1.

Its Lonely at the Top

In a market controlled for years by MNCs or their Indian arms, Asian Paints Limited (AP) had made a humble start by manufacturing paints from a small garage in Mumbai. The only Indian company to have survived in this market dominated by European & Japanese multi-nationals, Asian Paints had come of age by the 1960s. It had become market leader for the first time and had never looked back since then. Not only had AP fought tooth & nail to gain ground an inch at a time, but it had thrived and captured the consumers imagination as nobody else had earlier. Circa 2006, the figures indicated a 60%+ market share for AP among organized paint companies. From selling paints on bicycles, AP had now a distribution system that was quoted in numerous b-schools for its operational excellence. The garage in Mumbai had given way to 5 factories across India, the latest being in Sriperumbudur in TN, but even these were proving insufficient in keeping pace with the growth of sales. AP was in a position that every company dreamt of, but which was rarely achieved, barring a few exceptions.

2. The New Kid on the Block

However, today KBS Anand, VP Sales and Marketing, for Asian Paints Ltd was in a pensive mode as he sat in the coffee-shop at the Lucknow airport, awaiting his flight back to Mumbai. It was October 2006, and KBS (as his colleagues and friends called him) was returning from attending the wedding of the son of one of the companys oldest dealers in Kanpur. He had just received two proposals - one from one of Indias leading industrial families and the other from a new generation businessman who was the poster-boy of the Indian Organised Retail sector. These companies were blueprinting plans for a foray into the construction, home improvement & dcor space. Obviously, both of them wanted Asian Paints as an exclusive partner. Without the market leaders products on its shelves, their offering wouldnt be complete in this space. While both e-mails were extremely eager and excited in their tone, there was no mistaking the fact that the exclusive partner clause could well end up going the other way for Asian Paints both the organizations were willing to offer the same status to other paint companies in case Asian Paints refused! These emails also brought his thoughts to something that had been bothering him for more than a year. Asian Paints had built its standing in the market on a large and loyal base of dealers who had been dealing with the company for many years. However, the younger generation in many of these dealer families did not seem to be interested in managing their family business, preferring instead to work for professional companies as employees in Indias large metros like Delhi, Bangalore, Hyderabad and Pune. For instance, the groom at the wedding they had attended, worked for an international software company at Gurgaon, and according to his

father, seemed happy to remain there, rather than return to Kanpur and manage the paint store. One of the reasons for this, KBS felt, was that paint stores remained caught in a time warp. Most were still paint and hardware shops which were largely frequented by painters, and more of transaction points rather than retail stores. The Indian consumer was now getting exposed to the levels of service, ambience and range being offered by the many supermarkets and malls sprouting across the country and thus spending more. The paint trade, however, was still being run by traders who were largely oriented towards getting the customer out of the shop as quickly as possible. Looking at the traditional FMCG counterparts for answers was also not that simple. The organized retail sector which in 2006 was less than a decade old was already contributing to 35% of the top line for FMCG companies and was by far the channel providing the fastest growth to these organisations. However, by late 2005, the small retailers were up in arms against these chains as the former claimed loss of business & erosion of their customer base to these large retailers, and blamed the FMCG companies for supporting them. These organized retailers were laughing all the way to the bank, but the supplying companies were starting to get worried, as with growing contribution came greater clout and these retailers were squeezing the FMCG giants for margins on basis of the large volumes generated. Along with the rise of Indian retailers, leading global retail chains like Wal-Mart, Carrefour and Home Depot had all announced plans to enter the Indian market only awaiting the governments nod to set up shop. With this boom, Asian Paints and many other FMCG companies had been seeing an exodus of a number of middle and junior level managers to these retail companies, fuelled by a combination of hefty pay-hikes and a faster progression up the career ladder. Could he possibly ignore the attraction & footfalls that these outlets were generating? Was not aligning with these organised retailers even an option worth risking or would that one decision cause AP to miss the bus on the future of the Indian consumer market.

3. Brothers in Arms
One of the longstanding strengths for AP and in many ways a differentiator from competition has been its network reach. The paint industry, unlike their FMCG counterparts, dealt directly with paint retail shops rather than through distributors. Over the years, AP had built up a network of over 20000 direct retailers and innumerable small sub-dealers who purchased from these dealers. From the wholesale markets of Mumbais CP Tank to the hinterlands of Orissas Kalahandi district & the island interiors of Andaman, one would always find an AP outlet in any town with a worthwhile human population! Most of these retailers had also invested in an AP dealer tinting system costing about Rs 2 lakhs and thus tying them in with AP for the long run.

This reach was built on the bedrock of very simple principles of transparency, equity & fairness. The policies, schemes & benefits would be the same for the entire network. While this may seem easy in principle, it took a lot of effort for implementation on-ground. Where it yielded rewards was the confidence even a new dealer wishing to join the AP fold had on the way he would be treated. This in effect enabled AP to expand aggressively & build a competitive advantage driving volume growths of 15%+ year on year, and staying ahead of competition, who were dependent on a few large dealers, by 4-5% points. However, it wasnt all fun & games in the AP household. Dig a little deeper & you would come across voices of dissent - those of the top 10% of dealers. These dealers saw themselves as the pillars of AP in the market and as the ones who had supported the company when it was still finding its feet. They considered themselves more as equal partners in the AP success story, and expected better treatment from AP as compared to the rest of the network. They felt that now that since the company had become such a dominant player, their importance in the larger scheme of things was dwindling. While, these dealers were handful in number, their contribution to sales in each market would be close to 40-50%. In many ways, these dealers werent entirely wrong. Post liberalization, India had become one of the few markets worldwide where the paint industry was growing in double digits. The flood of international paint companies setting up shop in India to tap this growth was just rising. Companies from Japan, The Netherlands and USA had entered either through buyouts of local companies or global takeovers. And now, these companies were gleefully exploiting the cracks in the AP network by cozying up to the top few dealers & encouraging them to shift their loyalties. AP realized the real impact of this when some of its best dealers across various markets decided to stop being exclusive AP loyalists & installed tinting machines of competitive players. The question that now faced the organization was whether to motor on with a network policy that was its forte and had inspired generations of dealers to join the AP fold, a policy which had held AP in good stead for so long or reconsider its position given the changing market dynamics & the macroeconomic scenario.

4. The Protagonist
The final character on this stage was the Indian paint consumer - a peculiar character. If you asked him about his knowledge of brands for toothpaste, cars or mobiles and you would get a substantial list. However, pose the same question about paints and the brevity of the answer would be stunning. The Indian paint consumer lacked knowledge about the category or the products to be able to take decisions on his own. Hence, the reliance on influencers in the form

of dealers, applicators and Architect & Interior Designers (A/IDs) was extremely high. While the cause and effect are difficult to establish, what also results is a lack of involvement in the category. The liberalization in the 90s had also created tectonic changes in the Indian consumers mindset. An effect of the resulting rising income levels became the desire to flaunt ones wealth - and what better way than to build a house which showcased ones taste, personality & newfound affluence. This phenomenon of Showcase Homes was leading to increased involvement & willingness to spend on home dcor. Moreover, till a few years back, decisions related to painting were predominantly taken by the Chief Wage Earner (CWE) of the house, with limited inputs from the family (especially the wife) on choice of colour (shade) to be applied. This was rapidly changing due to information being freely available, awareness levels improving by the day, dual-income households no longer being an exception and the pester-power of children playing a critical role in all family decisions. The decision regarding paint purchase also was no longer restricted to the CWE, but was a family decision. Most industries had seen the impact of rising influence of women the moment the man was sidelined, the average transaction size was increasing significantly and the willingness to experiment & try out new products also was higher. The woman was also the person who spent the most time in the house, and thus the way the home looked was a reflection on how good a homemaker the lady was. The problem therefore was: how does one address a customer, if they do not even want to set foot in the retailers shop!

5. Food for Thought

The mere mention of a paint shop conjures up visions of dusty & dingy outlets, where painters & customer jostle for attention from the owner. Merchandising & customer service terms seem alien to this world as Google Maps would have been to Christopher Columbus. The man of the house himself would avoid visiting this outlet, let alone face the wrath of the lady of the house by even thinking about taking the family there. The poor ambience at dealer outlets was an issue that had plagued the paint industry for ages. Due to the nature of the industry where most dealers were traders & most visitors at the shop were applicators who knew what they wanted, the need to improve shop ambience was never felt. While the other sectors had moved ahead by a million years by the late 90s, the paint industry was still behind the curve. To compound this issue of poor ambience at the shops, was the equally poor & virtually nonexistent customer orientation. Any enquiry about products would be considered a waste of time by the shop staff. Demand a shade card & you would be met by a glare fast-bowlers reserve for batsmen being scorned for having missed it once too often.

What made the absence of information, guidance, good ambience & service severe was the dependence of the consumer on others to help him take his paint decisions. The paint companies and especially AP on account of being the market leader were faced with a different issue on account of this segment peculiarity. If you never get to address the consumer, how do you convince him to upgrade. Advertisements, by themselves would have limited effectiveness. Unless backed by a push at the point of sale, ads would merely be a feel-good factor for the consumer & would never translate into sale. But, before that could happen a lot needed to be sorted as has been outlined above. Just as KBS was lost in thought, the boarding announcement for his flight came through. He had to have his answers ready for the board meeting the next morning, and this wasnt an easy one!

Key Questions
What should AP be doing to ensure the loyalty of the top set of its retailers, and stem the threat from competition? Would breaking the decades old open network policy create more of a negative impact than positive? Is Modern Trade the way to go for Asian Paints? Two large retail conglomerates are knocking on the door with interesting offers

And most importantly how does one increase the consumer involvement in a category like paint (especially the women consumers) to ensure consumer loyalty towards Asian Paints in the face of such stiff competition?