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Hindustan Unilever Limited Hul Marketing Essay

Paper Type: Free Essay Subject: Marketing
Wordcount: 4901 words Published: 1st Jan 2015

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Hindustan Unilever Limited is Indias largest consumer goods company based in Mumbai, Maharashtra. It is owned by the British-Dutch company Unilever which controls 52 majority stake in HUL. Its products include foods, beverages, cleaning agents and personal care products.

HUL was formed in 1933 as Lever Brothers India Limited and came into being in 1956 as Hindustan Lever Limited through a merger of Lever Brothers, Hindustan Vanaspati Mfg. Co. Ltd. and United Traders Ltd. It is headquartered in Mumbai, India and has an employee strength of over 16,500 employees and contributes to indirect employment of over 65,000 people. The company was renamed in June 2007 as “Hindustan Unilever Limited”.

Lever Brothers started its actual operations in India in the summer of 1888, when crates full of Sunlight soap bars, embossed with the words “Made in England by Lever Brothers” were shipped to the Kolkata harbour and it began an era of marketing branded Fast Moving Consumer Goods (FMCG).

Hindustan Unilever’s distribution covers over 2 million retail outlets across India directly and its products are available in over 6.4 million outlets in the country. As per Nielsen market research data, two out of three Indians use HUL products.

We have analyzed the distribution network of HUL from the following aspects:

Evolution of HUL’s distribution network

Channel Structure

Initiatives taken for channel member management.

Field force management

Analytical Framework

Distribution Network of HUL

5.2.Evolution over Time

HUL’s distribution network has evolved with time. The first phase of the HUL distributionnetwork had wholesalers placing bulk orders directly with the company. Large retailers also placeddirect orders, which comprised almost 30 per cent of the total orders collected. 

The companysaleman grouped all these orders and placed an indent with the Head Office. Goods were sent tothese markets, with the company salesman as the consignee. The salesman then collected and distributed the products to the respective wholesalers, against cash payment, and the money was remitted to the company. The focus of the second phase, which spanned the decades of the 40s, was to provide desired products and quality service to the company’s customers. In order to achieve this, one wholesaler in each market was appointed as a “Registered Wholesaler,” a stock point for the company’s products in that market. The company salesman still covered the market, canvassing for orders from the rest of the trade. He then distributed stocks from the Registered Wholesaler through distribution units maintained by the company. The Registered Wholesalersystem, therefore, increased the distribution reach of the company to a larger number of customers.

The highlight of the third phase was the concept of “Redistribution Stockist” (RS) who replaced the RWs. The RS was required to provide the distribution units to the company salesman. The second characteristic of this period was the establishment of the “Company Depots”system. This system helped in transshipment, bulk breaking, and as a stockpoint to minimise stockouts at the RS level. In the recent past, a significant change has been the replacement of the Company Depot by a system of third party Carrying and Forwarding Agents (C&FAs). The C&Fas act as buffer stock-points to ensure that stock – outs did not take place. The C&FA system has also resulted in cost savings in terms of direct transportation and reduced time lag in delivery. The most important benefit has been improved customer service to the RS. The role performed by the Redistribution Stockists includes: Financing stocks, providing warehousing facilities, providing manpower, providing service to retailers, implementing promotional activities,extending indirect coverage, reporting sales and stock data, demand simulation and screening for transit damages

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Detail Overview:

The distribution network of HUL is one of the key strengths that help it to supply most products to almost any place in the country from Srinagar to Kanyakumari. This includes, maintaining favorable trade relations, providing innovative incentives to retailers and organizing demand generation activities among a host of other things. Each business of HUL portfolio has customized the network to meet its objectives. The most obvious function of providing the logistics support is to get the company’s product to the end customer.

5.3.Distribution System of HUL

HUL’s products, are distributed through a network of 4,000 redistribution stockists, covering 6.3 million retail outlets reaching the entire urban population, and about 250 million rural consumers. There are 35 C&FAs in the country who feed these redistribution stockists regularly. The general trade comprises grocery stores, chemists, wholesale, kiosks and general stores. Hindustan Unilever provides tailor made services to each of its channel partners. It has developed customer management and supply chain capabilities for partnering emerging self-service stores and supermarkets. Around 2,000 suppliers and associates serve HUL’s 40 manufacturing plants which are decentralized across 2 million square miles of territory.

Schematic of HUL’s Distribution Network

5.3.1.Distribution at the Villages:

The company has brought all markets with populations of below 50,000 under one rural sales organisation.The team comprises an exclusive sales force and exclusive redistribution stockists.The team focuses on building superior availability of products. In rural India, the network directly covers about 50,000 villages, reaching 250 million consumers, through 6000 sub‐stockists.

HUL approached the rural market with two criteria ‐ the accessibility and viability. To service this segment, HUL appointed a Redistribution stockist who was responsible for all outlets and all business within his particular town. In the 25% of the accessible markets with low business potential, HUL assigned a sub stockist who was responsible to access all the villages at least once in a fortnight and send stocks to those markets.

This sub‐stockist distributes the company’s products to outlets in adjacent smaller villages using transportation suitable to interconnecting roads, like cycles, scooters or the age‐old bullock cart. Thus, Hindustan Unilever is trying to circumvent the barrier of motorable roads. The company simultaneously uses the wholesale channel, suitably ncentivising them to distribute company products. The most common form of trading remains the grassroots buy‐and‐sell mode. This enables HUL to influence the retailers stocks and quantities sold through credit extension and trade discounts. HUL launched this Indirect Coverage (IDC) in 1960s.Under the Indirect Coverage (IDC) method, company vans were replaced by vans belonging to Redistribution Stockists, which serviced a select group of neighbouring markets.

5.3.2.Distribution at the Urban centres:

Distribution of goods from the manufacturing site to C & F agents take place through either the trucks or rail roads depending on the time factor for delivery and cost of transportation. Generally the manufacturing site is located such that it covers a bigger geographical segment of India.From the C & F agents, the goods are transported to RS’s by means of trucks and the products finally make the ‘last mile’ based on the local popular and cheap mode of transport.

BUSINESS MODEL OF HUL:

Direct marketing: Selling products through direct dealing with consumers bypassing intermediaries.

Traditional methods: cold calling, telephone selling, and door-to-door calling, telemarketing, mail order, direct-mail selling, direct radio selling, magazine and TV advertising

The main advantages of selling direct are that there is no need to share profit margins and the producer has complete control over the sales process. Products are not sold nearby those of competitors either.

Specific market factors that would encourage direct selling are –

need for an expert sales force, to demonstrate products, provide detailed pre-sale information and after-sales service

Unwillingness of retailers, distributors, dealers and other intermediaries to sell the product

Clout of competitors over existing distribution channels

There are significant costs associated with selling direct which may be higher than the costs associated with using an intermediary to generate the same level of sales. However, there are several potential advantages of using an intermediary.

Greater efficiency in distribution logistics

Lower overall costs (even after including margins or commissions)

Variety seeking behavior of consumer at point of sale

Lack of resources / expertise for producers in direct selling

5.3.3.Indirect distribution

It is the system the marketer reaches the intended final user with the help of others. These resellers generally take ownership of the product, though in some cases they may sell products on a consignment basis (i.e., only pay the supplying company if the product is sold). Under this system intermediaries may be expected to assume many responsibilities to help sell the product. The indirect methods include –

5.3.3.1Single-Party Selling System

Under this system the marketer engages another party who then sells and distributes directly to the final customer. This is most likely to occur when the product is sold through large store-based retail chains or through online retailers, in which case it is often referred to as a trade selling system.

5.3.3.2.Multiple-Party Selling System

This indirect distribution system has the product passing through two or more distributors before reaching the final customer. The most likely scenario is when a wholesaler purchases from the manufacturer and sells the product to retailer

5.3.4.New distribution channels

5.3.4.1.Project Shakti

This model creates a symbiotic partnership between HUL and its consumers. Started in the late 2000, Project Shakti had enabled Hindustan Lever to access 80,000 of India’s 638,000 villages .HUL’s partnership with Self Help Groups(SHGs) of rural women, is becoming an extended arm of the company’s operation in rural hinterlands. Project Shakti has already been extended to about 12 states- Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Tamil Nadu, Chattisgarh, Uttar Pradesh, Orissa, Punjab, Rajasthan, Maharashtra and West Bengal. The respective state governments and several NGOs are actively involved in the initiative. The SHGs have chosen to partner with HUL as a business venture, armed with training from HUL and support from government agencies concerned and NGOs. Armed with micro-credit, women from SHGs become direct-to-home distributors in rural markets.

The model consists of groups of (15-20) villagers below the poverty line (Rs.750 per month) taking micro-credit from banks, and using that to buy our products, which they will then directly sell to consumers. In general, a member from a SHG selected as a Shakti entrepreneur, commonly referred as ‘Shakti Amma’ receives stocks from the HUL rural distributor. After being trained by the company, the Shakti entrepreneur then sells those goods directly to consumers and retailers in the village. Each Shakti entrepreneur usually service 6-10 villages in the population strata of 1,000-2,000. The Shakti entrepreneurs are given HUL products on a `cash and carry basis’.

5.3.5.Project Streamline / Stream Line Distribution:

To improve the efficiency of a process, business organization by simplifying or eliminating

unnecessary steps, using modernizing techniques, or taking other approaches. To cater to the needs of the inaccessible market with high business potential HUL initiated a Streamline initiative in 1997. Project Streamline is an innovative and effective distribution network for rural areas that focuses on extending distribution to villages with less than 2000 people with the help of rural sub-stockists/Star.Sellers who are based in these very villages. As a result, the distribution network directly covers as of now about 40 per cent of the ruralpopulation. Under Project Streamline, the goods are distributed from C & F Agents to Rural Distributors (RD), who has 15-20 rural sub-stockists attached to him. Each of these sub-stockists / star sellers is located in a rural market. The sub-stockists then perform the role of driving distribution in neighboring villages using unconventional means of transport such as tractor and bullock carts. Project Streamline being a cross functional initiative, the Star Seller sells everything from detergents to personal products. Higher quality servicing, in terms of frequency, credit and full-line availability, is to be provided to rural trade as part of the newdistribution strategy.

5.3.6.Hindustan Lever Network (HLN)

It is the company’s arm in the Direct Selling channel, one of the fastest growing in India today. It already has about several lakh consultants – all independent entrepreneurs, trained and guided by HLN’s expert managers. HLN has already spread to over 1500 towns and cities, covering 80% of the urban population, backed by 42 offices and 240 service centres across the country. It presents a range of customised offerings in Home & Personal Care and Foods.

The New Compensation plan for HLN partners provides new exciting ways of earning substantial income in addition to offering rewards like revenue sharing through the innovative concept of “pools” Mother Depot and Just in Time System. In order to rationalise the logistics and planning task, an step has been the formation of the Mother Depot and Just in Time System (MD-JIT). Certain C&FAs were selected across the country to act as mother depots. Each of them has a minimum number of JIT depots attached for stock requirements. All brands and packs required for the set of markets which the MD and JITs service in a given area are sent to the mother depot by all manufacturing units.

The JITs draw their requirements from the MD on a weekly or bi-weekly basis. Leveraging Information technology HUL customers are serviced on continuous replenishment. This is possible because of IT connectivity across the extended supply chain of about 2,000 suppliers, 80 factories and 7,000 stockists. This sophisticated network with its voice and data communication facilities has linked more than 200 locations all over the country, including the head office, branch offices, factories, depots and the key redistribution stockists. They have also combined backend processes into a common Shared Service infrastructure, which supports the units across the country. All these initiatives together have enhanced operational efficiencies, improved the service to the customers and have brought us closer to the marketplace.

5.3.7.RS Net Initiative

The RS Net initiative, launched in 2001, aims at connecting Redistribution Stockists (RSs) through an internet based system. It now covers stockists of the Home & Personal Care business and Foods & Beverages in close to 1200 towns and cities. Together they account for about 80% of the company’s turnover. RS Net is one of the largest B2B e‐commerce initiatives ever undertaken in India. It provides linkages with the RS’s own transaction systems, enables monitoring of stocks and secondary sales and optimises RS’s orders and inventories on a daily basis through online interaction on orders, despatches, information sharing and monitoring. The IT-powered system has been implemented to supply stocks to redistribution stockists on a continuous replenishment basis. Today, the sales system gets to know every day what HUL stockists have sold to almost a million outlets across the country. Information on secondary sales is now available on RS Net every day. RS Net is part of Project Leap. Project Leap begins with the supplier runs through the factories and depots and reaches up to the RSs. This ensures HUL’s growth by ensuring that the right product is available at the right place in the right quantities and at the right time in the most cost effective manner. Leap also aims at reducing inventories and improving efficiencies right through the extended supply chain. RS Net has come as a force multiplier for HUL Way, the company’s action plan to not only maximise the number of outlets reached but also to achieve leadership in every outlet. RS Net has enabled stockists to place orders on a Continuous Replenishment System. This in turn has unshackled the field force to solely focus on secondary sales from the stockists to retailers and market activation. It has also enabled RSs to provide improved service to retail outlets. Simultaneously, HUL is servicing the rural market, key urban outlets, and the modern trade as a single concern. In 2000, HUL identified improved supply chain management as a critical business priority and launched a comprehensive initiative, “Project Leap,” tasked with increasing supplier/distributor responsiveness, reducing inventory buffers, and optimizing planning and scheduling. HUL chose the Adexa iCollaboration suite for facilitating centralized monitoring of the SCM, live customer /supplier collaboration, and integrating demand and distribution planning with production scheduling.

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With the aggregated view of data provided by the iCollaboration suite, HUL was able to combine sales and distribution efforts on the diverse product lines, which resulted in significant savings on the cost side for inventories and distribution. HUL updates inventory positions, shipments and customer orders on a daily basis with these software packages and can get a pulse on the market real time.

5.4.Channel Structure

Hindustan Lever Limited (HUL) has two types of channel selling –

i. Regular (traditional) retail channel,  

ii. Direct Selling Channel in the name of Hindustan Lever Network (HLN). 

 

HUL  has  a  well  entrenched  high  distribution  model  which  comprises  of  C&FAs,  Redistribution stockists, wholesalers and retailers (as shown earlier). Hindustan Unilever’s distribution network recognized as one of its key strengths. Its focuses on Product availability, Brand communication, and  higher levels of brand experience.

 

HUL’s Sales Break up through different channels: 

Sales Break-up Through Different Channels

Modern Retail :7%

General Urban Trade: 60%

Rural Areas: 33%

 

 

Typically, the goods produced in each of the HUL’s 40 factories are sent to a depot with the help of a carrying and forwarding agent (C&FA). The company has its depot in every state of the country. The C&FA is a third party and gets servicing fee for stock and delivery of the products. In each town,there is at least a redistribution stockist (RS) who takes the goods from the C&FA and sells them to retail outlets.

 

The HUL management realized certain problems with the existing sales model. First, the model was not viable for small towns with small population and small business. HUL found it expensive to appoint one stockist exclusively for each town. Secondly, the retail revolution in the country has changed the pattern the customers shop. Large retail self service shops or modern trade outlets were becoming commonplace. 

In  response  to  these  problems,  HUL  redesigned  its  sales  and  distribution  channel  and  the  new  system  is  known  as  ‘diamond  model’  in  the  company.  At  the  top  end  of  the  diamond,  there  are  the  self  service  retail  stores  which  constitute  about 10%  of  the  total  FMCG market. The middle, fatter part of the diamond represents the profit-center based sales team. In the bottom of the pyramid is the rural marketing and distribution which accounts for 20% of the business. As a result of the new distribution plan the company has planned to reduce the number of Redistribution Stockists in small towns.

For example, the number of redistribution stockists in Jharkhand have been reduced from 3 to 1 last year.

Redistribution Stockists

Sales Margin: 4.76% which includes cash discount, incidental expenses.

Modes of transport used: Rickshaw, tempo.

Incentive schemes: Before 2000 holiday packages and tours but after 2000 no non‐monetary incentive for RS.

Software systems and Information System: Synchronized daily and the system updates any information/ incentive schemes / sales figures etc to and from the common shared platform.

Areas of Operations: Marked for each of the RS.

Selling Operations: RSs sells the goods toWholesaler (gets 1.5 % max. discount from RS) Retailers (gets 1.0% max. discount from RS)

 

  5.4.1.Field Sales Force

To  meet  the  ever-changing  needs  of  the  consumer,  HUL  has  set  up  a  distribution  network  that  ensures  availability  of  all  their  products,  in  all  outlets,  at  all  times.  This  includes,  maintaining  favourable  trade  relations,  providing  innovative  incentives  to  retailers  and  organizing  demand  generation activities among a host of other things.  

 

The  important  activities  that  HUL  field  sales  force  does  are  (i)  target  chasing  and  (ii)  reporting  on  a  daily  basis.  Account information  is  maintained  on  palmtops  given  by  HUL.  

HUL  has  limited  the  network  channel  selling  to  categories  of  Home  &  Personal  Care  (HPC)  and  Food  products  with  exclusive  brands  for  this  channel.  That  is,  these  particular  brands  (products)  are  all  exclusive  to  HLN,  specifically  developed  for  the  Direct  Selling  channel,  and  not  available  in  the  retail  channel.  The general  trade  comprises  grocery  stores,  chemists, wholesaler, kiosks andgeneral stores. Hindustan Unilever services each with a tailor made mix of services.

 

 

5.5.Initiatives taken to Improve the Distribution Network 

HUL has taken the following initiatives to improve its distribution network: Setting up a full scale sales organisation comprising key account management and activation to impact, fully engage and service modern retailers as they emerge, Servicing Channel partners and customers with continuous daily replenishment, leveraging scale and building expertise to service Modern Trade and Rural Markets, delayering of sales force to improve response times and service levels, revamping of its sales organisation in the rural markets to fully meet the emerging needs and increased purchasing power of the rural population. HUL’s distribution network in rural India already directly covers about 50,000 villages, reaching about 250 million consumers through about 6,000 sub stockists.

Implementation of supply chain system that connects stockists across the country, and also includes a back‐end system connecting suppliers, all company sites and stretching right up to stockists. IT tools have been deployed for connectivity across the extended supply chains. Backend processes have been combined into a common Shared Service infrastructure. Launching of Project Shakti through which the company is able to extend its operations in villages. HUL has also included several NGOs and state governments as the initiative helps rural women to improve their financial position. Launching of HUL Network to leverage the channel of direct selling by presenting customised offerings in 11 home and personal care and food categories. Starting of franchised Lakme Beauty Salons and Ayush Therapy centres to offer standardised services, in line with the strategy to leverage the equity of its brands through relevant services, finding out Innovative ways to reach out to its consumers, particularly in rural areas byleveraging non‐conventional media like wall paintings, cinema vans, weekly markets (haats),fairs and festivals.

Initiating the concept of Super Value Stores (SVS) in urban areas to partner traditional stores to provide a range of services ranging from managing their inventory to setting up POS (point of sale) banners. In addition to this, to boost up traditional retail in the face increasing in‐roads made by large, modern retailing chains like Spencer’s, Reliance Fresh etc (whereHUL is squeezed harder for discounts), HUL started restructuring some of the selected SVSs into the form of self‐service retail shops a la modern retails. This is to protect & maintain the competitive advantage that HUL has over its biggest competitors in the other markets (e.g., P&G), with its very deep distribution reach through traditional retail.

Launched the Unicare scheme with upmarket pharmacies and retailers to sale its premium brands.Undertaking several initiatives for traditional channels in order to improve its capabilities at the front‐end by developing skills for stockists’ sales force. Under ‘Project Dronacharya’, the FMCG major continuously imparted training to over 10,000 stockist salesmen.

Launching of several promotional schemes for existing wholesalers and distributors. For instance, it has started the ‘Vijeta ‐ Rishta Jeet Ka’ scheme last year to provide a platform for the wholesaler and HUL to grow the business by earning points and redeeming them.

6. Key takeaways

Eventhough, the Supply Chain has been described in a concise manner here, each of the levels might have a number of sublevels. In certain respects, the company has cut down on the number of intermediaries by themselves as they found that maintaining a wide intermediary network is not financially feasible.

HUL has itself franchiseed certain products through dedicated outlets like Pond’s studio where the level of intermediaries are limited. Still, currently those products are in the premium segment.

HUL has started partnering with select retailer in “SuperValueShops” cutting down on all the intermediaries, but again reachability of these shops to the entire population will be an issue.

In the hypothetical situation, where HUL retails all its product only through its existing network of SVS, it would be inconvenient and more expensive for a large number of consumers to buy from there if we include the conveyance charges incurred by the customer. Moreover the customer wont be able to buy perishable products of the distance is very large since the product would get spoiled by the time it reaches home.

HUL being the largest FMCG company in the country can’t afford to lose large geographies in the country due to these reasons. It would want to reach out to every potential customer. On the first look, it seems that the product cost increases as the number of intermediaries increase, but due to the above mentioned reasons of convenience and lesser travelling cost for end consumer, it is always desireable to have a certain number of intermediaries.

7. Conclusion:

We have done research on a brand HUL and studied its marketing channel structure and also the way the whole system works. In its network, we understand that there are intermediaries and less of direct selling. This method proved to be good for HUL which has large penetration and if it needs to work alone without intermediaries, it would lead to high inventory costs and hence price of goods also increases.

Hence it is good for HUL to have a certain level of intermediaries to reduce the costs on the company and prevent that cost from being transferred to the consumers.

Limitation:

This report talks about HUL and its marketing channel. It is a niche topic and HUL being one of the biggest FMCG brands and a brand operating for so long has streamlined the process. This limited out study scope. But established practices were understood and appreciated.

Scope :

We have worked only with FMCG sector and a particular brand. This will hold true for HUL but will not be applicable for other brands in neither same FMCG category nor in other categories. Many factors like penetration, number of distributors, margins of distributors, inventory levels, product lifetime etc play a critical role in determining costs incurred in the product. This study can be carried out in others categories and sectors to understand the impact of middlemen on the price of the goods. Hence a vast scope is available for researchers on this issue.

 

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