After Sales Service
Channel Strategy
Transition from retail to online
Excess Demand/Shortage
Category Channel success
Forecasting
Push/Pull
How to manage low sales of a product(incentives for retailers/distributors)
Samsung
Challenges faced from C brands
Mobile division in Samsung has 2 major channels :
1. General Trade
2. Organized Trade - Croma, Reliance, Vijay Sales (here margins are low as there are
high discounts)
Organized trade contributes 10-12% in value
Online channel - 10-12% in value
Under general trade, outlets are categorized as per the sales they make in a month
<1 lakh sales - DCM outlet
1-2 lakh - Star DCM
2-7 lakh - RCM
7-10 lakh - SIS+ (Samsung Instore)
10-25 lakh - SIS Pro
Above 40 lakh - PC
Distribution channel :
From the factory outlets products are send to MDD ( Management Divisional Distributor)
which are exclusive distributor of Samsung, normally at State level. Delhi NCR also has one.
Margin for MDD - 2%
For competitors, vivo/oppo - 2.5%
Then the products are passed on to (SDD)Specific Division Distributors which are present at
zonal level. Calcutta has 2 SDDs and West Bengal in total has 6. This division is based
mostly in terms of no of customers served.
Margin for SDD - 3%
For competitors - 5%
From SDDs, products are further sent to Retail outlets.
How are margins defined at Retail outlets?
Dealer Price - Price at which product is sold to retailer.
Market Operating Price - min price at which retailer is expected to sell the product in the
market to maintain standard practices and prohibiting retailers from giving deep discounts to
gain customers.
MRP - Maximum Retail Price at which product can be sold.
DP - MOP gap - 3%
For competitors - 8%-10% (1st issue for Samsung)
This makes it difficult for Samsung to push its product at retail level.
Retailers receive incentives in various forms from the distributors. The above mentioned is
one.
2nd incentive : Per mobile incentive
So if 10000 models of S8 are sold in a month at your outlet, you will receive 20,000 as
incentive. This is done for various models to drive up their sales.
Competitor - Their incentive per mobile are normally triple of what samsung provides.
(2nd issue for Samsung)
3rd incentive : Monthly target
If they achieve 100 -110% of the monthly target, they receive an additional 5% of the
samsung margin on the additional sales generated over and above monthly target.
These are the 3 incentives mentioned here but otherwise there are numerous transactions
between distributor and retailer which makes it very difficult for small retailers who normally
do not spend much on softwares to track how much incentives are they receiving under
various schemes.
To counter that strategy of competitor :
Micromax which had arrived in India before C brands, was a customer friendly brand
providing best products to customers at heavy discounts. What oppo and vivo are targeting
is to be retailer friendly so that they can push the sales at retailer level.
For that they have made incentive structure easier for retailers.
(3rd Issue)
They have categorized retailers under categories and under that they are paying flat 20,000
if the sales are in the range of 80-90% of monthly target. The no varies as per category. This
makes it easier for retailer to understand.
Incentive for doing marketing for Samsung :
To put up a GSB/fixture/standee of Samsung, samsung has to pay retailers.For eg - to put
up a GSB, samsung pays 1.5% of the Samsung revenue from that store.
On the other hand competitor pays flat 20,000 or 30,000 for putting up a board. Some
competitors have gone to the extent of asking retailers to remove Samsung board and put
up their board and are paid 2 lakh. What competitor is doing is identifying major samsung
stores and putting a dent in the sales in such stores through such practices.
(4th Issue)
Incentive for being the top performers :
Competitors are highly engaged with retailers and send them on a trip to Dubai or give them
IPL tickets for the top 10% performers. This puts forward a good word of mouth publicity and
retailers try to pursue demands of such companies more.
(5th Issue)
What all this is leading to?
Penetration of Samsung - 40-45k stores
Oppo - 10k stores
Vivo - 10k stores
Market share of Samsung is 40% in GT. It is still high owing to high value models sold by
samsung. But in the 10-20k range, it is falling very sharply.
Small retailers are focussing on benefits they are getting instantaneously. This is not true for
big stores. They know that their premium customers are coming for expensive models of
Samsung and they need to maintain a healthy relationship with Samsung.
Since the past one year, inspite of such a friendly incentive structure of competitor, retailers
are staying loyal to Samsung as they see it as a stable brand. They have seen other brands
coming and going but Samsung is there to stay. But at the same time, heavy investment
made by vivo in IPL, oppo signing contract with Deepika for 3 years is gaining confidence
among retailers that they are there to stay. Loyalty towards samsung is declining.
(6th Issue)
Xiaomi
It has revised its model from only online to online and offline. They are currently expanding.
They have also approached retailers and asked them to keep only Xiaomi models for which
they are ready to pay the premium for whatever losses they incur. With this they had
destroyed 1000 stores of Samsung.
(7th Issue)
Organization Structure
ASM (Area Sales Manager) - Zonal Sales Manager - Regional Manager - HQ(Marketing) Budget allocation team
Area sales manager has no power. He cannot do any branding on his own. All his request
need to go till HQ and approved by the budget team and come back. This means roughly 4560 days are taken to put up a GSB board.
For competitors, an ASM gets a budget for his area and he is given the authority to spend it
in the best possible manner to generate maximum revenue. This all leads to a GSB board
put up in 5-10 days.
Flat structure - quick decision making
(8th Issue)
It is difficult for Samsung to convert itself from a highly hierarchical structure to flat as it has
been like that for years and also Korean believe that it was the primary reason for their
success all these years. But attempt are being made.
Samsung Promoters inside the shop :
Samsung provides Samsung trained, Samsung paid promoters inside the store if the
revenue generated by the store is 5 lakh and above.
For oppo/vivo there is no minimum required. Oppo/vivo also allows shopkeepers to turn into
promoters. This gives an opportunity for shopkeeper to earn another 15-25k a month.
Oppo/vivo also asks shopkeepers’ friends and family to be the promoters and they will be
paid accordingly. Oppo/vivo are building a retailer family.
(9th issue)
Affordability schemes :
For people who cannot make all payment in one go, there are affordability schemes with
zero down payment, zero processing fee and zero interest asking them to payback within 5
months. Samsung provides these affordability schemes to some stores. The financial firms
who provide this receive 5% of the margin of Samsung revenue for the risk that they take.
Oppo/vivo provide 8%. Infact Oppo/vivo also motivate them to provide affordability schemes
to new stores where the risk is high and in return oppo/vivo will provide 12% of the margin of
their revenue.
What is oppo/vivo gaining from this? - If it provides affordability schemes in stores where
customers are not guaranteed to pay money, they may lose on revenue. But currently the
most important factor for them is that the product sells and the people use it and give them
world of mouth publicity.
Samsung tracks sales everyday and from his understanding he found that the consumers do
not have the tendency to buy in the one last week of the month because of cash crunch. So
samsung introduces affordability schemes in the first 3 weeks only. Oppo vivo introduces it
in all 4 weeks understanding that there is customer spill over from the fourth week to the first
week of the next month.
Demo phones :
Samsung gives one demo phone per model. Samsung has around 20-24 models ranging
from 4k - 70k. On the other hand oppo/vivo has 6-8 models for which they provide as many
demo phones as possible.
Further Samsung collects back the demo phones and does not allow them to be sold in
market place fearing a used product may bring bad fame to Samsung if found damaged. On
the other hand oppo/vivo allows demo phones to be sold at discount to retailers and their
friends and families.
Product :
Features to Price ratio is very high for oppo/vivo. Oppo/vivo is selling product in the range of
10-20k. Here the customer segment expects the phone to work for an year or 2 at max. And
in this time frame oppo/vivo models work properly. They also have service centres across
India but they are empty.
Credit Policies :
Normally distributor wants payment in 7-10 days otherwise next stock is not provided. For
competitor it is one month with a clause that if you pay back within 3 days, 2% discount will
be given.
Samsung and its diversification across products :
Samsung is currently so diversified that if it starts providing discounts it will compete with its
own models.
How do they get new distributors?
They have exclusive distributors. No new distributors have been added in the last few years.
Normally when a distributor earns enough he opens branch in other regions and Samsung
continues doing business with them. The new distributors also which Samsung gets involved
with are frequently the one suggested by the current ones. Sometimes a distributor is also
taken through MDP or SDDs suggestion. These distributors need to be heavily loaded
because we do not provide them any financial support. We take money from them upright as
soon as we give them the product.
Solutions :
To counter the complexity of the incentive program of Samsung, they have purchased a
software for retailers where retailers can login and see how much they are receiving under
different incentive scheme under different tabs. This again will be more suitable for large
retailers. Many of the small retailers are uneducated and do not know how to use a computer
and prefer calculations on pen and paper. In such cases incentive structure provided by
oppo/vivo makes their work easier.
Regional empowerment - To counter the bureaucratic structure of the organization it needs
to be decentralized. Outlets should be budgeted as per the sales generated and regions
should be empowered.
Margins to retailers (DP - MOP gap)
Variable as per models
We are not facing high competition in the upper price segment where we can keep the DPMOP to be 3%. But in the lower segment we need to increase it to 4-5% to keep our retailers
otherwise they will stop dealing with Samsung.
Push factor
On the other hand, Samsung also needs to educate retailers on what oppo/vivo is actually
doing to them. They are playing mind games. Though the DP-MOP gap is 8-10%, but
because MOP is not properly maintained, the retailers end up taking a margin of 1-2% in
some worst cases because of price competition within different stores.
Eg : Dealer Price - 100
MOP - 108
To convert consumers quickly retailers start providing discounts and in the end they find
themselves selling models at 101 or 102.
On paper, the overall margins which Oppo/vivo promises them are 22-24%. But in reality
they are 15% and Samsung are 12%. Samsung is conducting sessions with retailer to make
them understand this scenario.
Product launches - Samsung is inviting dealers in product launches. They are engaging with
retailers trying to understand their concerns.
Product testing - They have started giving product to retailer to use it and let Samsung know
what can be improved