The business strategy of asian paints

The business strategy of AP has been on the basis of acquiring a series of short-term competitive advantages by adopting measures that raised the Cost of doing business for all its competitors by raising the hygiene factor in the business. So far, Asian Paints has been using its distribution strength and logistical efficiency to attain this advantage. The advantage obtained by leveraging on distribution strength is short-lived and ultimately imitable. Moreover, AP has established such an extensive network that getting incremental advantage out of improving the distribution network could be very difficult. The next logical step for AP to look for to gain competitive advantage would be through either channel control or through occupying mind space. AP should try to increase the window of competitive advantage by using Marketing as a tool to acquiring competitive advantage. Some of the industry characteristics could be used to gain insights about the competitive scope of Asian Paints.

The company follows a three-pronged growth strategy – market expansion, acquisition and outsourcing.

By taking the above steps, the industry leader in the decorative paints segment (market share: 35-37 per cent), and number two in the industrial segment (20 per cent share), plans to emerge frontrunners in the paint sector.

Asian Paints’ present focus is on smaller cities and towns, even villages, where walls, interiors and exteriors are mostly lime-coated – and in the coming years most of them would be paint-coated, making them a major potential market for paint companies. The company will be investing around Rs 100 crore to expand its dealer-tinting line called Colour World, by adding another 2,000 systems as the demand for acrylic paints in smaller towns and cities is increasing and wood polish is another area where the focus is currently on.

As part of market expansion and brand-building plans, the company has formed a consumer services division. A prospective customer can call the division’s helpline and check out all about paints and even get a quotation to paint his house or shop – a novel way to reduce the influence of painters over the customers’ choice of brands.

The company intends to augment its production by debottlenecking its plant. This is expected to increase production by 80,000 tonne per annum (tpa) to 2.4 lakh tpa.The company is also on the lookout for acquisitions – both domestic and overseas.

So far, the industry hasn’t seen any mega mergers as there are very few [but large] players and because of low-entry barriers. So, this will be a major change. Asian Paints, in fact, has a considerable presence abroad, with 10 international joint ventures to its credit.

Urban strategy

The industry is characterized by the presence of intermediaries who have a very high influencing power on the purchase decisions of the consumer, especially in the urban areas. Asian Paints strategy for acquiring higher product demand could be three pronged.

Use these intermediaries for initiating demand: The intermediaries (the painters, contractors, designers, decorators etc.) could be used as a marketing arm of the company. They could acts as spokespersons of the company and promote the company’s products to the customers. Some of the bigger contractors could be paid a commission for bagging contracts that involve purchase of Asian Paints.

Occupy part of the intermediary space and try to sideline other intermediaries: Asian Paints should open a service arm, which would provide the services provided by the existing intermediaries in the market. For operationalising this strategy, AP could select a few of the existing intermediaries, give them the tag of Asian Paints service wing, and follow a franchisee model of operations. Being present in different seditions of the value delivery system and having a strong brand equity in the Paints market would give AP the credibility to operate a strong service arm. The service based strategy of AP could have two different approaches

AP could become a service provider with the aim of providing a supporting arm to the Products business. In this case, the fundamental aim of the service sector would be to remove the transaction costs of the end-consumer by providing all the aspects of painting in a bundled fashion. The service sector could be set up as a loss making venture with its fundamental function being bringing in more customers for the product. In this case, AP’s main business would be in the manufacturing business and the service sector would act as marketing arm for this. The ideal analogy to this kind of service would be the financing services arm of motorbike manufacturers of the country. All the financing services are, in themselves, loss-making, but by offering credit they remove the transaction costs of the consumers, thereby increasing product demand. (Or)

AP could change the industry dynamics totally by providing value added services as an intermediary player. The company could play the role of interior decorator and paints consultant and help the consumer in designing and painting his house. In this scenario, AP would be changing the business from being a product based one to a service based industry and would be appropriating value through the services it provides.

The first approach would entail creating a service arm that can cater to a large market, whereas the second one would necessitate the creation of a well-qualified service arm which is capable of providing value-added services. AP can follow both these approaches and cater to different market segments. The value-addition services arm would cater to the premium end of the market who have a very high willingness to pay and the other bundling services arm would cater to the demands of the masses.

AP could try to reduce the power of the intermediary by increasing the Pull for the product. The role of the influencer could be drastically reduced by increasing the power of the end-consumer. AP can also try to increase end-consumer power by removing information asymmetry between customer and manufacturer. AP can achieve this by establishing a strong brand name for its brands. The possible utility of branding in this segment has been analyzed as presented in the next chapter.

AP has actually been taking efforts along all the three above mentioned lines to gain competitive advantage. AP has started a service arm and is attempting to do Permission marketing; which essentially means that a marketing team contacts individual homes and offers specific Painting solutions to them free of cost. AP ‘s Colourworld is also an effort in the direction of providing value-added services. AP’s helpline is a tool designed to reduce information asymmetry and therefore increase end customer power.

Parallel execution of strategies suggested in 2 and 3 could lead to a situation of eventual disintermediation in the industry. Simultaneously occupying intermediary space and reducing intermediary power could ultimately lead to a situation when the intermediary providing service gets integrated with the parent company operations and the other intermediaries get totally eliminated, thereby removing an entire layer in the value-chain. (Similar to the Dell model of operations).

Rural strategy

The above-mentioned strategies can be used for the urban segment. The dynamics of the rural segment are slightly different and different strategies need to be adopted for these. The rural segment is not mature enough to appreciate service related offerings and therefore the strategy should be product related. The basic strategy that has to be adopted in the rural segment is one of customer up gradation. The penetration of the rural segment has been achieved by offering a basic product well tailored to match the low willingness to pay of the rural consumer.

After basic penetration levels of the category have been achieved and the traditionally used proxies eliminated, the rural consumer can be offered a “higher ” range of products with a view to up grading the consumers. The highly value sensitive rural consumer is likely to react positively to product offerings that provide a good cost benefit equation, even if the products are costlier.

Achieving greater rural penetration

The company has a very good penetration in most rural markets. The field offices deal with dealers directly even in towns with population up to 10,000. Wholesalers dealing with the products are able to reach even smaller towns more effectively.

Marketing paints calls for an FMCG kind of strategy. The company is focusing on towns with clusters of villages around them to achieve better rural penetration.

Apart from the company’s existing brands for the rural markets, such as ‘Utsav’ and ‘Tractor’, they have plans for new products and business propositions to cater to the needs of these markets. Asian Paints is well poised to take maximum advantage of the concessions given to the housing sector and of the growing disposable incomes in rural India.

THE SUPPLY CHAIN- Asian Paints has harnessed the powers of state-of-the-art supply chain system using cutting edge technology to integrate all its plants, regional distribution centres, outside processing centres and branches in India. Four of the company’s paints plants in India, two chemical plants, 18 processing centres, 350 raw material and intermediate goods suppliers, 140 packing material vendors, 6 regional distribution centres, 72 depots are integrated.

The supply chain runs through a wide spectrum of functions right from materials planning to procurement to primary distribution. It has played a pivotal role in improving operational efficiencies and creating agile procurement, production and delivery systems. It has also enhanced the flexibility of operations, lowered output time and reduced delivery costs, while improving customer-servicing levels and profitability.

THE IT DEPARTMENT

The Supply Chain Management is backed by IT efforts that help the company in demand forecasting, deriving optimal plant, depot and SKU combinations, streamlining vendor relationships, reducing procurement costs, and scheduling production processes for individual factories.

HUMAN RESOURCE

Asian Paints believes that people are its strongest assets. For a company can go only as high as its people aim. It is people who innovate and invent, and who engineer the efficiencies that make a business succeed. At Asian Paints, human resources systems are designed to create a vision focus performance oriented, and agile company. A talent pool of over 4700 employees employed across twenty-three countries brings in a unique blend of mindsets and skills.

FULFILING RESPONSIBILITIES

Asian Paints approaches the environment issue from the perspective of waste minimisation and conservation of resources. Thus, the continued attempt is to reuse, recycle and eliminate waste, which results in less and less waste being generated. Accordingly material losses in manufacturing have been reduced substantially over the last few years. Further, the company’s four paint plants and the two chemical plants in India have the ISO 14001 certification for environment management standards. The company uses the latest technologies like solvent recovery plants, reverse osmosis, and rainwater harvesting for keeping the environment clean and minimising wastages.

CUSTOMERS

The very core of all business activities. From the beginning, Asian Paints has fostered a customer-centric approach to business. A simple but unbeatable concept of “going where the customer is” drives all retail strategies. Asian Paints efforts are continuously on to engage the consumer in the painting process and fulfill all the requirements related to the world of painting.

Asian Paints has launched a supplier portal that includes an automated digital document exchange facility that will improve the efficiency and effectiveness of interaction with suppliers. An employee portal has also been set up. Customer Relations Management (CRM) tools are being used in Asian Paints Helpline and Home Solutions initiatives.The successful deployment of ERP, CRM, Business Intelligence and Portal software from leading solution providers and integrated SCM systems has helped improve efficiency in the business as well as increase the transparency and accuracy of information across the company. In order to affect 24×7 availability of the IT infrastructure, a disaster recovery site in South India is also being set up.

Mass Customization

One of the major factors contributing to the success of Asian paints is the adoption of ‘Mass Customization Strategy’.

‘Mass customisation’ is the ability of an organisation to offer individually tailored products or services on a large scale. It means that the consumer can get only and exactly what he wants, at a price he is willing to pay.

This has been effectively used by Asian Paints in gaining market leadership position (more than 40% of Decorative Pain Segment). It has reengineered all its systems from raw material sourcing and bulk manufacturing all the way down the chain to the retail end, with one well-defined aim: to put the company in synchrony with market demand. This has helped the company to enjoy the economies of mass production combined with the flexibility of customisation. However the company could not succeed in its attempt to mass customize the product in the late sixties and early eighties. This is more due to the lack of synchronisation in the information flow of the customisation cycle, especially in the manufacturing planning configuration and product assembly which were found to be uneconomical. In the mid-90’s, Asian Paints, successfully mass customised paints to meet the consumer demand. The flexibility in the production process helped the customer to choose his own colour/shade of paint unlike the earlier mass produced shelf products. More significantly the break through in the IT sector since 1990’s enabled APL to introduce SCM and ERP in effectively synchronising the elements of mass customisation. Thus APL is utiltising mass customisation as an effective competitive strategy so far.

Asian Paints’ market leadership in India

Asian Paints has been the market leader in the Indian paint industry for over three decades. Today the company has a very high market share. The nearest competitor is half our size. Yet, despite the dominant position in the market, Asian Paints has been able to consistently record an increase in market share. The company’s market share has increased over 3 per cent in the past seven years.

An excellent cadre of professional managers and strong entrepreneurial orientation has provided a significant competitive edge to the company. The company’s strengths are in its human resources, especially in marketing.