1. Philips Case
CE division distribution system was typically a 3-tier channel system: manufacturer distributor (wholesaler) – dealer (retailer or sub-dealer) – end consumer.
During 1991, in the southern region, Philips India had higher brand equity compared to
the rest of the country and dealers were more loyal.
Also facing competition from grey market.
After 1991, de-licensing opened the gateway for foreign brands and slowly these brands
were emerged as a Philip’s competitors.
The management wants to change their existing distribution system. They want to change
their distribution system from 3-tier to 2-tier distribution system by eliminating one
member i.e. the distributor (wholesaler).
Many of their distributors were give up their own because they realize they did not able
to fulfill the terms of the company without the required resources.
They were also given a choice to convert themselves to the role of the direct retailer.
By the beginning of 1995 the distributors all over the country had ceased except in the
state of Kerela where the dominance of two large distributors QRS & ERC was
overpowering.
QRS were the wholesaler for the south Kerela, its proprietor is Mr. Arunachalam and the
headquarter of QRS were at Quilon (Kollam) with branch offices and showrooms at
Trivandrum, Allepey and Kottyam.
QRS had a network of 78 sub-dealers spread across entire districts of South Kerela. The
sub dealers were totally dependent upon QRS.
Several of these sub-dealers of QRS had a very good business potential and company
wants to form a direct relationship with them.
QRS marked up their distribution margin without seeking permission from Philips India
by eating into the sub-dealer’s margin. QRS was working like a monopolist. So, subdealers were not happy with the QRS and they want to deal directly with the company.
QRS had an efficient MIS system that would reproduce any data at the shortest possible
time.
ERC were the wholesaler for the North Kerela. Mr. Menon is the proprietor of ERC.
ERC demonstrated a positive attitude when advised to participate in any sales campaign
recommended by the company. Philips sales staff also found it easy to deal with ERC.
During 1993-94, Mr. Abhijit Sen, had moved in as RM South.
Tamil Nadu’s contribution had fallen to 18% from 29% of the regional sales. Karnataka
had shown a healthy growth whereas, A.P could not grow much. Kerela had grown only
marginally.
The main opportunity to increase sales in Kerela was to change the distribution system to
2-tier channel system.
Mr. Abhijit Sen had to take up the matter with Mr. Menon and Mr. Arunachalam.

2. ERC easily understood the problem faced by the company and agreed to surrender their
sub-dealers to the company for direct dealership. They were also willing to provide
logistics and after sales service support to Philips at a very nominal cost.
But Mr. Arunachalam was not ready to surrender even a single sub-dealer.
Mr. Abhijit Sen had two letters from the sub-dealers of QRS expressing their unhappiness
with the QRS and their desirous of forging a direct relationship with the company.
Mr. Sen discussed the letters contents with Mr. Arunachalam and as expected he
countered stating that there was no validity in their complaint and the meeting remained
inconclusive.
Mr. Sen decided to supply directly to these dealers due to that he got a letter from Mr.
Arunachalam stating that either you take the entire south kerela territory or did not supply
directly to their sub-dealers.
So, now Mr. Sen had to decide what he had to do because if he take the entire south
kerela territory from QRS. Then the sales might suffer temporarily and will require hard
work for recognizing the sales force, making klogistic arrangements, etc.
If he decided to continue with the QRS, then QRS would emerge strong after this and it
would be impossible for Philips to go direct to North Kerela. As a result, Philips would
lose market shares to the MNCs who were setting their bases in India.
So, Mr. Abhijit Sen should go for the direct distribution system through which they can
make happy their dealers with providing high margins and ultimately increase their sales.
As Mr. Sen is the new incumbent and a young man full of dreams, so it will be the
opportunity for him to prove his mettle and win instant recognition in the company.