Spice Mobiles: Sales and Distribution Strategy

gaminess Mobiles Sales and Distri to a greater extentoverion schemeIndian receiving set orbit has been an trope of growth and success story all on as the cellular subscriber base increased from 1.9 million as on expose 31, 2000 to 584 million as on March 31, 2010. As the sector has matured, the truncheon of growth has been passed-on to novel apprehensions much(prenominal) as Telecom Infra coordinate Companies ( normally cognise as the tower companies), Value Added Service nominaters (popular application being fellowship Ring Back T ane-CRBT) and more recently the home-gr own Mobile Handset (HG) players.The Indian Mobile Handset Market is dominated by established planetary brands such(prenominal) as Nokia, Samsung, Motorola, LG etc. Nokia has been a clear market attracter followed by Samsung, a distant second. There has been a continuous jostle for the third position with players equal Motorola, Sony Ericsson, LG vying for the spot. Apart from the braded cell-phones, the market is to a fault fortunate with cheap, unbranded imported supple phones that get routed through grey markets to contri neverthelesse home(prenominal) consumers (most of these unbranded erratic phones, hitherto, were without any International Mobile Equipment individuality (IMEI) meter).When mobile phones were introduced in India in the mid-90s, US based Motorola, Swedens Ericsson and Finlands Nokia dominated the handset market in India. Over the years, the old order has changed. Asian players resembling Samsung and LG, European brands Philips and Siemens now compete with Motorola and Sony-Ericsson. Now with the emergence of local anaesthetic players like micromaxx, karbonn and ribaldry etc., the competition has got all the more intense and the grapple for consumers pocket has increased. Nokia, the undisputed leader is now challenged by local players like Micromaxx which has re mystifyd Samsung to become the third biggest mobile treating vendor in the country. If we construe a bit deeper, its not only the bell or applied science, but the reach of these sensitive players in terms of diffusion that has prone them such a big chunk of the market and that to so soonHOME-GROWN unsettled HANDSET PLAYERSGiven the backdrop of the growth in the domestic wireless subscriber base coupled with no dominant mobile handset player in India apart from the international brand, Nokia, provided wrinkle opportunity for Indian firms to regard a plunge into the market thus, the creation of HG players including spice Mobiles, Micromax, Karbonn, Lava, Videocon etc.The business model followed by most HG players is relatively simple. These players stupefy research and innovation teams that provide India-centric design specifications to contract manufacturers in neighbouring countries of China, Taiwan etc. These phones ar shipped to India which be then routed through the domestic scattering channel for sale in the domestic market. Time-to-market from desi gn-to- employment-to-end market is small in this sector as such players contribute set-up three-layered scattering carcass that includes regional distributers to support micro-distributors that in turn service the sell outlets.The initial part of the success of HG players was largely attributable to the price-elasticity of demand overabundant in the Indian market. These players provided phones loaded with various features at an affordable price. differentwise call aspect of the strategy followed by these players was to initially tap the clownish markets where consumers be relatively less brand conscious and more price conscious. We believe it was not just the price distinctial that made these players score the home-grown players provided innovative offerings to rural markets (such as multi SIM handsets, mobile phones with 30-day battery back-up) that provided value-for-money rather than unmingled price-differential a samara success mantra to tap the fortune at the bo ttom-of-the-pyramid. (Hitherto, the key market separate for these players)The inflection point for the growth of HG players in the recent times also came from the directive from the Government of India to bar handsets without IMEI numbers to be used in India. These handsets were a direct competition to the HG players and a ban on them provided huge growth opportunities for these players. Encashing on this opportunity, the HG players have grown from chroma-to- carriage and are slowly but surely cementing their place in the Indian Mobile Handset market. Attuned to its primary market segment i.e. Tier-I and Tier-II cities, the marketing by HG players were hitherto more of the contract-strategy whereby greater pass-through margins were given to Distributors and Retailers. However, off-late they have also initiated the use of pull-strategy by venturing into brand building initiatives such as roping-in of brand ambassadors and sponsoring of sports tournaments. We see these initiatives as a prelude forward venturing into more lucrative urban markets. However, going forward the HG players shall have to contend with various challenges such as to constantly invest on innovation and brand building to build and strengthen their distribution mesh after-gross revenue services to move-up the value chain both in term of technology (providing 3-G Technology, QWERTY format phones) and markets (from Tier-II/ Tier-III segments to Urban markets) and to counter direct competition from Chinese players who are looking to set-up shops in India. Here in this study, we will discuss the key distribution strategies and challenges of one such home grown player raciness Mobile.A DIFFERENT DISTRIBUTION MODELThe distribution of mobile phones varies good from that of other consumer electronics and appliances such as LCD TVs or Air conditioners. This is because the mistreat of sales of mobile phones is a lot faster than the other consumer electronic goods. excessively, the corpore al size of the products also is a factor. The mobile phone, being a quite fast moving product, hence is not handled by the distributors intervention TVs and audio products or washing machines and refrigerators. Hence the grant chain care and logistics management of the both products distribution becomes very different. The great Indian mobile revolution is all set to move to the rural part of the country, with handset manufacturers gearing up to come out with market-specific products to acquire maximum share. The conterminous big opportunity for telcos will be in the hinterland where two-thirds of the countrys 1.17 bn race lives.There are many factors driving handset manufacturers and operators to the rural market. Though India is appear as one of the biggest telecom markets, metros and class-2 cities are already reaching saturation point. Hence, companies have no option but to explore newer markets to sustain the growth. As of now, India is adding around 9 mn subscribers a month, and in June 20010 the country added 11 mn subscribers.E.g. if we look into Samsung Indias distribution chain, we find that every Samsung product other than the mobile phone (and IT products, which again has a different distribution chain) are careend by the same wholesaler. For mobile phones, in that respect is a totally different Distribution. This is a result of the supra two major factors (pace of sales and natural size of product).Example Distribution of mobile phones by SamsungThe Distribution of Samsung mobile phones is divided by zones primarily. This strategy is more or less similar for all major mobile phone manufacturing companies. The northern region, comprising Jammu and Kashmir, Punjab, Haryana, Himachal Pradesh, Uttar Pradesh, Delhi, Uttarakhand and Rajasthan, have foursome distribution partners for Samsung Mobile. Now for better reach and response to consumer demands and to cater to them efficiently Samsung are looking to add five more distribution partne rs to the Yankee Region. Samsung has recently strengthened its distribution network in the country by appointing SSK and Link as its distributors for mobile sales in the Western and easterly part of the country, respectively. The company already has Telemart and United Telelinks as its distributor in the Northern and southmostern parts of the country.There are commonly two distributors mingled with the company (Samsung Mobile) and the retailer. E.g. there is a chief distributor for the products for the westerly zone. Under that distributor, there are other wholesalers for the mobile handsets which are usually for particular cities in case of cities with considerable size and market. E.g. Ahmedabad has two distributors which supply to the retail firms in the city. While some of the smaller cities/towns have a distributor in common. Also, some of the premium retail firms might deal directly from the chief distributor (only if the quantities justify it).Example strategy Franchisee retailersAlso, Franchising Strategy for some companies has also helped in driving sales and profitability. E.g. Nokia Priority franchisee showrooms. Nokia has setup priority dealers to boost growth in organized trade. The following have been the benefits for Nokia as a result of the success in franchisee retailing unconditional brand experience crosswise segments in a look intoled environment steer drives retention for Nokia Win the war before the battlePositive retail experience drives high avg. selling pricesHarnessing entrepreneurship spirit of franchiseesRetail space investiture by franchiseeNokia drives location selection, branding merchandizing support, media supportTackles fakes effectivelyThe Value constituent to Nokia by Nokia Priority dealers in 2007 was around 10% of the total revenue enhancement generated by Nokia in India. It is expected to be around 20% by 2010.A TYPICAL DISTRIBUTION seam FOR MOBILE HANDSET VENDORSConsumer makerMobile DevicesNational Distribu torRDSRetailer/ Key AccountWhen we contacted retail outlets like Hotspot, The mobile store, which comes right before the end user in the distribution system, they gave us similar exposit regarding the channel members which are above them for various hand set providers. This information was further substantiated by see the redistribution stockists of companies like nokia, samsung, LG, spice etc. However, although the above structure is pretty common in industry, the Indian players like Spice, Micromax etc have gone away with the concept of national distributor. We will discuss the implications of this decision by taking Spice Mobile as our information reference book.INDUSTRY LEADER NOKIA DISTRIBUTION CHANNELNokia India(ND)HCL India(ND)Bright point India(ND)GSM HandsetsSouth and west IndiaGSM HandsetsNorth and East India strand 3.5%CDMA HandsetsNational Distributor coast 3.5%Redistribution StockistPan India150 NosMargin 2.2%South and West India90-100 Nos(Urban+rural)Margin 2.2%Red istribution StockistRedistribution StockistNorth and East India90-100 Nos(Urban+rural)Margin 2.2%Micro Distributor(Rural) five hundred NosMargin 3%Retail Outlets (includes Telecom Outlets, Electronics Stores, Nokia Priority Dealers, Key Accounts, modern-day Trade, Operator Stores)100,000 nos. (Nokia has a numeric reach of 99% and a weight reach of 99%Margin 3-5%TRANSPORT OF GOODS social organisation NOKIAThis is the flow of goods from the production/assembly units in china and Malaysia to the end user. For Nokia, central warehouses are primed(p) in Mumbai, Chennai and Delhi, which then transfer handsets to regional warehouses, typically 1 in each state. From these regional warehouses, handsets are then transferred to the redistribution stockist wherein the actual sales to retailers happen mostly on ready stock basis.SALES TEAM social system NOKIAFor Nokia, the last direct in its sales force is Area sales manager. Earlier, they used to have sales officers and sales managers un der nokias direct control and pay scale but now these two profiles have been shifted or in some cases omitted to/by distributor. Sales executives, ISDs all are on the pay scale of distributors. alter MOBILE DISTRIBUTION CHANNEL STRUCTUREAfter sales SupportCentralized Repair Center new-fangled Trade press out/Regional DistributorsLocated in DelhiCompany operated beg poreDirectly by Spice MobileDedicated sales team at regional takeMargin 6-7%Pan India56 Nos (state wise)Margin 2.2%Micro Distributor (RDS)500 Nos (Tier2, Tier3 cities)Margin 6% original regional repair nubble (ARC)Central distribution and collection center for parts and faulty handsets32 (in each state)Authorized service center (ASC)Multi brand service centresTotal 76 in number across IndiaRetail Outlets (includes Telecom Outlets, Electronics Stores, Hotspot Dealers, Key Accounts, Modern Trade, Operator Stores)50,000 nos.Margin 3% atleast rest depends on consumers bargainingAs opposed to other competitors, the differen tiating factor about spice distribution chain is the removal of one layer in the distribution chain, namely the national distributor level. They distribute their products directly to regional distributors, who in turn distributes to the micro distributors and then, to retailers. Micro distributors provide the extensive reach to them as they have heavy strawman in the rural areas/villages where they operate.The key advantage of operating such a structure according to our discussion with Spice sales team is the margins that the national distributor makes, which can be passed down the chain to the regional distributors and retailers. This results in higher profitability for channel partners ie. regional distributors, micro distributors, retailers, which in turn results in them being more aggressive in promoting the Companys products to its customers.The entire warehousing and distribution management has been outsourced with effect from 31st October, 2005 for the time period of 5 yea r to AFL Logistics, a division of AFL Pvt. Ltd. (AFL), one of the logistics management companies in India, which is responsible inter alia for loading of goods to regional distributors through its controlling warehouse based in Delhi. mention PARTICIPANTS IN DISTRIBUTION CHANNEL ROLES AND RESOURCESNow lets discuss in details the various function of channel membersCompany Spice mobile manufactures the goods in Himachal plant or assembles them once procured from China and send the same to the distributors. The logistic partner (AFL) assist the company in the same. The company does the negotiations and promotion activities on its own. The credit and payment policies are also handled and negotiated between the company and distributors. Also company directs certain promotions to retailers.Regional Distributors Ownership is transferred once invoice is generated by spice to state/regional distributors. They transfer the products from company to distributors. They basically take order form the distributors and provide them with the products. They bear risk and negotiations are also handled by them. These parties absolve company from appointing more soulnel and funds for the activeness of mere reassignation and inventory holding from warehouse to the distributor.Micro Distributors They are the primary buyer of company. The sharing of information, risking and payment are carried out between regional distributors and distributors and then between regional and company. Distributors provide market reporting to the company also create orders. In Spice mobile, promotion exertion is carried out by distributors.Retailers They usually undertake all the functions and transfer the physical possession and ownership to customers. They usually only perform promotion along with company, for rest of the function they interact with distributors. They act as the final source of information and payment to the company.MembersRegional distributors/StockistStockist / Micro Distributor Retailer part tortuous in the business of re-distribution to authorized micro distributorsResponsible for warehousing, transport of goods to next tier and payment collectionMay be non- grievous bodily harm, but have separate set-up for each businessInvolved in the business of re-distribution to wholesalers and retailersMay be exclusive to the businessIncludes all classes of retail outletsInvolved in counter sales and not in the business of redistributionnot required to be exclusive to the businessResourcesHigh financial strength with ability to hold stocks groundwork Office, IT capability, godown spaceHigh financial strength with ability to hold stocks and provide credit in the marketInfrastructure ITLimited spend on localized sales promotion purloin store location and sizeSALES TEAM STRUCTURE SPICEISSUES IDENTIFIED IN SPICE SALES AND DISTRIBUTIONMultiple Micro distributors in a given territoryHaving multiple distributors in a territory can spell problems for the company because when two or more distributors supply to the same retailer it can cause disputes. Also the distributors do not pledge loyalty to the company. This problem is faced in lowering markets like NCR where distributors are very closely located. Like in Gurgaon sector 14 market, spice distributor itself is doing retailing as well although there are other retail stores in the market whom he himself sell There is a clear limited control over distribution i.e. spice people cannot take action against any non performer or in some cases high performer doing some leakage in the system.The company does not have any MIS at the distributor levelThe company does not have any MIS at the distributor level where it can measure the sales done by the distributor. The distributors have their own software in which they fill in their sales of a period and send it to the company. Thus secondary sales are not captured ofttimes and spice is dependent on distributor for this data. It seems spice is not at all int erested in tracking the final sales.There is no clear cut financial obligation of goods damaged in transportationAs told by the distributors, there is no clear cut rule for the liability of the goods damaged in transportation. Sometimes it is borne by the company and sometimes by the distributor. But if the value of the damaged goods is significantly high, it can result in a conflict between the company and the distributor.No exclusive retail stores to capture urban marketsSpice has a very strong presence in tier 2 and tier 3 towns. But, in metros and tier 1 cities they fall way behind Nokia, Samsung etc. One motive is that spice on mobile store, Hotspot doesnt work on exclusive spice model but carry a full roll out of competitor products. Thus to capture the interest of urban consumer, apart from new higher end models, spice also need a strong independent stores more in the lines of Nokia priority dealers as part of its distribution network.No dedicated sales force to monitor di stributorAs per our discussion with Spice distributor and Spice sales team, sales person or ISDs are on a pay scale of State distributor. Although their targets and region is set by distributor, sometimes with the help of Area sales manager, since ASM does not have any ownership of sales force, all push efforts and execution of sales plans cannot be tracked to a definite level.