-

Distribution and Sales Management

Apple India
Submitted in partial fulfilment of the requirements of the course

Marketing - II

Instructor: Prof. P.K. Sinha

Academic Associate: Mr. Sujo Thomas

Submitted on January 17, 2013 by

Group B3

Aditi Sholapurkar
Aditya Kumar
Ankit Bhageria
Inshul Sahni
Vignesh Mani
Yatin Kamat

Table of Contents

Topic

Page No.

1. Chosen Organization and its business operations

2. Basic economics of business

3. Organizational structure

4. Sales and Distribution structure

5. Distribution strength

6. Financial Transactions and Credit Terms

7. Terms and Conditions of Intermediaries

8. Information flow

9. Marketing policy

10. Incentives / Promotional Activities

11. Physical distribution

12. Warranty terms

13. Role of each stakeholder

14. Expectations of stakeholders

Issues with Channel Integration

Recommendations

Appendix 1 Excerpts from the interview

References
Declaration of Confidentiality

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10
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1. Chosen Organization and its business operations

Product Category chosen:
Business to Consumer (B2C)
Consumer

Durable

Non-Durable

Services

Industrial

Apple India Pvt. Ltd. is a subsidiary of Apple Inc., one of the worlds leading manufacturers of technology products.
The products fall into four broad categories:
Product Category
Music player
Tablet PC
Computer systems
Phones

Products
iPod (Shuffle, Nano, Touch, Classic) and accessories
iPad, iPad mini and accessories
MacBook (Air, Pro, Mini, iMac, Pro) and accessories
iPhone

Apple India represents a very small share of its global market share (sub-1% range). The company does not track
market share in individual countries.

2. Basic economics of business

Competitors
The electronics good industry is highly competitive but for most categories that Apple operates in, it is the dominant
player.
Product Category
Music player

Tablet PC

Competitors
Mid-range products from Philips, Sony,
Creative
Low-end products from Transcend
Samsung Galaxy Tab

Computer systems

Hardly any competition

Phones

Samsung, Blackberry, HTC

Remarks
Competition due to the price-sensitive
nature of the category
In the sub-20K range, competition from
HCL
The premium PCs by Sony and HP are in
the range of Rs. 55,000 60,000 whereas
Mac products start at Rs. 70,000
Most competitive category

Volume
Apple enjoys a 29% market share in the global handset market with revenues touching $85 Billion. India represents a
very small share of this number. iPod has 70% of the global market, selling nearly 7 million units in a month. The
same monopoly is enjoyed by Apple in India.

Margins
Margins vary across products with major contributions from iPhone and iPad - margins of 54% and 22% respectively.
Gross margin for Mac is nearly 28% whereas figures for iPod stand close to 25%.

3. Organizational Structure
Apple India employs a vertical hierarchy with a lean organizational structure marked by a relatively limited set of
employees. The organization does not employ a single overall India head and uses a matrix organizational structure
with Product heads and Regional heads leading the 2 dimensions of the matrix. Apple India also believes in not
employing individual store managers and utilizes a channel type division instead.

Regional
Heads

Channel
type
Division
Employees

Product
Heads

For efficient S&D, NCR region is divided into sub-regions which are under the purview of the individual regional
head. Each regional head works with individual product heads to build a robust distribution network. Apple India
staffs around 50 employees at the head level to help in S&D.

4. Sales and Distribution structure

Procurement
Product design happens in California and manufacturing takes place in China. Products are procured from China at
regular intervals.

iPhone / iPod
The distribution network for music player and cellular phone category is a 3-tier network as described below.

National distributor

Regional distributor

Retailer

Mac / iPad
The distribution network for computer systems and tablet PCs is a 2-tier network as described below.

National distributor

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Reseller

Physical Flow
National distributors receive the products from various warehouses in China. Retailers and modern trade outlets like
Croma, eZone etc. as well as Apples authorised stores place orders directly with the regional distributors.
Product imported
from China

Assembled at a national
warehouse

Transported to national
distributors

Transported to
regional distributors

Retail stores

Modern trade stores

Apple Stores

Warranty

Consumer

5. Distribution Strength
Apple products are available nation-wide through the chain of Apple stores, retail outlets and modern trade stores
like Croma and eZone. For e.g. Apple iPhone is available in Apple stores in 30-35 cities but the top 10 cities
contribute the bulk of the sales.

National
distributors

Distributors

E.g. Delhi

Typically 2-3 for each product line

Presence in all major metropolitan cities

Some regional distributors serve multiple cities
2 distributors for iPhone
2 distributors for iPod

6. Financial Transactions and Credit Terms

The credit terms are set top-down with each level setting conditions for immediate customers. National distributors
are required to pay within 2 weeks. There are no early payment discounts as is common in the retail industry.
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The payment by national distributors and regional distributors is usually done through RTGS and cheque, whereas
retailers pay through cheque.

7. Terms and Conditions of Intermediaries

Pricing Policy
Apple does not dictate any pricing terms for its products in any of the channels. The products are marked with a MRP
which is consistent at nation level and is the maximum price that can be charged by a retailer. The resellers and retail
channels are free to offer discounts to increase sales.
The same is true even for the franchised Apple Stores.

Store Layout
The layout for the authorised Apple Stores is uniform across the country and managed by the same network of
interior designers.
There is dedicated space in trade outlets like Croma for Apple products and the branding and design is typically done
in collaboration with Apple.

8. Information Flow
Information flow takes place in two steps with regards to promotion, pricing and marketing strategies: From national
sales office / national distributors to regional distributors and from regional distributors to retailers. However, all
approvals happen through the company. Typical information consists of inventory details, delivery status, payment
details and other customer incentives.
Apple does not use any centralized Inventory Management software or Customer Relationship Management (CRM)
software. Orders are sent electronically by regional distributors whereas retailers and modern trade outlets book
orders over telephonic conversations.
The information related to transportation is handled by the national and regional distributors at their end and hence,
does not enter into the information flow of the company.

9. Marketing policy
There is flexibility in marketing decisions at various levels at the level of the company, distributors or retailers and
at times is a collaborative effort. However, permission needs to be taken from Apple for any independent marketing
activities.

10. Incentives / Promotional Activities

Promotional activities are carried out by Apple as well as by retailers. However, retailers need to take these decisions
in consultation with Apple to ensure that the impact on other channels is not detrimental.
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Apple regularly comes out with seasonal promotions on major festivals like Diwali and New Year. The next annual
promotional schemes will be on during the Republic Day festivities.
However, these promotions are not carried across the board. Retail stores as well as Apple stores have the flexibility
to implement their own discount and promotion policies.

11. Physical Distribution

Order frequency
Orders are usually placed once a week and the quantity is not dictated by Apples inventory models. Retailers
communicate their own requirements, which are fulfilled by the regional distributors.

Mode of transportation / Payment for logistics

Lead Times
Channel
China to national distributor
National distributor to regional distributor
Regional distributor to retailer

Lead Time
10 days
1 day
1 day

12. Warranty Terms

Apple India is not authorised to repair any products except in the Mac range. Even if a product is repairable, it is
replaced with a new device if the product is within warranty period and there are no breach of terms and conditions.
Mac products are repaired at authorised service centres of Apple. The cost of repair is borne by Apple.

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13. Role of each stakeholder

Customers:
Purchasing
behavior dictates
the order quantity
and frequency
Retail outlets: Point of
sale of the goods to the
customers

Regional distributors: Responsible for

delivering the goods to the retailer
outlets

National distributors: Responsible for delivering

the goods to the regional distributors.

Company
Responsible for designing the distribution strategy , procuring
the goods from the manufacturing facility in China and
delivering them to national distributors

14. Expectations of stakeholders

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Issues with Channel Integration

Channel Conflict
Apples pursuance of an aggressive push strategy by opening more retail (Imagine) stores has resulted in the
potential cannibalisation of sales from the dealers (Multi-brand retailers) the product has been distributed to. The
absence of clear demarcation of territories has led to the encroachment of the retail stores into the dealer areas.

Pricing Conflict
Apple sometimes offers deals at their retail stores (Imagine) that are not extended to the channels. Also, Apple
collaborates with dealer stores on an individual level for sale promotions. Thus, sometimes there is a lack of
consistency in the price offerings across outlets in neighbouring areas. Also some outlets are only afforded the
opportunity to offer gift cards. This results in a pricing conflict between the dealers and the retail stores and also
between dealers intra-city.

Lead time variation

There is considerable variability in the lead time from the shipment of iPods and iPhones from china to the
warehouses of the national distributors (7 to 10 days), national distributors to the regional distributors (0.5 to 1.5
days) and regional distributors to resellers (0.5 to 1.5 days). The variability in the lead time for Macs and iPads is
lower as there is only a 2-tiered distribution structure as compared to the 3-tiered structure for the iPods and
iPhones.

Recommendations
1. A central distribution tracking system to track the delivery orders from the national distributors to the regional
distributors will help in better channel integration.
2. Careful monitoring and mapping of the dealer territories will help in lesser encroachment and establishment of
retail stores in areas with lesser presence. Also, increasing presence in the second tier cities will help in
expansion and lessen encroachment.
3. Consistency in the deals extended to the outlets within a city will help reduce the pricing conflicts that otherwise
arise.

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Appendix 1 Excerpts from the interview

Excerpts from the interview conducted with Mr. Jayant Gupta, Apple (India) National Sales Manager:Aditi: Sir, could you give us an idea of Apples annual sales in India, for all products combined and the market
share in individual categories? Who are your main competitors?
Jayant: We do not track market share per se and I cannot disclose our sales figures. But within individual
categories you can safely say that we completely dominate the MP3 segment with the different iPods. As for
tablets, there is now a trend towards the sub 10K bracket and we obviously do not have a presence there. But in
the greater than 20K bracket we are the leader although Samsung Galaxy Tab is close at our heels. With the
launch of Microsoft Surface we are expecting a move towards Windows based tablets. As for smartphones, our
major competitors are Samsung and Blackberry. We are not the leaders there, Samsung is. The Mac is our least
selling item since it is alone in its price bracket. We start at 70K whereas other premium models like Vaio have
some of their best machines within the 50-60K price band.
Aditi: Sir what is Indias share in your global sales?
Jayant: Very low. Sub 1%.
Aditi: What are your average sales across the 4 categories and rough estimates of the margins that Apple enjoys?
Jayant: Im sorry but I cannot disclose these figures. They are confidential.
Aditi: Who are the various intermediaries in your distribution process?
Jayant: For the iPhone and the iPod we have a 3 tier distribution system starting with a national distributor, going
on to regional distributors and then retailers. As for the Mac and the iPad we follow a 2 tier system of national
distributor and reseller.
Aditi: How many cities do you have a presence in and how many intermediaries do you have at each level
generally?
Jayant: The maximum presence we have is for the iPhone. We are present in about 30-35 cities but the top 10-11
contribute the bulk of what we make. For a city like Delhi we will have 1 or 2 distributors for the iPhone and a
couple for the iPad. For smaller cities we may have a single distributor catering to multiple cities. National
distributor will never be more than 2-3 in number for a single product.
Aditi: Where does the manufacturing take place? What is the lead time from the production facility to national
warehouse and then to subsequent levels?
Jayant: All designing activities take place in California and the assembly is done in China. From there to our
national warehouse the lead time is typically 10 days. From national to regional distributor it takes 1 day and
then reaches the retailer in almost no time.
Aditi: What is the typical organisational structure related to Sales & Distribution?
Jayant: We are a lean organisation so there are not too many people. We do not have an overall India head. We
are divided more by channel type as opposed to product type. We may have regional or product heads within
that setup but there are no store level heads.
Aditi: What are some of the issues you face in the distribution channel?
Jayant: We sometimes see channel conflict between the dedicated Apple stores and the multi brand outlets in
terms of cannibalisation of sales. Also, at times there is inconsistency in pricing since the dealers drive discounts
and promotions and these will not be the same across the board.
Aditi: How does a distributor or retailer book an order? Is it by phone or software like CRM/MIS? How often are
orders placed and who dictates quantity?
Jayant: Orders are place via computer generated POs or retailers can place orders verbally. Orders are typically
placed once a week and Apple has no cap on the quantity, it is entirely the retailers decision.

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Aditi: How does transportation happen and who foots the bill?
Jayant: Regional distributors deploy their own trucks and from there to retailers delivery boys on motorcycles
carry the goods. Till the goods reach the national warehouse Apple foots the bill but from there onwards the
distributors and retailers bear transportation costs.
Aditi: What are the credit terms for the intermediaries? What is the mode of payment and are there discounts for
early payment?
Jayant: Credit is given upto a period of 2 weeks. There is no discount for early payment. We do not deal in cash.
Most of our transactions with regional distributors are via RTGS and the remainder through cheques. Retailers
primarily use cheques.
Aditi: Does Apple place restrictions on store level discounts, like a floor price below which a certain product
cannot be sold? What level of independence is given in terms of store layout?
Jayant: There are no restrictions placed by us on the stores pricing policy, either for authorised resellers or for
multi-brand retailers like Croma. However the layout for authorised resellers (i.e. Apple Stores) is dictated by us
and even within outlets like Croma we dictate how our designated space is designed.
Aditi: Who bears the marketing/advertising/promotion costs, distributors/retailers or Apple? And what about
the discount policy, who dictates that?
Jayant: This depends largely on the product we are pushing and also the region. Most often marketing and
advertising is done in consultation. In all cases Apples permission has to be taken for promotional activities.
Aditi: Do dealers push for seasonal or festive promotions?
Jayant: Yes, we typically have Diwali promotions in the North and a similar trend during Pongal in the south. We
also offer discounts on older versions once new versions are launched. For instance iPad 2 prices were slashed
and dealers offered lucrative EMI offers once the 3rd generation iPad was launched.
Aditi: Lastly, what is the system of warranty? Are replacements offered or only repair? Who bears the cost and
do stores get anything for warranty services as commission?
Jayant: Under the warranty cover, iPhone, iPad and iPod are replaced within a year. Even if the fault is repairable
we replace the product. There are no repairs done in India. However for the Mac we perform repairs at the
authorised service centres within India. These are completely footed by Apple. There is no commission for
warranty services.
Aditi: Thanks for your time sir. I think we have all the information we need.
Jayant: No problem. Let me know if you have more questions later.

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References
1. http://seekingalpha.com/article/1070841-apple-gross-margin-conundrum-explained - MARGINS
2.
http://appleinsider.com/articles/11/06/24/apple_may_make_more_profit_selling_one_mac_than_hp_does_from_7_pcs
.html

3. http://www.trefis.com/stock/amzn/articles/12087/ipad-gross-profit-margins-higher-than-ipod-and-kindlemargins/2010-03-01
4. http://www.ft.com/intl/cms/s/0/a5cca4cc-2757-11e2-9863-00144feabdc0.html#axzz2I9XKfWll
5. http://www.macrumors.com/2012/07/11/apples-share-of-u-s-pc-shipments-rises-to-12-in-2q-2012/
6. http://www.mactech.com/2012/07/24/ipod-still-has-70-mp3-player-market
7. http://www.crn.com/news/channel-programs/201201496/apple-grows-but-so-does-channel-conflict.htm

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Declaration of Confidentiality
This report is based on inputs from Mr. Jayant Gupta, National Sales Manager, Apple India. A lot of information
contained in this report is confidential and proprietary and to be used purely for academic purposes and should not
be reproduced without permission.

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