Hitachi Home & Life Solutions (India) Ltd.(HHLI)

Study Of Sales And Distribution Channel In Gurgaon Region

Anshul Gupta

Background

• Product- A.C.s, both splits and windows

• Segment- Premium

• Pan India Market Share-7%

• Haryana Market Share-13%

• Major Competition- OGeneral, Dicon

• Overall A.C. Market Leader-L.G.

Present Channel Structure

From The Company’s End• Setting Targets

– Overall value & SKU wise volumes(say Splits and Windows)– Adjusting for winter months– Firm Plan ( 2 months prior) & Final Plan( First day of the month)

• Order Processing Time– 2days– Via email, fax or phone– 10-15 units per order

• Credit Terms– 0 to 30 days depending on credibility– Cash discounts upto 2% to encourage early payment

• Monitoring Visibility– Intimates the Delhi based marketing team– Doesn’t pay anything to the outlet owners

• Sales Force Training– June to February– Technical features, communication skills, troubleshooting

From The Company’s End• Performance Monitoring

– Value of sales – Number of units sold for each variant– Average collection period – Dealer Review Format

• Interaction With Channel Members– Monthly meetings– Issues- Volume and value sales, target setting, collections outstanding, institutional

sales, stockouts, damages, incentive schemes upcoming, margins due• Motivating Channel Members

– Quantity discounts and lower targets for winter– Volume and value linked incentives

• Customer Schemes-Free Gifts like bags and T Shirts• After Sales Service

– National Service Centre– After Sales Service Staff

Dealers ( Mr. Shishir Malhotra, Hitachi Home)

• Purpose-To cater to customers in metros and big cities

• Numbers-2 exclusive showroom dealers+1 exclusive Sales & Service dealer+6 non

exclusive dealers

• Locations served-Gurgaon , primarily the areas housing the shopping malls

• Sales-150 units p.m. in peak season;20-40 p.m. in winters

• Incentives-

– Margins of Rs300-500 per unit

– 7-8% sales related schemes

– Logistical support of Rs 600 monthly

– 0.5% in special incentives like foreign trips

• Employees-2 in the showroom;4-5 for transportation

Dealers• Qualifying Criteria-

– Around 400 sq feet land

– Adjacent to the main road

– 12-16 feet frontal length

– Initial investment capacity of 7-15lacs depending on location

– Should not be a channel member of any other premium category player

• Costs Incurred-

– Rs 5000 monthly salary to employees

– Warehouse rent

Distributors (Pahuja Distributors)

• Wholesaling + Retailing

• Purpose-To supply to sub dealers in relatively remote locations

• Numbers-1 for Gurgaon+3 more for Haryana

• Locations served-Gurgaon(outskirts),Pataudi,Sohna,Rewari and Daruhera

• Sales-547 in this month last year and 4000 annual; assigned higher targets than dealers

• Incentives-

– Margins of 1.5-2%

– 7-8% sales related schemes

– Logistical support of Rs 600 monthly

– 0.5% in special incentives like foreign trips -From February to 31st May Sell 600 A.C.s –a

trip to the U.S.; 250 A.C.s -a trip to Pattaya

Distributors• Qualifying Criteria-

– Sound market reputation and relevant work experience

– Godowns/warehouses

– Sizeable sub dealer network

– Initial investment capacity of 50 lacs depending on location

– Should not be a channel member of any other premium category player

• Employees-12 technical+4 salespeople+1 accountant; One salesperson is assigned around 10 Sub

dealers whom he visits everyday

• Costs Incurred-

– Rs 18 lacs annual for salary to employees

– Rs 12000 p.m. warehouse rent

– Rs 3 lac annual on transportation

Sub Dealers• Purpose-To cater to relatively far flung areas where it’s not cost effective for the company to reach by

itself

• Numbers-14 Sub Dealers around Gurgaon and 42 Sub Dealers in Haryana

• Locations served-Gurgaon (outskirts),Pataudi,Sohna,Rewari and Daruhera

• Sales-Around 2-5 lacs monthly per outlet

• Incentives-

– Margins of 2-3%

– Cash discount of 2-3 % on timely payments

– Around Rs 100 per unit and Rs 200 for installation per unit

• Employees-4-6 per outlet

• Costs Incurred-

– Salaries and damages amount to around Rs 60000 annually

Issues• After sales service

– Late response from central compliant database

– Sometimes take up to a week to respond

– L.G. usually responds within 2 days

– Confusion about accountability- Company or Distributor?

– Those accustomed to A.C. find it difficult to without it for even a single day

Solution-Accountability

• Grievance Redressal Card

– Time when effect was detected

– Time when the personnel got it sorted out

– Frequency of recurrence of the trouble

• Personnel required to submit the same to regional offices

• Company should take account of the time lag between the Distributor being informed and

the defect being sorted out

• In case the Sub Dealer was the one who informed about the customer’s problem, he should

be given an incentive

Solution-Incentive

Implementation Challenges

• The sales force forging the Grievance Redressal Card

• The channel members colluding to lodge false complaints and claim the rewards for having

‘sorted out’ the same.

• Confusion regarding accountability

To address these issues:

• Keep the National Service Centre updated about every customer complaint, no matter who

solves it- compare with the Grievance Redressal Card

• To avoid confusion regarding accountability, it would be best if the National Service Centre

directly communicates to the appropriate personnel.

• However, regular vigilance by the company personnel would still be needed to maintain

authenticity of the process.

Issues• Differential prices

– Dealers who purchase more, get more quantity discounts

– Hence are able to sell to customers at lower rates

– Others suffer due to sales at Market Operated Price rather than MRP-typical

of consumer durables

Solution• In case of the Dealer, the after sales

service will be taken care of by the company itself whereas in case of the Distributor, the same would be done by the distributor himself

• Already suggested an incentive system for this

Implementation Challenges• Still doesn’t address the issue of sales being lost

due to someone else charging lower prices

• The rising number of sub dealers means that it is

all the more difficult for company to assign

exclusive territories to channel members

This issue can be sorted out by:

• providing additional advertising support to the

smaller scale outlets and

• a mutual agreement regarding the extent to

which they would cut costs

Issues• Receiving supplies

– Company has stopped the practice of its own technical staff for helping the

Distributor in unloading the supplies at his end

– Distributor staff not being well trained,

– Instances of damage during unloading have gone up, and they take more time

as well, bringing down the distributor margin

Solution

• Cost benefit analysis

– Cost- Damages that occur during unloading and the extra manpower that

channel members have to maintain

– Benefit- Savings which otherwise would have to be paid to the employees the

company would have to maintain

– If overall loss, take the assistance of the channel member in recruiting staff

that deliver the supplies

– If overall gain, explained to the channel members and bear a fraction of the

damages from its own pocket

• No matter what the outcome of the cost benefit analysis recommended by us,

those getting advantages from the existing system would always resist any move

towards an alternative system

• The analysis proposed by us doesn’t account for the time that is lost on the

Distributor’s end, which may be adversely impacting his margins

The possible ways to address such a situation are

• the company reverting back to its previous system of having its own delivery

personnel, or

• for the company to train the distributor’s staff to make them competent enough

for properly handling the units

Implementation Challenges

Issues• Sales Force Training-

– All the Sub Dealers reported that they received no technical training from the

company and that a training stint or a demonstration given by he company

would help them a lot in convincing the customer to purchase Hitachi A.C.s.

Solutions• November to February are the ones when the demand

for A.C. subsides and the turnovers are low

– Training for delivery staff of the company’s and

the channel members’ staff who unload the stock

– Training for after sales service personnel in terms

of technical skills and promptness of response

– Training for the staff of the Sub Dealer,

Distributor and the Dealer for them to be able to

convince the customers of the value that Hitachi

proposes to offer.

– These training modules should pay special

attention to the new features about to be

launched.

• The costs incurred on training by the

company may make it seem

unjustified for the company o

undertake any such initiative

• It would be rather difficult to quantify

the tangible benefits that the

company would reap by imparting

training

Implementation Challenges

Issues• Visibility-

• Has a shelf share of 12 % , lesser than its market share in Haryana (13%)

• To improve its market share, it becomes imperative for the company to improve its shelf share

• Some outlets had a stockout whereas in some others, the Hitachi units were not clearly visible

• Incentives for the company sales force as well as the outlet to maintain proper visibility

• Regular monitoring by company personnel-weekly visits

Solution Implementation Challenges• As in the previous case, the costs incurred

in providing visibility linked incentives may

be in excess of the benefits it would

provide

• It would also make the sub dealer think

that Hitachi is under pressure and hence

being desperate. This may tilt the balance

of negotiating power in their favor

• The advantages from such a move are

again difficult to quantify

Thank You