Description
Document about Berger Paint's strategy to increase sales, market share through expansion of dealer network.
Technical Note
Concerned Organization: Berger Paints India Limited Theme: Expansion of Dealer Network and increase sales of emulsions Issue: Channel Power
Introduction:- Indian Paint Industry
The beginning of the Indian Paints industry can be traced to the year 1902 when Shalimar Paints set up a factory in Kolkata. Today, a no. of foreign players has their subsidiaries in India. Paints and their allied products like enamels, varnishes, pigments, printing inks and synthetic resins protect national assets from corrosion. These are increasingly being used in automotive, engineering and consumer durables sectors. Therefore, economic development has a direct bearing on the paint industry. Increased investments in housing and infrastructure sector have lead to greater demand for paints. The Indian paint market has the potential to grow at 15 to 20 per cent per annum over the next decade. The size of the Indian paint industry is around Rs 95 billion. The current demand is estimated at 650,000 tonnes per annum. The demand is seasonal although the trend is changing very rapidly. The paints industry is raw material intensive. It requires around 600 materials with titanium dioxide being the most important part of any paint composition. Other raw materials include castor, linseed and soya bean oils, and turpentine. Raw material and packaging account for 60 percent of the cost. There are around 26 paint units in the organized sector, accounting for about 65 per cent of the total paint manufacturing output. The unorganized sector has about 2000 units. The total output of the sector is of the order of 4.5 lakh tonnes. The per capita consumption of paints in India is low i.e. 700 grams per annum, whereas it is 1.6 kg in China and as high as 22kg in USA. (exhibit 1)
Major Players and Their Market Share
Berger Paints 17% Others 7% Kansai Nerolac Paints 20%
ICI Dulux Paints 12% Asian Paints 44%
The paint industry is broadly divided into two segments- decorative and industrial paints. Decorative paints cater to the housing sector. Premium decorative paints are emulsions. The medium range consists of enamels, popular in smaller cities and towns. Distempers are economy products demanded in the sub-urban and rural markets. The distribution network is the key for the success of this segment. Brand image and the range of products is the other basis for competition. These features also act as entry barriers in the decorative segment. Berger Paints India Limited is placed second in the overall segment in the Indian Paints Industry. In the decorative segment, it lies behind Asian Paints whose market share is 45% of the market. In the industrial segment, Berger is ranked third in terms of market share behind Asian Paints and Kansai Nerolac Paints. Changing Guard
Since the beginning of paints industry in India, primer, distemper and enamel used to be the major segments in the decorative paint segment. The current scenario of the paint industry is shifting towards the emulsion segment (both interior and exterior segment) due to changing consumer preferences like longevity should be more, better quality/finish, more shades availability and more striking looks in comparison to either primer, distemper or enamel. Moreover, current global trend is moving from the solvent based paints (for e.g. Enamel) to water based paints (e.g. Emulsions), as it has been tested that water based paints are environment friendly and less hazardous to health. The future ahead India’s paint industry has a bright future not only because the per capita consumption is low but also because of increase in residential construction activity, and rising income levels in rural as well as urban areas. The demand for premium category paints i.e. emulsions is increasing with rise in construction of commercial infrastructure, like shopping malls, whose main focus is aesthetics. The paint industry is also boosted by the duty cut on imports. About the Company: Berger Paints India Limited Berger Paints began its operations in India about in 1923 as British Paints in Calcutta (now Kolkata). It started initially as a depot in Calcutta and then set up its first plant in Howrah. With the growing Indian economy and ever expanding needs for paints, Berger Paints has kept pace with the increasing competition by opening up more plants at Pondicherry and Goa with an average capacity of 15000 MT. It has also setup new plants in Jammu. It is country's third largest paint manufacturer, with its headquarters in Calcutta, Berger controls a distribution network comprising of 66 stock points and approximately 10,000 dealers, spread across the country. BPIL
has technical tie-ups with Herberts, a subsidiary of the German pharmaceutical major Hoechst for automotive paints, Tendor NV of Holland for powder coatings and Valspar Corporation, USA for heavy duty coatings. The company is particularly active in the powder coating segment and is a supplier to most OEMs in the white good segment. With its thrust shifting to industrial coatings, the company is expanding its powder coating capacity from 840 metric tons to 1,840 metric tons at its existing plant. Berger Paints continues to show way in every segment of the paint industry – decorative, industrial, automotive and powder coating not only by offering the best indigenous and international technology, but by creating innovative institutions of customer support, the hallmark of modern business practice. At the centre of Berger Paints business operations is the very special relationship that has evolved between the company and millions of customers across India. From the housewife to the industrial user customer satisfaction is Berger’s uppermost concern. With this objective in mind, Berger has created highly responsive customer services. Colorbank, a computerized mixer tinting machine, gives the customers a choice of more than 5,000 shades and facilitates instant customized shade mixing at over 2500 retail outlets across the country. Prolinks is Berger Paints' response to a market environment that is increasingly driven by technology and calibrated by expertise. Prolinks is aimed at placing the initiative in the hands of builders, architects and designers to enable them to directly source innovative products and services. The team is entrusted with maintaining a seamless interface between paint specifiers and Berger Paints. The objective is to provide specifiers with a complete basis for recommending
products and processes - databases, technical services, color consultancy, site inspection, etc. Prolinks experts ensure specific solutions to specific problems, whether it is a particular shade that needs development, special climatic factors to be provided for, or application factors that have to be maintained. From know-how to legwork, the Prolinks team delivers total support. Protecton’s service is a specialized paintings resource valued across the Indian industry, a powerful ally in the battle against loss prevention. Illusions, the latest service offering by Berger Paints provide paints designer finish that transforms walls into fashion statements. Berger Paints has got brands that address the needs of all the applications and sectors – from exterior paints to thinners and putty. An analysis of the strengths, weakness, opportunities and threats for the company is given below: Strengths a) Strong brand image b) Quality driven c) Competitive Price in comparison to its major competitors Weakness a) Weak Distribution mainly in far off places b) Concentrated only on dealer related marketing c) Depending on previously established goodwill
Opportunities a) Greater Penetration b) Better Brand presence through promotion c) Active consumer involvement
Threats a) Recession hitting real estate b) Loss of loyal Dealers/ Sub-dealers to other companies c) Market leader in the shrinking paint segments (primer, distemper & enamel)
Consumer Buying Behavior On the basis of the survey most customers seek the following qualities in their brand of paint: 1. 2. 3. 4. 5. 6. 7. 8. 9. Good Quality Long-lasting Reliable No color fading No paint-sweating Wide range of colors Different textures and designs Value for money Customer Support
Expectations from the company are fairly limited. They expect the company to be honest in their approach, transparent, develop new and improved products, price their products correctly, educate customers regarding usage through marketing material and most importantly make the
product easily available. Moreover, customers have started favoring environment friendly paints i.e. water based solvents for their homes. According to the industry analysts and survey findings, there are three main influencers (exhibit2) in the decision making of consumer apart from advertising through mass media i.e. television commercials. These influencers can be categorized into three classes i.e. dealers, architects and painters. The role played these influencers becomes very important due to their closeness to the end-consumer. The current situation The company enjoys a strong position in terms of sales across three segments i.e. primers, distempers and enamels in the given region but it is still facing challenges in the emulsions segment. Berger Paints India Limited’s strategy focused on gaining market share. The company believed in the power of channel partners and relied heavily on dealers (Berger’s dealer network: exhibit3) to push its products to the consumer. The company persistently ignored the power of mass media communication. In the mean while, Asian Paints captured the market with the help of extensive distribution and big bang advertising through mass media along with targeting major influencers in the decision making process i.e. painters. Subsequently, Berger paints lost ground in the emulsion segment. Berger paints relied heavily on dealers to push their product and neglecting other influencers like painters & also the power of commercials. The company also relied heavily on the price advantage it offered to the consumers. An example of Berger’s policy on trade promotions compared to competitors is provided below:
-
For any dealer, credit facility is considered very important. Companies like Berger paints and Asian paints deal with the channel partners through the advance cheque option. In return they offer them a cash on delivery discount (COD) in Dealer Price List [Landing Price = Dealer Price List – 5.5% + VAT (12.5%) – Rebate]. For Berger Paints, if a dealer takes a credit period of 15 days then he is offered a COD of 5.5%. In case of Nerolac, up to a period of 15 days is given to the dealer in order to be eligible to get COD of 5% and Asian paint’s gives 3.5%.
Growing Concern The company is currently facing problems in the expansion of its network and has to deal with the issue of channel power resulting from the emergence of strong channel partners on whom Berger paints rely heavily for sales. Berger paints is having a dealer network of 10,000 dealers compared with strong network of 25,000 of Asian Paints. The problems faced by the company due to this issue are as follows: Pushing the appropriate product mix to dealers: According to the company officials, dealers are reluctant to stock Berger paints emulsions as compared to other products in different segments like primers, emulsions and distempers. The dealers refuse to stock products in primers, distempers and enamels segment if pursued to push Berger emulsions.
-
Cannibalization of sales of local depot: As the turnover of sales of Berger paints from these big dealers is very high, they enjoy power in deciding the various discount schemes offered. These dealers often get huge discounts. These dealers in-turn offer the retailers
lucrative deals. It results in cannibalization of sale from the local depot, as most of the dealers having low turnover retailer buy stocks from these big dealers.
-
Expansion of Dealer Network: Berger paints wants to expand its dealer network across regions. But the existence of big dealers in the given region acts as a major impediment to expansion. The retailers interested in dealing directly with the company are catered to by these dealers by offering more discounts than what the company offers. This results in concentration of power among these few dealers.
-
Shelf Space: The Company is facing difficulties in getting the shelf space for its products in the emulsions segment. The dealers are not interested in giving the expected amount of shelf space and thus leading to low visibility of its products.
The underlying reasons for the resistance from the dealer end for accepting the product mix expected from the company. These include the efforts made by the company in promoting its products through mass media and also targeting influencers like painters. According to the dealers, the company suffers from the low brand awareness about its offerings in the various segments in the decorative paints segments. Some of the comments from the dealers are mentioned below: “We sell only quality emulsions like Asian paints, ICI velvet touch but this does not mean quality of Berger paints emulsions is bad. The most important point is “JO DIKHTA HAI WHO BIKTA HAI” and Berger paints promotional campaign is very less effective compared to Asian paints and also they don’t focus on ground level promotional
activities like effective shelf placement of its products (ICI VT promotes through this channel), dealers meet etc.. ”(-OM Paints & Hardware, Noida) “Owing to pressure from nearby Berger dealers, Berger representative stopped coming to my shop after just a month’s dealing. Now I am the second largest exclusive dealer of Asian Paints in Ghaziabad”( – Raaj Trading, Ghaziabad) - “Asian Paints gives us customers especially in the emulsions segment which is indeed premium segment in the paint industry and helps us build our business stronger. Dealing with Berger Paints in the emulsion segment is difficult due to low customer awareness, quality.” – (Ashu Paints House, Meerut)
In the current scenario, Berger paints is changing its promotion/communication strategy. They are targeting the consumers through effective promotion by means of mass media and also targeting major decision influencers in the consumer decision making process (exhibit3) like painters. The company is already operating a program “Sambandh” for gaining
painter’s confidence and subsequently leading them to push Berger paints products to the end-consumer. The management objective is to expand its dealer network. It aims to push the right mix of products to the consumers and increase its presence in the emulsions segment.
Exhibit 1:
Distribution Network of Berger Paints:
Factory
Regional Warehouses
Local Depots
Wholesaler / Retailer
Sub Dealer
Customers
Exhibit 2:
Categories of Dealers:
Dealers Wholesale
Exhibit 3:
Key Influencers in the Consumer Buying Behavior:
Retail
Industrial
Special Services
doc_706098702.docx
Document about Berger Paint's strategy to increase sales, market share through expansion of dealer network.
Technical Note
Concerned Organization: Berger Paints India Limited Theme: Expansion of Dealer Network and increase sales of emulsions Issue: Channel Power
Introduction:- Indian Paint Industry
The beginning of the Indian Paints industry can be traced to the year 1902 when Shalimar Paints set up a factory in Kolkata. Today, a no. of foreign players has their subsidiaries in India. Paints and their allied products like enamels, varnishes, pigments, printing inks and synthetic resins protect national assets from corrosion. These are increasingly being used in automotive, engineering and consumer durables sectors. Therefore, economic development has a direct bearing on the paint industry. Increased investments in housing and infrastructure sector have lead to greater demand for paints. The Indian paint market has the potential to grow at 15 to 20 per cent per annum over the next decade. The size of the Indian paint industry is around Rs 95 billion. The current demand is estimated at 650,000 tonnes per annum. The demand is seasonal although the trend is changing very rapidly. The paints industry is raw material intensive. It requires around 600 materials with titanium dioxide being the most important part of any paint composition. Other raw materials include castor, linseed and soya bean oils, and turpentine. Raw material and packaging account for 60 percent of the cost. There are around 26 paint units in the organized sector, accounting for about 65 per cent of the total paint manufacturing output. The unorganized sector has about 2000 units. The total output of the sector is of the order of 4.5 lakh tonnes. The per capita consumption of paints in India is low i.e. 700 grams per annum, whereas it is 1.6 kg in China and as high as 22kg in USA. (exhibit 1)
Major Players and Their Market Share
Berger Paints 17% Others 7% Kansai Nerolac Paints 20%
ICI Dulux Paints 12% Asian Paints 44%
The paint industry is broadly divided into two segments- decorative and industrial paints. Decorative paints cater to the housing sector. Premium decorative paints are emulsions. The medium range consists of enamels, popular in smaller cities and towns. Distempers are economy products demanded in the sub-urban and rural markets. The distribution network is the key for the success of this segment. Brand image and the range of products is the other basis for competition. These features also act as entry barriers in the decorative segment. Berger Paints India Limited is placed second in the overall segment in the Indian Paints Industry. In the decorative segment, it lies behind Asian Paints whose market share is 45% of the market. In the industrial segment, Berger is ranked third in terms of market share behind Asian Paints and Kansai Nerolac Paints. Changing Guard
Since the beginning of paints industry in India, primer, distemper and enamel used to be the major segments in the decorative paint segment. The current scenario of the paint industry is shifting towards the emulsion segment (both interior and exterior segment) due to changing consumer preferences like longevity should be more, better quality/finish, more shades availability and more striking looks in comparison to either primer, distemper or enamel. Moreover, current global trend is moving from the solvent based paints (for e.g. Enamel) to water based paints (e.g. Emulsions), as it has been tested that water based paints are environment friendly and less hazardous to health. The future ahead India’s paint industry has a bright future not only because the per capita consumption is low but also because of increase in residential construction activity, and rising income levels in rural as well as urban areas. The demand for premium category paints i.e. emulsions is increasing with rise in construction of commercial infrastructure, like shopping malls, whose main focus is aesthetics. The paint industry is also boosted by the duty cut on imports. About the Company: Berger Paints India Limited Berger Paints began its operations in India about in 1923 as British Paints in Calcutta (now Kolkata). It started initially as a depot in Calcutta and then set up its first plant in Howrah. With the growing Indian economy and ever expanding needs for paints, Berger Paints has kept pace with the increasing competition by opening up more plants at Pondicherry and Goa with an average capacity of 15000 MT. It has also setup new plants in Jammu. It is country's third largest paint manufacturer, with its headquarters in Calcutta, Berger controls a distribution network comprising of 66 stock points and approximately 10,000 dealers, spread across the country. BPIL
has technical tie-ups with Herberts, a subsidiary of the German pharmaceutical major Hoechst for automotive paints, Tendor NV of Holland for powder coatings and Valspar Corporation, USA for heavy duty coatings. The company is particularly active in the powder coating segment and is a supplier to most OEMs in the white good segment. With its thrust shifting to industrial coatings, the company is expanding its powder coating capacity from 840 metric tons to 1,840 metric tons at its existing plant. Berger Paints continues to show way in every segment of the paint industry – decorative, industrial, automotive and powder coating not only by offering the best indigenous and international technology, but by creating innovative institutions of customer support, the hallmark of modern business practice. At the centre of Berger Paints business operations is the very special relationship that has evolved between the company and millions of customers across India. From the housewife to the industrial user customer satisfaction is Berger’s uppermost concern. With this objective in mind, Berger has created highly responsive customer services. Colorbank, a computerized mixer tinting machine, gives the customers a choice of more than 5,000 shades and facilitates instant customized shade mixing at over 2500 retail outlets across the country. Prolinks is Berger Paints' response to a market environment that is increasingly driven by technology and calibrated by expertise. Prolinks is aimed at placing the initiative in the hands of builders, architects and designers to enable them to directly source innovative products and services. The team is entrusted with maintaining a seamless interface between paint specifiers and Berger Paints. The objective is to provide specifiers with a complete basis for recommending
products and processes - databases, technical services, color consultancy, site inspection, etc. Prolinks experts ensure specific solutions to specific problems, whether it is a particular shade that needs development, special climatic factors to be provided for, or application factors that have to be maintained. From know-how to legwork, the Prolinks team delivers total support. Protecton’s service is a specialized paintings resource valued across the Indian industry, a powerful ally in the battle against loss prevention. Illusions, the latest service offering by Berger Paints provide paints designer finish that transforms walls into fashion statements. Berger Paints has got brands that address the needs of all the applications and sectors – from exterior paints to thinners and putty. An analysis of the strengths, weakness, opportunities and threats for the company is given below: Strengths a) Strong brand image b) Quality driven c) Competitive Price in comparison to its major competitors Weakness a) Weak Distribution mainly in far off places b) Concentrated only on dealer related marketing c) Depending on previously established goodwill
Opportunities a) Greater Penetration b) Better Brand presence through promotion c) Active consumer involvement
Threats a) Recession hitting real estate b) Loss of loyal Dealers/ Sub-dealers to other companies c) Market leader in the shrinking paint segments (primer, distemper & enamel)
Consumer Buying Behavior On the basis of the survey most customers seek the following qualities in their brand of paint: 1. 2. 3. 4. 5. 6. 7. 8. 9. Good Quality Long-lasting Reliable No color fading No paint-sweating Wide range of colors Different textures and designs Value for money Customer Support
Expectations from the company are fairly limited. They expect the company to be honest in their approach, transparent, develop new and improved products, price their products correctly, educate customers regarding usage through marketing material and most importantly make the
product easily available. Moreover, customers have started favoring environment friendly paints i.e. water based solvents for their homes. According to the industry analysts and survey findings, there are three main influencers (exhibit2) in the decision making of consumer apart from advertising through mass media i.e. television commercials. These influencers can be categorized into three classes i.e. dealers, architects and painters. The role played these influencers becomes very important due to their closeness to the end-consumer. The current situation The company enjoys a strong position in terms of sales across three segments i.e. primers, distempers and enamels in the given region but it is still facing challenges in the emulsions segment. Berger Paints India Limited’s strategy focused on gaining market share. The company believed in the power of channel partners and relied heavily on dealers (Berger’s dealer network: exhibit3) to push its products to the consumer. The company persistently ignored the power of mass media communication. In the mean while, Asian Paints captured the market with the help of extensive distribution and big bang advertising through mass media along with targeting major influencers in the decision making process i.e. painters. Subsequently, Berger paints lost ground in the emulsion segment. Berger paints relied heavily on dealers to push their product and neglecting other influencers like painters & also the power of commercials. The company also relied heavily on the price advantage it offered to the consumers. An example of Berger’s policy on trade promotions compared to competitors is provided below:
-
For any dealer, credit facility is considered very important. Companies like Berger paints and Asian paints deal with the channel partners through the advance cheque option. In return they offer them a cash on delivery discount (COD) in Dealer Price List [Landing Price = Dealer Price List – 5.5% + VAT (12.5%) – Rebate]. For Berger Paints, if a dealer takes a credit period of 15 days then he is offered a COD of 5.5%. In case of Nerolac, up to a period of 15 days is given to the dealer in order to be eligible to get COD of 5% and Asian paint’s gives 3.5%.
Growing Concern The company is currently facing problems in the expansion of its network and has to deal with the issue of channel power resulting from the emergence of strong channel partners on whom Berger paints rely heavily for sales. Berger paints is having a dealer network of 10,000 dealers compared with strong network of 25,000 of Asian Paints. The problems faced by the company due to this issue are as follows: Pushing the appropriate product mix to dealers: According to the company officials, dealers are reluctant to stock Berger paints emulsions as compared to other products in different segments like primers, emulsions and distempers. The dealers refuse to stock products in primers, distempers and enamels segment if pursued to push Berger emulsions.
-
Cannibalization of sales of local depot: As the turnover of sales of Berger paints from these big dealers is very high, they enjoy power in deciding the various discount schemes offered. These dealers often get huge discounts. These dealers in-turn offer the retailers
lucrative deals. It results in cannibalization of sale from the local depot, as most of the dealers having low turnover retailer buy stocks from these big dealers.
-
Expansion of Dealer Network: Berger paints wants to expand its dealer network across regions. But the existence of big dealers in the given region acts as a major impediment to expansion. The retailers interested in dealing directly with the company are catered to by these dealers by offering more discounts than what the company offers. This results in concentration of power among these few dealers.
-
Shelf Space: The Company is facing difficulties in getting the shelf space for its products in the emulsions segment. The dealers are not interested in giving the expected amount of shelf space and thus leading to low visibility of its products.
The underlying reasons for the resistance from the dealer end for accepting the product mix expected from the company. These include the efforts made by the company in promoting its products through mass media and also targeting influencers like painters. According to the dealers, the company suffers from the low brand awareness about its offerings in the various segments in the decorative paints segments. Some of the comments from the dealers are mentioned below: “We sell only quality emulsions like Asian paints, ICI velvet touch but this does not mean quality of Berger paints emulsions is bad. The most important point is “JO DIKHTA HAI WHO BIKTA HAI” and Berger paints promotional campaign is very less effective compared to Asian paints and also they don’t focus on ground level promotional
activities like effective shelf placement of its products (ICI VT promotes through this channel), dealers meet etc.. ”(-OM Paints & Hardware, Noida) “Owing to pressure from nearby Berger dealers, Berger representative stopped coming to my shop after just a month’s dealing. Now I am the second largest exclusive dealer of Asian Paints in Ghaziabad”( – Raaj Trading, Ghaziabad) - “Asian Paints gives us customers especially in the emulsions segment which is indeed premium segment in the paint industry and helps us build our business stronger. Dealing with Berger Paints in the emulsion segment is difficult due to low customer awareness, quality.” – (Ashu Paints House, Meerut)
In the current scenario, Berger paints is changing its promotion/communication strategy. They are targeting the consumers through effective promotion by means of mass media and also targeting major decision influencers in the consumer decision making process (exhibit3) like painters. The company is already operating a program “Sambandh” for gaining
painter’s confidence and subsequently leading them to push Berger paints products to the end-consumer. The management objective is to expand its dealer network. It aims to push the right mix of products to the consumers and increase its presence in the emulsions segment.
Exhibit 1:
Distribution Network of Berger Paints:
Factory
Regional Warehouses
Local Depots
Wholesaler / Retailer
Sub Dealer
Customers
Exhibit 2:
Categories of Dealers:
Dealers Wholesale
Exhibit 3:
Key Influencers in the Consumer Buying Behavior:
Retail
Industrial
Special Services
doc_706098702.docx