CASE STUDY-WHEN THE TAIL WAGS THE DOG

Sushil stared at Bhailal with undisguised surprised. This man, who had always bought Reach
toothpaste in large quantities, had just told him: “ I will only take two cases. I have just invested in
Coke”. Sushil was dumbfounded when Bhaiji continued: “ This market has become more dynamic
than the stock market. Until recently Pepsi and Coke were selling at the same price to me and I
stocked both. Then coke came to me and said “ If you buy two crates we will give you a bottle free.
After some time Pepsi said “ Buy two and get two bottles free”. After four days, Coke came with a
counter offer saying two crates and three free. Buy only Coke and a crate free with every 10 crates
bought. So I went and put all my surplus on Coke. The deal is very good”
It did sound crazy to Sushil. Bhailal had just bought 500 crates of Coke and now was sitting on a
Goldmine. “Therefore right now I am not interested in toothpaste or Jam or sabun.” Sushil went into
a tail spin as he calculated the figures:
50 crates X 12 bottles= 600x 43= 25800 not talking of the Rs 7 per bottle on the 450 crates. He knew
his company could never match that. With a lot of negotiation, he did manage to convince him to
stock some. Worries creased his forehead as he recalled that his company was going to launch a
variant next month. It was becoming clear to him that with so much of brand and variant clutter in
the market, the retailer’s push energy mattered the most.
The next morning Sushil reached his office and recounted the story to his colleagues. HORROR OF
HORRORS- THEY HAD SIMILAR STORIES TO RECOUNT. He then set up a meeting with
Radha, the product manager “ Do you really think the consumer is going to be excited about Reach
Plus”
R-Yes of Course- There is a lot of research that has gone into consumer behavior.
S-What if the consumer does not get a chance to buy it from the market?
R-What do you mean?
S-Remember what happened to Tamariind- the suitings brand promoted by the green eyed boy from
apna Bollywood? The retailers did not touch it as the competitors increased the margins. I believe
history is going to repeat itself. No doubt we are good but so is LG and Voltas and Godrej and
Palmolive and HLL and P&G. Today everything is similar and there is hardly anything to choose
from. The customer is not only fatigued by the overchoice in any category but also highly confused.
Who does he turn to for advice? The parchoonwala, with whom he has done business in the past and
whom he trusts implicitly. You ask him which detergent is good. Surf le jao.
NO! NO! DON’T TOUCH THAT ATTA! THERE ARE A LOT OF COMPLAINTS. ..Do you
touch it. Naaaaah.
The brand is finished as far as you are concerned. So now how do I ensure that the retailer nurtures
not only Reach Active but Reach Supreme and the soon to be lauched Reach Plus?
Radha had been through a similar debate a week before with marketing. She had herself noticed with
growing concern the increased commoditisation of brands. Typically in categories where there was
increased brand clutter and therefore low consumer involvement, it was gradually leading to a
scenario where retailer recommendation was equal to consumer purchase. Today the consumer asks
for Nahane ka sabun rather than the brand by name and in special circumstance a brand where a
scheme was on. Thus no brand loyalists… only brand switchers.
What we are seeing therefore is that the retailer is becoming an increasingly important aspect of the
marketing mix. Most marketers are aware today that the retailer can choose not to sell their brand. It
happened with as big a player as Lufthansa recently when they reduced the margins to 5% for their
booking agents. The agents stopped selling their seats and tickets and it had no option but to get back
to the original cut.
No matter how much you shout in the ad, if the retailer says no, the consumer does not touch it.
After all he does not take the trouble to go to another retailer for the same brand. The retailer too is
very smart. He does not stock all the brands as he knows that the consumer too is becoming
indifferent across brands. That is why he tries to get the maximum margins out of the companies.
Now do you see the power of the retailer. Think of the company now. The marketer what are his
options? He can go the Pepsi way, but he will continue to lose money. Which is what is happening in
white goods, atta, biscuits, butter, salt, jams. All these are categories where the lack of clear rational,
emotional differentiator has rendered them sheer commodities at the retail level. All atta brands are
losing huge sums of money in this struggle for retailer attention. Annapurna, Shakti bhog, Rose,
Pilsbury, Nihar, Aahar. Name it. His own brand is on the brink of closure. Today, to survive he is
having to sell to the retailer, at one rupee lower than the leader!. Mind you, the leader himself is
selling at a loss. If he sells at par, the retailer has no use for him. If he sells one rupee above the
leader, he is finished! So what is his choice? Sell but at a loss to live.
Every biscuit is at a 50 % discount or has some consumer promotion running on it to attract the
customer. Reason? In most of these there is very little to choose from, no repeatable, reproducible
differentiator. Same for colas, atta, edible oils, biscuits, jams ketchups”
Sushil-Now if my Atta friend does not have a discernible differentiator any more and he has only
that much money in his budget to spend, where should he put his money? Should he put into TV Ads
or put it in the retailer? Which option has a surefire hit rate? Or should he resort to consumer
promotions ?
Suhil-Consider the future of Reach Plus. The market has eight other toothpastes many of which are
on the same platform as ours. All these are comparable on price, packaging and delivery. Where is
my differentiator? Knowing I do not have one, I have to push through the clutter and get the
consumer to prefer me over others. Moreover, I have to first get the retailer to prefer me over the
others he could stock. Point is how will this happen?
Now look at it from the retailer’s point of view. What does he do? Marketers have always kept their
retailers on a 5-7% margin on all branded goods. But give them a good deal- five bottles and more
per crate- and they will influence the buyer to switch. A retailer is n the business to make money.
Even if there is a demand for say Lux and it is available, he will buy maybe more of the deal offering
soaps because he knows that 80-90% of the times the customers ask for nahane ka sabun and not
Palmolive or Dove or Cinthol.30% of the times he will be able to get his customer to witch over to
the deal offering soap, and cause substitution in the mind of the customer. In such a scenario, what
does a marketer do? Irrespective of whether he puts his money on the TV ad or not, he still has to
contend with what a retailer would do, because that is where the volumes are coming from! Volumes
are not coming from advertising any more; these are highly salient brands with high recall.
Sushil-NOW TELL ME WHAT DO I DO?
Radha-One you can go through the pull strategy- cover TV and magazines with my ads and say :’
Buy mine ! Mine is the best” Two go to the retailer, give him a lot of money. Three go and discount
my brand to the consumer by offering a value for money proposition”
The only danger in three being that you end up heavily discounting your brand. OK to get noticed ,
but not sustainable in the long run”
Sushil- Then go through retail. Many are doing it successfully, particularly the new entrants who
want to create a big market for themselves. The management of these firms is being evaluated ion
the basis of their ability to achieve the forecasted initial sales volumes. For that it costs them a
couple of million dollars. It des not hurt them as their parents have got voluminously deep pockets.
Profits are not material at this stage. Given the window of 8-10 years that these top managers were
given by their foreign parents, each one of them went berserk to get volumes. And what is the best
way to do it? Go the retailer route, say, sell my TV, give me exclusivity and for every unit of my
brand that you sell you get 20-30% more margin than you get on competition. This is what triggered
this market madness. What the Cokes and Pepsis started is being followed by everyone. Will you do
it Radha?
Radha- If you do that you will lose the direct touch with the customer. Because between the end
customer and the retailer, it is the retailer who is benefiting. He is neither manufacturing nor
marketing, he is only breaking bulk. His contribution to the supply chain is nearly zero. And for this
he picks up a cool 20-30% WOW!
Sushil- But then what does the marketer do? Do I discount my brand to the retailer, thus giving him
Higher margins, so he bought my brand, sold my brand and made more money and keeps coming
back for more! Why? Is my brand better than that of my nearest competitor? No! I can do a hundred
blind tests; I can tell you that no consumer will be able to tell the difference between brand X and Y.
The point is where do I go form here?
For the time being keeping the retailer to my side is an advantage but after a year if I were to go to
the retailer and say now thank you for your help can we go back to the 7.5% margin that you were
getting earlier. It is a self regenerating exercise. Even if you don’t continue feeding the giant he will
eat you up. A HOBSON’S CHOICE IF I CAN CALL IT THAT.There is no way out! You have
shown your parent firm a certain volume that you can achieve. To now say: Hang on, I have to drop
some of the volumes, get some pull…..”How can you? Does Reach have a pull in the market. If you
don’t have pull, you have to get push. If you do that the retailer will demand his pound of flesh. You
give him that and you go dry.
Radha’s mind was in a whirlwind. The Indian market had become a huge basket of multiple
offerings. Each begging for either consumer or retail attention. The consumer was confused because
he did not see any clear differentiator across brands. And in all these there was zero brand loyalty.
The retailer was the king and the master puppeteer.
Sushil- Go to any retail outlet and watch how people buy, the question is ‘ offer kis pe hai’.The
whole marketing mix is becoming a challenge, especially for commodities with no plus,. With
aggressiveness in the competition it is the retailer who is laughing all the way to the bank. HOW
DOES ONE GET OUT OF HERE?
Radha-There is no answer . Why? Because there is a big conflict between short term and long term
gains, if you decide to go for the long term, then in the short term you do not start. And everyone
wants that NOW NOW NOW. THE OTHER POINT IS THERE IS NO LIMIT TO THE GREED.
Today the retailer wants 5..tomorrow 5.5 and this increases and if your competitor is equally
aggressive, then this carries on.
Sushil- Look where this has taken you- your own margins are not enough. You are not marketing
any more, only selling. Your soap is no longer a brand it is a commodity. Nevertheless targets have
to be met, I have to retain my job.
Radha- What do I do?
Sushil- Search me
Sushil thought of speaking to the VP marketing later in the afternoon