Sustainable “Go To Market” Strategy-The TOC way
Vector’s Kiran Kothekar, in an Interview with CLSA, shares his views on “GTM” which has now become the latest buzz word in distribution strategy. More and more companies are now adopting GTM for increasing the distribution footprint, availability & overall customer experience in consumer durable industry but only companies who are doing GTM the right way can realize it’s big potential, says Mr. Kothekar.
What is the traditional distribution model, and what is changing with the ‘new’ GTM strategy that companies are adopting?
Unlike in a developed nation, where retail footprint is controlled by few large retail chains, which makes distribution much easier in terms of reach, India’s retail footprint is largely covered by traditional mom and pop stores. This, combined with a wide geographical spread of population presents a unique challenge to distribution of consumer goods in the country. While significant population is clustered around urban hubs, a vast cumulative population is spread out in what can be called as Rural Urban (RURBAN) or Rural centers dominated by numerous small retailers. This means that India has a long tail problem. And the population under the long tail is much bigger than the “head”. Hence the real deal is to make products available in every nook and corner of the country – get every relevant retailer to deal with your brand.Companies perceive that it is unviable to service this large population of small retailers. Hence, they have been dependent on wholesalers to reach out to this population. However, the dark secret of distribution is that wholesalers do not provide the desired reach to any consumer goods company. They play deal makers in the market flushing out inventory to the highest bidder. Their business model is not built on the premise of regular service. Only a big brand, with a strong pull can get a fair number of small retailers travel the distance to buy from wholesalers. These large brands may succeed in establishing a reasonable reach through wholesalers but most other companies do not have any mechanism to ensure reach using this channel. This leaves the room wide open for distribution for many companies.GTM is a strategy for reaching out to every potential and relevant retailer in the country, regardless of size. This is based on the premise that wherever there is a likely footfall, there is a potential to sell and the brand should be available for every potential sale.An effective GTM strategy requires one to take steps to falsify the hypothesis of non-viability of distribution, and collection of the “smalls”, otherwise this step of reaching out to every retailer can make costs spiral out of controlWe, at Vector, have been able to demonstrate to companies, that the costs and the capital required for doing this actually lies hidden in the operations and distribution network of the company. Once this value is revealed, the main obstacle to reach out to the “smalls” is overcome. Companies who are doing this the right way are realizing the big potential of these “smalls”. But many also do it as it is the ‘flavor of the month’, to please investors, or to put pressure on trade partners. They soon find it unviable, and their CFOs inevitably force a roll back of the program.
What is triggering many companies to opt for the Go-to-market (GTM) strategy now?
Right now, some consumer goods companies have successfully implemented GTM, showing the way to others. The sales jump is significant for such players. Distributers and retailers of these companies are extremely happy as their ROI is turning out to be almost twice of that prevailing in the industry. This is causing a disruption and increasing pressure on others to adopt GTM too. This is the reason for the current hype.What most companies do not see is that a GTM strategy is not just about having feet on the street funded by one player in the system! It requires additional costs and capital. These costs have to be met from within the system, or else sooner or later it will be abandoned as unviable. But if value has to be released from within the system, a massive change of paradigm in distribution, operations and sales management is required.
What is the Vector Consulting Group’s Theory of Constraints (ToC) GTM model? What are the main benefits? (in terms of lower inventory days, higher ROI, data mining and analytics, customer profiling etc.)
As I have said before, GTM requires a value release from the system. This can only happen when a company moves away from a forecasting and ‘push’-based selling to a ‘pull’ mode of inventory distribution. TOC has the body of knowledge to enable this. The pull mode has a potential to almost double the ROI of distributors, while ensuring excellent availability of a company’s entire range. As the reach and range initiative of the company expands, distributors and companies start gaining a non-linear improvement in their bottom line. This can again be used to further expand range and reach. This virtuous loop creates a win-win-win for brand companies, distributors and retailers. After adopting this new way of working, the distributors are known to enjoy an ROI of close to 60 to 80% compared to industry benchmarks which are only 25 to 30%. Brands are seeing their inventory turns improve by a factor.The other massive advantage is visibility of demand in the retail network. Once a company reaches out to retailers using rapid replenishment programs involving collaborative working, the company starts getting daily data of real consumption from the actual battlefield. This is almost big data! This information can enable proper analytics for the purpose of targeted initiatives in specific localities. The marketing spend can thus be more effectively deployed. For example, in Bajaj Electricals, where this is fully implemented, there is a back-end war room which analyzes trends of daily data of sales from close to two lakh retail points in the country. They know what is selling and from where – in the smallest shop in lanes of Dharavi to the large retailers located in tier IV towns. This reveals consumption patterns and heat maps along with emergent issues, which in turn triggers specific corrective actions. The company has consequently gained an unprecedented ability to react to vagaries of sales at retail points. This is how a normal “brick and mortar” company starts looking like an e-commerce company in terms of usage of big-data analytics.
What were the key challenges in implementing a GTM strategy?
As I have said before, GTM requires a value release from the system. This can only happen when a company moves away from a forecasting and ‘push’-based selling to a ‘pull’ mode of inventory distribution. TOC has the body of knowledge to enable this. The pull mode has a potential to almost double the ROI of distributors, while ensuring excellent availability of a company’s entire range. As the reach and range initiative of the company expands, distributors and companies start gaining a non-linear improvement in their bottom line. This can again be used to further expand range and reach. This virtuous loop creates a win-win-win for brand companies, distributors and retailers. After adopting this new way of working, the distributors are known to enjoy an ROI of close to 60 to 80% compared to industry benchmarks which are only 25 to 30%. Brands are seeing their inventory turns improve by a factor.An effective and sustainable GTM involves a preparatory phase, which starts right from operations to distribution and only then moves to sales. The paradigm shift is significant. Companies have to move away from age old practices of month end billing push, volume based incentives schemes and allowing wholesalers to dump products without territory allegiance. These are amongst many changes needed to make GTM successful. The challenge is in getting people to move away from old mindsets and adopt the new ones.
About CLSA Ltd.
Founded in 1986 and located in 20 cities across Asia Pacific, the US and Europe, CLSA Ltd. (formerly known as Credit Lyonnais Securities Asia) is a capital markets and investment group focused on alternative investment, asset management, corporate finance and capital markets, securities and wealth management for corporate and institutional clients around the world.