Question

Topic: Strategy

Distribution Channel Alternatives

Posted by Anonymous on 8/28/2006 at 3:52 PM ET 250 Points
A packaged darjeeling tea company wants tolook for channels to distribute its product. i t has been relying on wholesaler retailer network forlong but it is becoming increasingly diificult to continue with them (only) in the light of increased competition for shelf space and margins.
what other channels can be opted for reaching the ultimate consumers?
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  • Posted by Frank Hurtte on 8/28/2006 at 7:42 PM Accepted
    Another alternative would be to go directly to the major Grocery Chains and sell into their central warehouses.

  • Posted on 8/30/2006 at 2:21 AM Accepted
    Try Multi Level Mktg Channels- Tie up with a MLM company in your geography for a 3 month period with non competing product lines- Avon, Amway, Any Insurance organisation etc.

    For the MLM company- its an opportunity for their agents to cross sell onto their bases and brings about some excitement in their product line.
    For the MLM agents its an opportunity to get back to their base( customers) not on usual line of products but a item of impulse purchase like tea.
    Offer points/ discount rates which add to their primary slabs.
    Make some innovative mktg comm. incorporating the tea smell, feeling of well being, draining tiredness etc. For eg for cosmetics Avon you cd make a small flier stating " Now use the tea to look rejuvenated...Use the mascara to finish the look"
  • Posted by Mushfique Manzoor on 9/1/2006 at 5:08 AM Accepted
    hi there

    from my little exposure with MLM companies in my country, usually MLMs dont actually mix too-different categories in their portfolio as suggested by ghosh for insurance with FMCG. usually MLMs mix FMCG with less faster CGs to have a broader horizon. besides the target market for Insurance and Tea are completely different. One is major savings/investment product with very high involvement while the other is a low involvement product.

    from my experience in beverage maket (health beverage) i suggest you better have a closer look at your distribution set-up.

    #1. have a look at the existing distribution coverage for ur brand. if necessary realign/redesign ur distribution structure. Most of the cases, distribution suffers due poor planning. demarcate ur distribution territory, area and region more properly.

    #2. Clasify ur tea segments and outlets. One of the most important segment of tea is the Tea Stalls that are always around the corner and road-side. u have not mentioned whether this segment is ur target or not. You should tap into these stalls, have a second look at this.

    #3. Another way is to tap into events to promote ur brand and then ride on the demand to place urself in stores. if ur market is India, just tap into the various social events like Wedding. Put up a stall in the Wedding Cereony and serve tea to the guests (actually paid by the wedding party/organizer). this will popularize ur brand and help u get shelf space.

    #4. another way is to tap the street hawkers who sells tea from their flusk to people at traffic points. tap into these hawkers and use them as ur selling channel. u need to have a direct distribution to all these ppl, they will use ur brand in their serving to ppl and also sell ur pack.

    #5. besides the regular promotion, PR and events are needed to create pull.

    hope this helps, more ideas may pop up with detailed information about ur brand, target market etc.

    cheers!!
  • Posted by Mushfique Manzoor on 9/1/2006 at 5:18 AM Member
    one more thing to share...

    do a brand gathering in every village in rural areas whereby ur brand promoters will promote ur brand. during this gathering one of ur existing consumer/customer will speak abt ur brand to the gathering ppl. in that gathering u will also ensure that ppl have a taste of ur brand.

    then u will appoint that consumer/customer or anyother willing person as a Brand Ambassador in that village. He will promote ur brand to all and also do door-to door selling.

    the above model has been followed with success by major FMCGs in Bangladesh and India.

    cheers!!
  • Posted on 9/6/2006 at 5:14 AM Accepted
    You might want to consider selling directly to the consumer through a website. I did a little research into the tea market. There is some opportunity to fill demand in the online world. I would like to know how many varieties of tea you sell. You can email me at [email address deleted by staff]
  • Posted by steven.alker on 9/6/2006 at 6:43 AM Accepted
    Going directly to the retail outlets is an organisational nightmare in the set-up phase, but once working, cutting out the wholesaler will allow you to offer more margin and more attractive prices to the end users. But don’t underestimate the warehousing, software, merchandising and physical sales effort you will need to put in to set this up.

    I would assume from the little you have given away so far that your own promotional activities would be unaffected as the wholesaler is simply part of the logistics chain. I’d be inclined to enter into some hard headed negotiations with your wholesaler and perhaps some competitors – making the assumption that they don’t want to lose your business they might be inclined to help you to solve the root problem.

    You have to take the decision – does your company want to become a logistics operator? Few suppliers do, but specialist ones thrive on it.

    Web based supply is problematic for tea – it’s bulky and in any quantity its heavy, so your shipping costs can easily wipe out the cost benefits of direct supply unless there are other more expensive high margin products which you can include on a website. I know that it’s stating the obvious but in the rural and mass-urban end of your market, not a lot of tea drinkers have the access to the internet we enjoy here, so you might be looking at a totally different sector which would be wealthy consumers looking for a specialist tea product. It’s worth thinking about though.

    And I’m as puzzled as Randall about shghosh’s suggestion about employing MLM organizations. A low value product such as tea has all the characteristics needed for it to become the traded commodity which legalizes the con-trick which constitutes most MLM schemes. It can be easily stored, transported and has a long shelf life, but as the margin involved in selling tea to your immediate circle of family, friends and people in your locality is small, inevitably you will have to invite customers to become resellers and to acquire a “Downline” of re-sellers of their own, each hoping to sell to their locality whilst recruiting their own Downline of re-sellers who will buy into the blasted con in order to keep it going.

    If you fancy being remembered as the guy who left X-hundred thousand of your countrymen with a garage full of tea in the hope that they would find the road to riches, then by all means go down that route, but be prepared to be forced to move address and go ex-directory.

    I might as well suggest getting your local drug cartel or prostitution racket to add tea to their offerings if you want a route to market with a similar level of operating ethics!

    Best wishes


    Steve Alker
    Unimax Solutions
  • Posted on 9/11/2006 at 5:23 AM Member
    hi- The MLM response was in lieu of the fact that the company has already tried the traditional FMCG model of wholesaler-dealer-retailer margins and is finding it difficult to sustain the same.
    The MLM way would be a INNOVATIVE different way to retail a product that has not been tried through this channel before.

    In response to Mushfique Manzoor- MLM companies do have all kinds of products in their kitty.Check out Amway India.

    In response to Steve Alker- Its not all "blasted con". The Tier 5 level incentive plan can be worked out to be cheaper than the wholesaler-dealer-retailer margins. HLL( Hindustan Lever Ltd- a subsidiary of Unilever) which has an extremely well developed profitable FMCG traditional model in India uses a MLM model called HLN(Hindustan Lever Network) to mkt personal care products.
  • Posted by steven.alker on 9/11/2006 at 7:08 AM Member
    Dear shghosh

    Regardless of the apparent reputation of the company carrying it out, if you will tell me the targets for a new member to an MLM scheme for:

    End User Customers
    Customers who are expected to be recruited as resellers in their own right under you

    Then I can show you the maths. As long as an MLM participant needs to or is expected to recruit further re-sellers to form a down-line, regardless of on what tier or level they are, then you end up in the exponentiation we have discussed ad-nauseam on this site.

    Unless people operating a certain number of levels down the tree are banned from recruiting further re-sellers and can expect to make a decent income on end-user sales only, then the need to recruit anything in excess of 1 additional re-seller leads you into an exponential growth of the resellers who are involved, each expecting to make the same rewards as the fellow who introduced them to the scheme.

    So your tier 5 guy expects to gain, say 400 end users who will be pleased with the product and net him an income.

    But he will be expected or want to “Covert” at least some of these into resellers. A very small % “Conversion” is usually the temptation, such as 1%.

    That’s 4 re-sellers contributing to his Downline, each of which will expect to repeat the original dream.

    Let’s say that this only extends to 5 tiers per MLM participant. For each new layer, the originator adds, they will expect to add their 400 end users and to find their 4 new re-sellers. Just do the maths.

    End Users: Resellers: Tier:
    1: 1: Level 1
    400: 4: Level 2
    1,600: 16: Level 3
    25,600: 256: Level 4
    6,553,600: 65,536: Level 5

    Apologies for the formatting, I don't have the time to do this in HTML

    But you said it can work for a guy who was already on level 5, so lets see how the numbers work for an MLM scheme where there are already 5 tiers working. (Although no partner has more than 5 in his down line, the maths still exponentiate and the originator still benefits)

    By the time a new member is introduced as a tier 5 member, still expected to build his Downline, the dream that he has been sold assumes that everyone has been successful, right? Otherwise it wouldn’t be worth doing and might be described as a con trick, right? So there are already, add them up, 6,581,200 end users and 65,812 resellers with all the resellers looking forward to their massive rewards as they too build their down lines at that humble 1% of satisfied end users. Otherwise they wouldn't make any serious money.

    So let’s run the figures for tier 5 guys wanting to establish a 5 tier structure under them, but unlike the MLM promotional blurb, I’ll start off from where the tier 5 guy came in, at least with regard to the number of people already doing it, that’s 65,536 resellers already active and 6,553,600 presumably happy customers on the tier above him.

    On the new tier, for the market as a whole, the following figures now apply for a tier 5 guy in the above network wanting to set up his own 5 tier network on levels below him.

    429,496,729,600: 4,294,967,296: Level 6
    1,844,674,407,370,960,000,000: 18,446,744,073,709,600,000: Level 7

    Whoops, we’ve run out of people in the world at level 6, which is level 2 of the new recruits Downline and we are out of particles in the solar system at level 7, or tier 3 of the new guy’s Downline! What a pity. It must all be damned lies and statistics!

    Now I’m the first to admit that these exponential increases are not maintained, for similar reasons why the population growth of a breeding pair of rabbits does not follow a Fibonacci sequence until the earth is ball of rabbits which is expanding at the speed of light.

    They (the rabbits) soil their nest, pollute their environment, run out of food, catch diseases and are predated on. In MLM schemes, the numbers and ratio’s might be different to those in my example (I have seen worse, I have seen more cautions ones), but as long as the need to recruit a Downline exceed 1, then you have exponential growth in both end user customers and re-sellers over each of the tiers.

    And for that reason alone they cannot work for everyone who joins them, further down the chain no matter how hard they work or how hard they recruit. Something has to stop them from being successful at such a rate that they are signing up new participants on galaxies as yet undiscovered?

    If the scheme succeeds for very long, it is only because the recruitment ratio is very low and the attrition ratio (that’s failure rate in my language) is equal to or exceeds the recruitment rate. If it doesn’t, after n tiers, the scheme collapses because it requires more new recruits that there are people in the world. If it doesn’t collapse and the recruitment ratio is >1 then it implies that the failure rate is 50% or higher.

    As few money making schemes succeed by talking about the failure rate, it’s not surprising that you don’t hear much about it in the literature.

    If you can’t do the sums, put your contact details on your Bio and I’ll introduce you to someone who can show you the maths line by line.

    Best wishes


    Steve Alker
    Unimax Solutions
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