Distribution Channel and Advertisement

Praxis Business School

Iron and Steel Industry

A report

submitted to

Prof. Srinivas Govindrajan

In partial fulfillment of the requirements of the course

Marketing Management – 2

On 29-12-07

By

Anupam Agrawal

DISTRIBUTION CHANNEL USED BY LEADING PLAYERS

Within the Distribution category, the business is categorized as OE or Retail, based on whether the customer is serviced directly, or through the Retail / Distribution network. In OE, there are sub-segments like OEM distribution, and in Retail sub-segments like GC/GP retail distribution, CR retail distribution, and geographic segmentation. In OEM distribution, the customers specify the grade of steel that they require and the company takes responsibility to supply them the same grade of steel in the agreed cut to size condition. In retail distribution, companies maintain stocks of material for feeding its retail chain and provide Value for money products. In Distribution, the Steel Mills are the key suppliers and they play a very valuable role in the supply chain as they are responsible for providing the correct quality of steel, its timely delivery, post- sales support and joint marketing support.

TATA STEEL

DISTRIBUTION CHANNEL

G C sheets:

Traditionally G C sheets were considered as a commodity. Over time, TISCO has succeeded in differentiating its product and becoming a market leader. Presently it has 32% market share in the G C sheets industry.

The company serves a wide variety of consumers, ranging from reputed contractors to retail users from the private sector organisation to the public sector undertakings. These consumers can be classified into 3 major groups:

1) Government

2) Retailer (B TO C)

3) Private sector consumers (B TO B)

To cater to the needs of all its consumers, the company does both (B to B selling) and retail outlets (B to C selling). Bulk orders come under direct selling and small order from retail outlets.

Tata steel has selected 28 distributors in different location across India. Every distributor is given 2 days training session, after which they become confident about the product and learn how to differentiate its product from its competitor product. Aggressive distribution strategy needs to be adopted for covering large rural area. Distributors keep active sales force to cover all the retailers in their geographical area. Their sales force visits different rural and urban areas to attract retailers so that they can maximise their sales. Also, the sales force comes up with attractive schemes for the retailers to help them achieve their target sales. Dealers keep RSU vans which is used for transportation and advertising. All the distributors have upgraded warehouse with weighing machine.

Tata steel segments its retailers in 4 categories

1) The star

2) The challenger

3) The friend

4) The dog

In the diagram below we have the potential of the retailer to meet sales targets in y axis and the retailer’s loyalty in the x axis.

Star – high potential and high loyalty

Challenge – high potential but low loyalty

Friend – high loyalty but low potential

Dog – low potential and low loyalty

CHALLENGE	STAR
DOGS	FRIENDLY

POTENTIAL

LOYALTY

Tata shakti has 5000 retailer across India. It has 683 retailers in Maharastra. They had classified its retailer on the basis of potential and loyalty. They had offered different schemes to retailer according to their sales. They offer great discount for their star retailer, so it act as a motivator for the challenge retailers to come in star segment. Channel capability can be build by deployment of effective sales force and by ROI guarantee schemes for retailers. Stock points are located at convenient locations which are easily assessable by customers.

They follow a simple philosophy for distribution: To create a

Professional distribution through an organised retail network focused on servicing natural local market that captures value of brand.

Tata sells about 40 per cent of its total flat products, both hot-rolled and cold rolled products, through the distribution channel while the remaining 60 per cent is directly sold to customers.

SAIL

JSW

JSW Group is driven by the demands of its customers and it cares to meet their needs. A nation-wide marketing network and consignment agents ensure availability of its downstream products in every nook and corner of the country. Taking advantage of the emerging demands from the western markets, both auto and non-auto sectors, the company has significantly improved its performance in the export segment too.

The group has significantly improved its performance in the export segment. JSW Steel Limited’s downstream exports constitute more than 1/3 rd of India’s total exports of galvanised products. Seventy five percent of JSW Steel Limited’s galvanised products go to over 45 countries developing & developed, where the Jindal brand GalvPlus occupies the number one position.

JSW Group has long term agreements with leading European service centres and end users to supply galvanised products and has entered the US market as well. The company is committed to maintain international quality standards, efficient delivery schedule, competitive prices and excellent after-sales service.

COST OF EACH LAYER OF THE CHANNEL

B2B SELLING:-

B2B selling (direct)	B2B selling (through traders)
Margins to traders – N.A	Margins to traders – 1.25% to 2%*

B2C SELLING:-

MARGIN TO DISTRIBUTORS	0.25% to 1.5%*
MARGIN TO RETAILORS	2.5% to 4.0%*

*All percentages are on the selling price

India’s rapid economic growth is being built on a frame of steel. Soaring demand from sectors like infrastructure, real estate and automobiles both home and abroad, has put India’s steel industry on the world steel map.

The rapid rise in the production has resulted in India becoming the fifth largest producer of steel in the world, up by two places, on the back of 50.71 million tonnes (mt) production of crude steel and 51.9 mt of finished steel. The production of finished steel grew by 16.52 per cent, from 44.54 mt in 2005-06 to 49.39 mt in 2006-07.

Robust distribution network is required to cater to customers around the world. It plays an important role in capturing market share. Iron and steel products were considered as commodity, but in the recent past, major players have differentiated their product and created a brand.

The products in the Iron and steel Industry are classified into categories:

Heavy structure (B to B): Here FAB concept is followed. Customers follow SPANCO method for making purchase in Iron and Steel Industry. In this type, usually bulk orders are placed. So company indulges in both direct selling and through trader. In case of direct selling, there are no additional expenses. Company’s keeps certain set of traders or dealers who deals with small orders. Company assigns targets for their traders and provide them goods at a reduced price. The Price of Iron and Steel keeps fluctuating because it depends on the various factors. The profit margins also vary from 1.25% to 2%, according to market demand and supply. Here trader plays an important role in the distribution channel.

Consumer’s goods (B to C): There is huge competition in this segment and gain a competitive edge, the distribution channel needs to be robust. Adequate profit margins are given to both retailer and distributor, so that they will better push their brands. Good ROI will motivate them to sell more and maintain a good relationship with the distributor. Location of the store is an important factor to differentiate the product. Aggressive marketing strategy is adopted by distributor to cover their geographical area. Usually 1 or 2 distributers are selected by company in a state which will cover all retailers in their area. Sales force plays an important role in gathering information and adding new retailers. Distributors are given a profit margin of 0.25% to 1.5% on the sales price. They take bulk order from company and distribute it between its retailers. Company organise various training programmes for the development of the distributor and reward them as per their performance. Retailers get a profit margin of 2.5% to 4%, out of which they offer discount to their customers. Retailers are given a higher margin because of the high competition in the industry. Retailers usually keep products of other companies, so the retailer push becomes a very important factor. Distributor gives attractive offers to retailer for increasing their sales figure which benefits both distributer and retailer.

Company’s profit margins vary with the level of integration. When the processes are integrated cost comes down significantly. Therefore the more the plant is integrated, the higher are the profit margins. Profits also vary with electricity charges and the prices and the availability of raw materials

TRENDS IN DISTRIBUTION IN THE IRON AND STEEL INDUSTRY

· TATA STEEL introduces the hub and spoke model

Tata Steel made changes in its distribution system and introduced the hub and spoke model to reduce expenditure on logistics.With an aim to create new paradigms in steel retailing, Tata Steel launched ‘steeljunction’ – India’s first organised steel retail store. The company has also derived significant value from initiatives like Retail Value Management and Customer Value Management.Tata Steel has successfully created high brand recall. It is continuously working towards building new business models by forging alliances with customers and suppliers to strengthen the value chain that in turn will help the company to reduce operating costs, improve service levels and offer new products and services.

· Change in Consumer Awareness

In case of consumer goods customers were not aware of the different prices and sizes of the product. Retailers took the advantage and started misleading customers due to which they ended up paying a higher price. It was necessary to enlighten customers about the product specifications.

Tata Shakti was the first brand to mention the thickness on the sheet. They also made their pricing transparent and published all the prices in the newspaper. Consumers were now better informed and confident of their purchase.

· Today stores aren’t the usual saria store with untidy stacks of steel rebars taking up almost every inch of the floor and going well up to the ceiling.

POSITIONING PLATFORMS, ADVERTISING CAMPAIGNS AND ADVERTISING TRENDS IN THE INDUSTRY:

POSITIONING PLATFORMS IN THE INDUSTRY:

The companies have identified or rather classified their customers into three broad categories, they are:

1. Government customers

2. Retail users

3. Private sector customers

Advertising campaign and corporate communication strategy would differ from market to market and customer segment to segment.

We will analyse the various ad campaigns, keeping in mind the positioning platforms of these leading players.

We found that since steel represents “strength, reliability and quality” in the minds of the lay-man, the ad campaigns of the leading players also focus on these attributes or features. A few companies are able to differentiate their products and charge an extra premium like TATA TISCON. Another reason why customers are ready to pay premium for branded products is “Trust”.

For instance, TATA TISCON’s Stampede print ad has the tagline as “Sasta loge to pacht-taoge”.

ADVERTISING CAMPAIGNS AND ADVERTISING TRENDS IN THE INDUSTRY:

Branded steel bar manufacturers are actively communicating to the end-user, just like any other FMCG brand.

Modern shops of TATA TISCON is bright and colourful, its walls painted in contrasting panels of stark white and acid yellow — the colour of TATA TISCON.

Stores have charts with recommended prices, bold sign offering “home delivery” and also a photograph of actor Sanjay Dutt with the tagline Steel ka naya funda!

Clean and airy, modern stores is a testimony to how far branded TMT (thermo-mechanically treated) bars, an improved variety of steel reinforcement bars, have transformed the commodity trade in steel reconstruction bars.

Steel rebars were traded like any other commodity: by weight, with no one — manufacturer, retailer or consumer — giving a thought to quality, packaging, or standardisation of product, much less in-store branding.which changed now, estimates show TMT bar brands spend close to Rs 100 crore (Rs 1 billion) on advertising and brand promotion, calculating an average of Rs 3 crore (Rs 30 Million) or so among the over 30 branded TMT-bar makers. One of the biggest advertisers in the category, Elegant TMT bars has an Rs 5-crore (Rs 50 Million) annual marketing budget for the electronic media alone.

Outdoors was the medium of choice, but now advertisements on radio and TV and film-stars as brand ambassadors are becoming common. Quite like any fast-moving consumer goods like soap or toothpaste — except that Sanjay Dutt or Dharmendra are signed on instead of Kareena Kapoor or Aishwarya Rai.

Public sector steel manufacturer SAIL introduced TMT bars in India in the 1990s, the category really took off only after the launch of Tata Steel’s branded rebar TATA TISCON, in 2001because of its mass media promotion.

Few findings include:

1. few end-consumers were aware of the finer points of TMT bars;

2. And, consumers often felt they had been cheated by the retailer.

Building on these lessons, Tata Steel unleashed a slew of outdoor ads, hoardings, wall-paintings and bus-shelters with its signature creative — the outline of a fist holding aloft a TMT bar on a bright yellow background, with the punch-line “atoot jod”.

Other FMCG-like innovations include product packaging and standardisation of pack-sizes. For instance, TATA TISCON, which used to sell in bundles of 80 tonnes, has started to sell in single pieces of fixed length — the way the product is sold the world over.

Of-late commodities are increasingly being branded, whereas FMCG like soaps and toothpastes are increasingly pronounced to be commoditised. Internationally, generic products are moving up the value chain and commanding a premium on the perceived value additions. The interesting thing about TMT bars where branding is the new buzzword, is that the end user — the house-owner — almost never has a say in what variety or brand is used.
Unlike the buyers of apartments, who are very careful and always ask about the bathroom fixtures or tiles being used, no one thinks to ask what TMT have been used, something that is far more important. That’s where brand communication comes in.

With tremendous competition around, branding helps break the clutter in the commodities trade. For the consumer, it acts as a decision maker, because the brand communication promises a solution to their problems — on-time delivery, strength, and so on. Over time, an emotion builds up around the brand.
Consider ELEGANT Steel’s print ad — brand awareness pole-vaulted to new heights as a consequence.

Companies have identified ’strength’ as the core motivation for consumers when they buy/construct new home. Companies therefore have appropriated it and made relevant noise about the Strength (Quality to some extent) of their products through the TVC, Radio, Hoardings, and print campaigns as well as below-the-line campaigns.

The TATA TISCON TVC aims to make an emotional connect, fixing on strength as the core motivation of consumers buying TMT bars.

When steel rebars were traded as a commodity, their price was determined by the price of steel at the time. But with branding, TMT rebar manufacturers can claim to have added value and hence, command a premium and also fix a price that is not tied to the cost of steel.

And, consumers need some prodding since the price differential between branded and unbranded goods is significant. While the per tonne price of local, commonly used tor-steel rebars is around Rs 23,000, that of a TMT bar is Rs 26-28,000. Premium brands can go higher.

POPULAR ADVERTISING CAMPAIGNS

OUTDOOR CAMPAIGNS:

Campaign Objectives:
To differentiate the product.

To increase consumer awareness.
Target Audience:

Builders and matured urban consumer market.

Positioning of the brand:

New age product for new age customers.

Campaign Objectives:
Creating differentiation by displaying the product strength

Target Audience:

Masons, new home builders and medium income group.

Positioning of the brand:

Positioned as a strong product vis-a-vis competitors product.

Campaign Objectives:
Customised ad campaign targeting a specific geographic segment.

Positioning of the brand:

Strong homes built with strong TMT bars.

TELEVISION CAMPAIGN:

Campaign Objectives:
To increase customer awareness.

Target Audience:

Families planning to buy/build new home.

Positioning of the brand:

More rib areas to keep cement and steel unshakebly bonded, creating a strong building structure.

PRINT CAMPAIGNS:

Companies use the print media to advertise their products targeting market segments from high-end consumers with ads like “no good without the other”, “you choose the best bone china”, etc. To low income group with ads in local language.

BELOW THE LINE PROMOTION:

BROCHURES:

News letters are distributed among the dealers and retailers giving them more information about the product, the new developments keeping them aware of the changing market conditions. The performance of every distributor is highlighted and the best performer is recognised and rewarded as their star performer.

MEETS:

The companies organise regular meets for:

1. Mason

2. Architects

3. Consumers

4. Engineers

.

OTHER CAMPAIGNS:

I. Kite flying competition

II. Cycle-rickshaws

III. Road shows

IV. Haats

V. Wall paintings