel in the name of Hindustan Lever Network (HLN). HUL has a robust distribution model which comprises of C&FAs, Redistribution Stockists, wholesalers and retailers (as shown earlier). One of the biggest strengths of HUL is its distribution strength and HUL’s Sales Break‐up different channels: through Source: Primary Data from Omkare, ratified and checked with data available on the net as well Channel Structure The goods produced in each of the HUL's 45 (approx)) factories are sent to a depot with the help of a carrying and forwarding agent (C&FA). The company has its depot in almost every state of the country. The C&FA is a third party and gets servicing fee for stock and delivery of the products. In each town, there redistribution stockist (RS) who takes the goods from the C&FA and sells them to retail outlets. However gradually HUL realized that this model of sales channel was not a viable one for smaller towns and villages and it is also expensive to appoint one stockist exclusively for each town. Morever the retail revolution is changing the pattern and the way the customers shop. Hence HUL being the mammoth that it is, redesigned its sales and distribution channel and the new system is as “diamond model” At the top end of the diamond, there are the self service retail stores which constitute 10% of the total FMCG market. The middle part of the diamond represents the profit‐center based sales team. In the bottom of the pyramid is the rural marketing and distribution which accounts for 20% of the business. As a result of the new distribution plan the company has planned to reduce the number of RS (Redistribution Stockists) in small towns. The channel flow for HUL is Distribution Network of HUL (flow diagram) Source: HUL Company Website, Investor Centre, Presentations Territory Allocation The Orissa region is divided in to district wise territories. Within each territory the beat plan for an average sales person is to cover 20 retail shops per day. However the number of SKUs carried /order booked are as much as 3-4 times the no of SKUs carried by any of the competitor. Sales Force Recruitment Most of the recruitment at HUL at almost all levels from TSI to ASM happens for lateral candidates who have considerable experience in the sales field at various other companies. HUL prefers to hire people with experience in the related field for its workforce. Otherwise the ASMs are recruited from Tier 1 B schools, and the TSIs are recruited from Tier 2 B schools. Sales Force Compensation The pay structure is quite similar in Hindustan Unilever to that of Reckitt Benckiser. It is also a combination of fixed pay and incentive-based component. At the level of Territory Sales Manager, 65% of the pay is the fixed part while 35% is paid in the form of various incentives. A Sales officer manager receives 25% in the form of incentives and 75% is received as fixed pay. At higher levels of the hierarchy, i.e. an Area Sales Manager and Regional Sales Manager, the distribution between fixed and variable pay is 80% and 20%. HUL also has annual reward process under which it recognizes the top performers. This recognition leads to reward in the form of both career advancement options and non-financial compensation. Sales Force Training Most of the training at HUL happens online. They have an advanced training software developed by Accenture which provides training facilities to all the work force which requires it online. There is also a provision of a 3 day offline training camp which offers around 2-3 courses to different levels of work force at HUL Measurement and Appraisal of Sales Force Productivity In HUL there are three kinds of appraisals that take place: monthly, quarterly and yearly. Monthly appraisal is a form of measuring productivity and the salary of the salesperson is dependent on it. The productivity is measured by using a matrix of percentage of call converted (productivity) versus the depth or the coverage area. This kind of matrix is used to ensure that productivity is not attained at the cost of low coverage area. The quarterly and annual appraisal is based on a work plan which has the following goals in it: • • • • • • Volume of sales achieved Value of sales achieved Infrastructure expansion Increase in distribution reach Number of new launches Number of new initiatives Budgeting and Target Setting In HUL, each year the new targets are forecasted based on the last three years target that were set. Also the seasonality is a big factor in Target setting. The Target setting is done on a territory to territory basis. The regional office monitors the performance of each of the zones. A detailed analysis is done at the month end and based on that the products for which the demand has weakened are identified. Each field person is given a palmtop wherein he can feed the entries on the spot where the transaction is done. This is unique to HUL where in the field force is given palmtop’s to ensure speedy flow of information. This helps in the following way: • • First the field person is freed from the tedious task of maintaining the records and hence can concentrate more on the job which is selling. Secondly the information about the sold item is immediately updated in the company information system which helps in real time updating of the database. Channel Conflict The are some outlets which are not classified by HUL whether they would come under modern trade or traditional trade. These are the stores where the channel conflicts occur for HUL. The major drive at HUL these days is to have clearly defined outlets under Modern trade category or Traditional trade category. Automation in Sales Force The use of palmtops in various regions by the ground level sales force at HUL is probably one of the few instances where such automation has taken place in an FMCG company. The orders are fed into the palmtops and then fed into the computer database at the distribution centres. A major advantage of using palmtops is that the sales force has all the information about the buying patterns of the retailer and the past sales pattern of the retailer. In this way, even if the retailer is not aware of his fast selling items and his past ordered SKUs the sales force can suggest him and give the complete sales data to the retailer. Financial Analysis We have taken financial data from the capitalline database and CMIE database to analyze the marketing and sales distribution functions of RB and HUL. We have also looked into the advertising expenditure of these companies to find the possible link between advertisement expenses and distribution expenses. 2008 Sl. No. Compa ny Name Sales Annua l (Rs Crores ) 14937 .88 1334. 76 2008 Adverti sing expense Advert . Exp. As % of Sales 2008 Marketi ng Exp Marketi ng Exp. As % 2008 Distribu tion expense Dist. Exp. As % of Sales Annual ( Rs Crores) 1422.9 207.85 Annual ( Rs Crores) 6.07 9.34 of Sales 0.04 0.7 Annual ( Rs Crores) 731.41 55.88 1 2 HUL Reckitt Bencki ser 9.53 15.57 4.9 4.19 Let us now break up each of the critical components and have a direct comparison between the two giants HUL and RB The following graph shows the Advertising Expense as a percentage of sales. The marketing expenses include a) Rebates b) Commissions c) Sales Promotions d) Discounts e) Expenses on direct selling etc The following graph shows the marketing expenditure of the two companies in comparison The distribution expenses of HUL and RB as a percentage of sales stack up as shown below. From the graphs we observe that RB spends more percentage value of its sales on advertising and marketing, where as HUL spends a significant chunk of its sales in boosting its distribution channel. HUL strength is its distribution and HUL spends money on it more to constantly update it and reach out to newer and newer customers. RB on the other hand is using both branding, advertising and marketing exercises and as well as boosting its distribution channel to compete with the behemoth HUL. Acknowledgment We acknowledge the help of the following individuals. We had telephonic interviews with Mr Omkare, Mr.Sumeshwar as they are located outside Orissa. 1) Omkare Kore Operations Manager ( HUL) – West (Out of Home) Contact No: 09320735998 2) Sumeshwar Dhuper ( ASM, Assam, RB ) Contact No : 09577375410 3) Dibya Prakash Das ( TSI, Eastern Region, RB) Email Id:
[email protected] References 1) Stratagem Case Document, NITIE, 2009 2) Sales and Distribution http//www.scribd.com/doc/12950828/Distribution-Management-ofHindustan-Unilever-Ltd, Last Accessed 17th Novemeber, 2009 3) Distribution HUL,http://www.scribd.com/doc/4715246/HindustanUnilever-Limited-HUL, Last Accessed 17th Novemeber, 2009 HUL company website, http://www.hul.co.in/, Last Accessed 18th Novemeber, 2009 RB company website, http://www.reckittbenckiser.com/home, Last Accessed 18th Novemeber, 2009 4) 5)