Sail jones rakhi

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Sail jones rakhi

  1. 1. S.A.I.L.- Distribution Strategy For Non-Urban Markets Assistant Professor Rakhi Singh (Economics) & Associate Professor Jones Mathew (Marketing)Circa 1992. Mr. Ravi Varadarajan, Head of Business Development, Central Marketing Organization, SAIL,pored over the facts and figures in front of him. Deregulation of the steel industry had just beenannounced. News reports were flooding in of how the news had electrified the business world and SAILwas going to have some stiff competition from hitherto unknown, but serious players. Though S.A.I.L.had almost a monopolistic hold over the Indian market with serious competitive threat coming from justa few companies like the Tata Iron & Steel Company, Jamshedpur (TISCO) and Jindal Steel, S.A.I.L.realized it should start looking for pre-emptive strategies to distribute and exploit new markets.With liberalization came a whole new swarm of big players into the market. Ravi envisioned that merepre-emptive marketing strategies might not work in the face of the floodgates which had been opened.He understood the importance of out-flanking initiatives in keeping S.A.I.L.’s market share intact againstthe new competitive onslaught.As he studied various options, he was stumped by the stark disparity between India’s urban and ruralper capita consumption of steel. He realized that none of the major players, including S.AI.L. had evenattempted to make inroads into the rural areas of India.Lack of government policy-direction or the lack of urgency to look at alternative markets to sustaindemand for steel were probably the reasons why steel producers never gave it due consideration. At am`eagre 2 kg per capita consumption in non-urban areas, compared to 75 kg in urban areas, it struckRavi that there was tremendous scope for demand building and opening up a new alternative segmentfor steel consumption. Till now it was mainly the secondary producers of steel (“re-rollers”, as theywere known) who catered to the rather weak demand for steel products in the non-urban areas.In a bid to understand the demand better in these areas, Ravi got authorization to explore the non-urban market in India with the help of institutions such as Punjab Technical University (PTU) and theInstitute of Rural Management, Anand (IRMA). As a result, in 1996 S.A.I.L. made some exploratory stepsinto non-urban marketing by forming an Agriculture Segment Development Cell which was instrumentalin getting a higher quality of billets* (see note) developed for making disc harrows (ploughs) fortractors.S.A.I.L also participated in the popularization of steel grain bins under the “Save GrainCampaign” in the states of Gujarat and Madhya Pradesh at competitive rates-the sole objective being tohelp non-urban consumers and farmers grasp the long-term benefits of using steel for grain storagecompared to traditionally used materials such as wood, tin or mud.As Ravi researched available material and the years rolled by, he and others in S.A.I.L.’s think tankbecame concerned with the intensification of competition in the domestic market and the excess supplyof steel over available demand. Seeing an opportunity to highlight the non-urban market as a potential
  2. 2. second major market segment, Ravi stressed on the need for exploring this vast untapped market. CharuSharma,Director of Market Research, was co-opted to explore this potential demand in a more detailed andsystematic method and to table her team’s recommendations to the Marketing Group.Charu’s team went in for extensive surveys and interviews with local dealers, grassroots levelconsumers, NGOs, district officials and the like. It became clear that the signs were not encouraging. Itwas true that life in the rural sector had witnessed a phenomenal increase in agricultural production andproductivity in India with a gradual shift towards the usage of modern agricultural implements. Rural lifehad also undergone a significant change due to increased urbanization. However, such developmentswere not accompanied by a concomitant rise in consumption of steel in the non-urban areas as a resultof which these vast potential markets remained undeveloped.When the preliminary findings were submitted to the Marketing Team, Ravi saw in the low levels ofrural demand a potential opportunity to increase steel consumption in the non-urban segment. Charuhad identified the major reasons for low penetration in the rural sector as lack of awareness anddistorted perception. Steel was perceived to be a high cost material and not readily available. Anotherproblem was the wide geographic spread and disparate demographic features of the non-urban marketsegment. Ravi felt that he had a challenge on his hands now. What different marketing approach wouldbe required to translate this potential demand into actual use? This was the conundrum he had to solve.As a result of the study commissioned by IRMA on S.A.I.L.’s behalf, a couple of options were put forth onwhat distribution channel strategies S.A.I.L. could follow to access the non-urban market. “District-leveldealerships” and “Steel-deficient regional approach” seemed to be two such promising approaches.Ravi analyzed the pros and cons of each in order to arrive at the best possible recommendation to makefor the benefit of S.A.I.L. from a long-term perspective. Since the prospective new target segment waswidely dispersed geographically and each geographic region had its own economic background andcultural barriers, including language, the district level dealership seemed to have an edge.However, the second approach had the benefit of targeting first those areas which had an existingdemand for steel but was serviced poorly by secondary producers. The steel-deficient regional approachwas based on the premise that since it was only a supply side problem, focusing on these areas wouldbring a quicker solution to the problem of stagnant or slow demand. Besides, it would help overcomethe huge expenditure needed to create awareness for steel in general & SAIL steel in particular. He hadsupporting information to analyze the skewed regional production and consumption patterns of steel inthe non-urban areas as outlined in the tables in Annexures III and IV.To guide him in his analysis, Ravi referred to S.A.I.L.’s objectives which had been identified as part of thisalternative market development strategy note. One of these objectives was: To have at least one dealerin every district of the country i.e. to cover all 602 districts in the country. Some of the other objectiveswere:  To reach materials to the dealers from nearest SAIL stockyard at SAIL’s cost.
  3. 3.  To provide support to dealers for marketing their product.A sound, future-oriented retail strategy, Ravi realized, had also become imperative because there was ahuge amount of capexupscaling by S.A.I.L., resulting in a major capacity growth. In order to hedgeagainst any downturn in industrial demand, S.A.I.L. wanted to ensure that demand remained largelyunaffected in times of industrial slump. Therefore, a robust, alternative retail distribution strategy hadbecome important for safe, long-term growth.As he delved deeper into research done on the subject, Ravi understood that low awareness, high price,high initial investment and poor availability of steel were major stumbling blocks in the popularization ofsteel as a viable alternative to traditional construction material in the non-urban areas. Communicationtoo posed a new challenge as the target market had a different demographic and psychographic profilecompared to urban consumers of steel or industrial buyers.Another issue at hand was the appropriate product mix required for the non-urban market. Obviously itwould differ in terms of both, width and depth, as compared to an urban approach. Galvanized Plate(GP), Galvanized Coil (GC) and Thermo Mechanically Treated (TMT) steel (a new-generation-high-strength steel having superior properties such as weldability, strength, ductility and tensility) seemed tobe the most appropriate products for this new non-urban market. This product mix was a reflection ofthe most prevalent demand patterns (grain storage, construction, making of farm implements, etc.)Ravi was facing a dilemma of distribution and marketing strategy.Question: To establish a deep penetration of S.A.I.L’s products into the hinterland, which of the twoapproaches should Ravi recommend to the Board of Directors in terms of channel and marketingstrategy and creation of alternative demand source? Annexure I Suggested Incentives for Dealers and Promotional Support:a) Incentive Scheme for Dealers: To encourage dealers who are fulfilling their commitments, thefollowing consistency (cash) incentives have been introducedSl. No. Incentive Rs/mt Criteria01 100 Fulfillment of monthly commitment02 50 Fulfillment of annual commitmentb) Promotional Incentive : Dealers who take up promotional steps like Hoarding, Wall-painting ,Newspaper/Cable TV advertisement directly will be reimbursed a promotional incentive (restricted to amaximum of Rs. 100/- pmt of actual lifting in the financial year) within the maximum annual limit asunder: Each Hoarding – Rs. 25,000/- per annum Each Wall Painting – Rs. 2000/- per annum
  4. 4. Each Newspaper/magazine Ad – Rs. 15000/- per insertion Cable TV Ad – Rs. 3000/- per month Bus Panel Ad – Rs. 3000/- per month Other Ads – uptoRs. 8000/- per monthc) Annual Award for Dealers : Top 5 dealers from each region selected on the basis of factors likefulfillment of annual commitment, improving brand image, consistent availability of product, addingnew customers will be felicitated with awards at the Annual Dealers’ Conference.d) Initiative for Publicity/Promotion in non-urban areas: 1. Wall Paintings 2. Radio Jingles 3. Product brochures/technical literature to the dealers. 4. Dealers meet/Mason meets are held from time to time 5. Promo items (calendars/pens/key chains) distributed among dealers 6. Advertisements of operative dealers in print media/dealer details also updated on the SAIL web site. 7. Minimum quantity enhanced from 100 mt to 200 mt per month Annexure II Suggested Supply of Material to the Dealers at competitive prices:Materials to be made available to dealers at competitive prices. Proposed comparison of pricing for adealer and for a non-dealer is given as follow: Dealers Non DealersDoor Delivery Free of cost – Rs. 150 – 3100 Cost to be borne by the customer (Depending on the location)Additional Rebate Rs. 500 for GP/GC Nil Rs. 300 for TMTCash Discount Equivalent to 15 days IFC – Rs. Nil 100Total Rs. 750 for GP/GC + cost of Nil Rs. 550 for TMT Annexure IIIAll India Production and Consumption: (1998)
  5. 5. Production (P) Imports ApparentYear Exports (E) (I) Consumption (P+I-E) Secondary Main procedures 1 Total procedures 21991-92 1743 284 2027 297 6 23191992-93 2103 283 2386 480 36 97 28601993-94 2339 286 2625 434 3023 1861994-95 2719 441 3160 924 398 39871995-96 3106 1474 4580 688 557 50821996-97 2959 2139 5098 649 693 53491997-98 2819 2610 5429 683 1467 55551998-99 2911 2820 5731 423 5461 17261999-00 3944 3684 7628 612 67732000-01 4393 4358 8751 596 1988 7621Note: 1 – SAIL & TISCO 2 – Essar, Jindal, Lloyds, Ispat and others.5 Annexure IV State And Region Wise Consumption: (MT)Sl. No. State / Region 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 1 Andhra Pradesh 192 245 264 310 316 324 348 2 Karnataka 40 48 73 50 180 184 210 3 Kerala 3 6 7 8 7 8 9 4 Tamil Nadu 250 298 291 358 252 284 310 5 SOUTH 485 597 635 726 755 800 877 6 Assam 8 16 18 14 16 24 37
  6. 6. 7 Bihar 80 105 124 120 333 354 422 8 Orissa 70 95 133 120 150 225 259 9 West Bengal 236 285 311 359 445 540 564 10 EAST 394 501 586 613 944 1143 1282 11 Delhi 195 268 294 306 342 368 440 12 Haryana 282 393 493 452 499 671 722 13 Jammu & Kashmir 6- 7 10 - - - 14 Punjab 370 480 565 568 432 707 732 15 Uttar Pradesh 475 640 656 777 575 818 1017 16 NORTH 1328 1781 2015 2113 1848 2564 2911 17 Gujarat 193 262 337 311 325 297 359 18 Madhya Pradesh 172 245 260 305 318 313 391 19 Maharashtra 480 781 826 788 827 990 1148 20 Rajasthan 11 17 35 18 21 53 57 21 WEST 856 1305 1458 1422 1491 1653 1955 22 ALL INDIA 3063 4184 4694 4874 5038 6160Notes *Billets :A section of steel used for rolling into bars, rods and sections. It can be a product of the ingot route, or increasingly today produced directly by continuous casting **GP/GC sheets and coils: ***TMT: Thermo mechanically treated (TMT) steel, can be described as a new-generation-high- strength steel having superior properties such as weldability, strength, ductility and tensility. MT (mt)-metric tonneHi All, PFA of the case , we have to present on tuesday and try to answer the given questions.Discussion Questions-SAIL
  7. 7. 1. Do you think that exploring into non-urban market is a viable option for big market leaders likeSAIL?2. Did SAIL adopt the right strategy by adopting the “District Level Dealership Approach” v/s “SteelDeficient Regional Approach”? Why?3. Compare benefits of dealership marketing v/s direct marketing.4. Compare how the physical distribution & channel strategies would vary in urban &non urbanmarkets.5. Elaborate on the statement that “supply would create its own demand”.6. Mention a few strategies that SAIL adopted in order to encourage the dealers, in the non-urbanareas, to increase & expand SAILs market share & reach.

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