“Channel Management in Unorganized and Modern Trade”


REPORT OUTLINE
1. INTRODUCTION
A. Objectives of the study
B. Company
C. Research Methodology
D. Limitations of the study
2. PROFILE OF THE ORGANIZATION
A. LG ELECTRONICS - An Overview
B. Product Line of LG ELECTRONICS
3. DISTRIBUTION MODELS/CHANNELS OF LG ELECTRONICS
4. ANALYSIS OF DIFFERENT LEVELS OF DISTRIBUTION NETWORK
5. CONCLUSION AND LEARNING

1



INTRODUCTION

2



A. OBJECTIVES OF THE STUDY
PRIMARY OBJECTIVE
The primary objective is to perform a field study for “Channel Management in Unorganized and
Modern Trade”. It is thus required to understand the channel management principles and dynamics
in distribution of electronic items via traditional channel and modern trade channel in Odisha region,
particularly with respect to Bhubaneswar.
SECONDARY OBJECTIVES
 Complete study at the Retailer/Sub-Dealer Level and Distributor level
 Company’s sales mix at various levels
 Comparison with Competitors’ pricing
 Margins allowed at various levels
B. COMPANY
We have chosen LG Electronics as the company for our extensive market study. We have particularly
dealt with practices in washing machines and refrigerators product categories.
C. RESEARCH METHODOLOGY
The most essential part of any research is its methodology. In our field study, we conducted primary
research to analyze the market share and understand the distribution channel relationships.
We visited each of the following primary research point:
1. One Authorized andSole LG Distributor
2. One Exclusive Multi-Brand store
3. One Exclusive Single-Brand store
4. One Retail Chain(Modern Trade) store
5. One Sub-Dealer/Retailer.
COLLECTION OF DATA
Data collected is basically through primary source by survey method using a simple question booklet
and getting information from the company correspondent at each location.
D. LIMITATIONS OF THE STUDY
Research was restricted only to Bhubaneswar region.
During research at Distributor-Level, the distributor was hesitant in mentioning the exact
figures for sales and profit margins.
At the sub-dealer level, the respondentdidn’t seem very much interested in the survey and
stated figures that seem a bit exaggerated.

3



PROFILE
OF
THE
ORGANIZATION

4



A. LG ELECTRONICS – AN OVERVIEW
The history of LG Electronics has always been surrounded by the company's desire to create a
happier, better life. It was established in 1958 and the company since then has led the way into the
advanced digital era, thanks to the technological expertise it has acquired by manufacturing many
electronic appliances. Applying new technologies in the making of mobile devices and digital TVs in
the 21st century, LG Electronics has unveiled many new products and continues to reinforce its
status as a global company.
Headquartered in Yeouido-dong, Seoul,LG Electronics is a multinational electronics company, and a
member of the South-Korean multinational conglomerate LG Corp. The two Korean companies,
Lucky and GoldStar, merged to form LG. The abbreviation comes from this. But before it got its name
as LG, Lucky was the brand name under which household products were sold, and Goldstar sold the
electronic products under its brand name.
LG Electronics was one among the Top 100 global brands in 2005, and LG recorded a brand growth
of more than14% in 2006. The display manufacturing affiliate, LG Display, is today the world's largest
and best plasma panel manufacturer.LG Electronics, today,is the world's second-largest television
manufacturer and the world's fifth-largest mobile phone maker by unit sales.

B. PRODUCT LINE OF LG ELECTRONICS

5



DISTRIBUTION
MODELS/Channels
OF
LG ELECTRONICS

6



ROLE OF MARKETING CHANNELS
Successful value creation needs successful value delivery. Holistic marketers are taking a value
network view of their businesses. The marketing channel performs the work of moving goods from
producers to consumers. All channel functions have three things in common:
C. Use up scarce resources
D. Can be performed better through specialization
E. Can be shifted among channel members
After a company has selected a channel, the intermediaries must be selected, then trained,
motivated and finally evaluated.
TRADITIONAL DISTRIBUTION CHANNEL OF LG ELECTRONICS IN BHUBANESWAR

MODERN TRADE DISTRIBUTION CHANNEL OF LG ELECTRONICS IN BHUBANESWAR

7



ANALYSIS
AT
DIFFERENT LEVELS
OF
DISTRIBUTION NETWORK

8



STUDY AT DISTRIBUTOR LEVEL
FUNCTIONS AND RESPONSIBILITIES OF AN AUTHORISED DISTRIBUTOR
We visited M/s. Mahaveer Agencies at Ruchika Market, Baramunda which is the sole distributor of
LG Electronics products in Bhubaneswar. All the dealers/retailers in and around Bhubaneswar get
their products requirements supplied from Mahaveer Agencies and it carries out its distribution
activities on a daily basis.Being the sole distributor, it is very essential for Mahaveer Agencies to
ensure proper stocking and effective functioning for the smooth and fast movement of LG products
across the channel.
DELIVERY AND TRANSPORT OF GOODS
LG Electronics has its own warehouse, situated at Chandaka Estate, where it maintains a large
inventory of its products across all categories. Mahaveer Agencies places purchase orders on a daily
basis, depending on the movement of products in the market, and these orders are supplied from
this company warehouse, which is about 10 kms away from location of Mahaveer Agencies. For any
delivery of goods to Mahaveer Agencies, the company uses its own transport, contracted under
Chourasia Roadways,and the entire cost of transportation from warehouse to the distributor
location is borne by the companyitself.
REORDERING SIZE, ORDERING FREQUENCY AND TRANSIT TIME
Mahaveer does perform order transactions with the LG Electronics regional office on a daily basis.
The transit time for each order to be starts with the agency placing the order to the regional
warehouse supplying the order after the payments are cleared. The entire transit time is about 3 to
4 hours. As soon as the LG regional officereceives the payment through wire transfer from Mahaveer
Agencies, goods are sent from the warehouse.
In our study, we have focused particularly on Washing Machines and Refrigerators product
categories. The Reordering Size under both the categories is heavily dependent on the time of the
year viz. in-season time and off-season time. The following figures illustrate the reordering size for
different product types under both the product categories. The difference in the reordering sizes
during in-season and off-season times is apparent from the figures.

Washing Machines
Average Orders
(30 - 35 pcs) Per Day
Off-Season

Washing Machines
Average Orders
(320 - 400 pcs) Per Day
In-Season
45%

39%
27%
33%

Top Loading
Front Loading
Semi Automatic

Top Loading
21%

34%

Front Loading
Semi Automatic

9


Refrigerators
Average Orders
(20 - 30 pcs) Per Day
Off-Season


Refrigerators
Average Orders
(200 - 270 pcs) Per Day
In-Season
3%

46%

45%

Side-By-Side Door
4%

Side-By-Side Door
Double Door

Double Door
Single Door

52%

50%

Single Door

SUPPORT FROM SALES/MARKETING PEOPLE OF COMPANY
LG Electronics regional office has helpedby deploying its employees at Mahaveer Agencies. This has
helped in better grooming of sales personnel and betterpresentation of products in front of
consumers as well as when they are dealing with other sub-dealers. The company also bears the cost
for advertising and promotion of the brand to the tune of about 50% in most cases and to the tune
of 90-100% in some special cases.
MARGINS ALLOWED
Mahaveer Agencieshas set different profit margins when selling to subsequent dealers and subdealers. The profit margins vary depending on the product category in terms of how slow/fast the
products moves.

Margins while selling to Dealers and SubDealers
15.00%
10.00%

5.50%

7.50%

9.50%

12.50%

5.00%
Margins
0.00%
Category
Killers

Good
Better

Best

10



CREDIT POLICY
When procuring the goods from LG warehouse, Mahaveer Agencies doesn’t practice any credit
policy. Goods are sent from the warehouse to the distributor only after the payment is made to the
regional sales office.
Although Mahaveer Agencies has its own credit policy while distributing products to dealers and
sub-dealers. It allows a grace period of maximum of 7 days within which the payment is to be made
in full by the dealer or sub-dealer.
NB: - The distributor, Mahaveer Agencies didn’t reveal the figures for profit margins that it is allowed
by LG.
CASH AND VOLUME DISCOUNT
Mahaveer Agencies gives a cash discount of maximum of 1% and volume discount of maximum of
5%.
MANAGING OF DAMAGED GOODS
If Mahaveer Agencies finds any good to be damaged or that it needs repairing, then it requests
repair the damaged good within 15 days from the company or gets it replaced within the same time
frame.
LOCAL PROMOTION AND BUDGET
Promotion is done locally and the budget is reimbursed in the range of 50 to 100% (in some cases)
by the company.
OPERATIONAL DIFFERENCE BETWEEN WHOLESALER AND DISTRIBUTOR
In Bhubaneswar, the concept of wholesaler doesn’t exist.
NAME AND ADDRESS OF DISTRIBUTOR
M/s Mahaveer Agencies, Ruchika Market, Baramunda, Bhubaneswar

(Mr. Stalin Mohapatra with MrSudhir, LG
correspondent at Mahaveer Agencies, at the
agencies location)

11



STUDY AT SUB-DEALER (RETAILER) LEVEL
SALES MIX OF THE SUB-DEALER
For the purpose of studying sale of LG products (only in Washing Machines and Refrigerators
categories) at sub-dealer/retailer level, we choose a multi-brand locally based agency called Elegant
Electronics. The agency primarily deals in products by LG, Samsung, Panasonic and Godrej, that it
procures for the distributors of the respective brands.
Under the Washing Machines category, it primarily sells products of LG, Samsung and Godrej, while
in the Refrigerators category it sells products of LG, Samsung and Panasonic.
RATIO OF FAST MOVING AND SLOW MOVING
The TV, Audio and Video segment of LG is the slowest moving of all the product categories under the
brand. On the contrary, in Refrigerators, Washing Machines and Air Conditioners segment, LG is one
of the fast selling brands and has been a market leader in this region.
COMPETITORS’ PRICE OF LEADING BRANDS
The comparison of selling prices of Washing Machines and Refrigerators of LG with those of other
leading brands is illustrated below. The prices are average of the selling prices of both, high and low
end models for all product types, for better comparison against competitors’ prices.
Comparison of Prices of Refrigerators

Price in INR

30000
20000

Refrigerator Prices

22500 23000
19500
15000

10000

14750 13750

LG
SAMSUNG

0

GODREJ

Double Door
Single Door
Models of Refrigerator

Comparison of Prices of Washing Machines

Price in INR

20000

16000 14000

15000

Washing Machine Prices

17000

10500

10000

12000

9750
LG

5000
0

SAMSUNG
PANASONIC

Top Loading
Semi Automatic
Models of Washing Machine

NB: - All figures are in INR.
12



MARGINS ALLOWED
Elegant Electronics has a consistent profit margin of maximum of 2% on all products for all brands
that it sells.
CURRENT PROMOTION SCHEME
Currently there are no sales promotions schemes on any product category by LG.
WINDOW DISPLAY AND MERCHANDISING
Elegant has managed well to display the products and different product variants of LG.

REORDERING SIZE AND FREQUENCY
The agency, Elegant Electronics, reorders stocks on a monthly basis, based on previous sales records
and future forecasts. The average reordering size for refrigerators and washing machines of different
brands is illustrated below.

17
20

15

17
13

15

LG

10

7

7

SAMSUNG
GODREJ

5

PANASONIC

0
Refrigerators

Washing Machines

NB: - The figures are average number of sales per month.
PAYMENT TERMS AND CONDITIONS, CASH AND VOLUME DISCOUNTS
Elegant Electronicsprocures its products from distributors on credit and exercises a grace period of
about 5-6 days before repayment. It also gets an average cash discount of maximum of 1% and
average volume discount of about 5% from its distributors.
13



NAME AND ADDRESS OF THE SUB-DEALER
M/s. Elegant Electronics, Bapuji Nagar, Bhubaneswar

(Mr. Chiranjeeb Mohanty outside the
showroom location of Elegant
Electronics)

14



STUDY OF DIRECT RETAILING MODEL (SINGLE BRAND)
LG Electronics has recently adopted a franchising model, wherein direct company-billing and
retailing is allowed alongside the regular Distribution method. In this channel, the retailer directly
purchases goods from the Company and sells them with some amount of risk involved. In
Bhubaneswar, Spectra Vision has an exclusive franchised LG store called‘LG Shoppe’ in Unit IV (near
Haka Restaurant) where it sells only LG Electronics goods through the Direct Sales model. Here LG
Electronics is responsible for providing M/s. Spectra Vision with the company trademark/logo for
promotion and merchandising.
SALES MIX OF THE RETAILER
The agency primarily deals with all kinds of goods which LG Electronics has to offer. Being an
exclusive shop unlike various other multi branded players the variety is obviously vaster and
alsodepth of the offerings is very high here.
RATIO OF FAST MOVING AND SLOW MOVING CATEGORIES
The TV, Audio and Video segment of LG is the slowest moving of all the product categories under the
brand. On the contrary, in Refrigerators, Washing Machines and Air Conditioners segment, LG is one
of the fast selling brands and has been a market leader in this region.
In this model of direct exclusive retailing, there was no scope of comparison of prices with the other
competitors as LG Shoppe is an exclusive LG store.
MARGINS ALLOWED
LG Direct Retailing has different margin levels for various Product Categories. There are 4 Product
Categories as identified by LG:
1.
2.
3.
4.

Category Killers
Good
Better
Best

Maximum Margins in Direct Retailing (Company
Billed)
10.00%
5.00%
0.00%

1.00% 4.50%

7.50% 10.00%

Margins

There is absolutely minimal scope of margin when it comes to Category Killer products at
less than 1% and about 10% for Best category products.

15



Currently there are no sales promotions schemes on any product category by LG.
LG Best Shoppe has managed well to display the products and different product variants of LG.

For Direct Retailing, LG strictly has no Credit, Cash and Carry kind of a model. The overall margins of
wholesaling are intact, but unlike the Distributor model, here there is no scope of any credit in the
transactions.
LG Shoppe, reorders stocks on an entirely requirement basis, based on previous sales records and
future forecasts. The Agency was not ready to share its entire Sales and Purchase Records with us
but a brief idea about previous month’s data was provided .The average reordering size for
refrigerators and washing machines and other products were as follows.
36

40
30

20

30
Refrigerators
20
15

Washing Machines
Air Conditioners
Microwave

10

0
Product Category

NB: - The figures are average number of sales per month.

16



LG Best Shoppe, Unit-4, Bhubaneswar

(Front Entrance of LG Best Shoppe
Name of the LG Executive :
MrS.K.Swain)

17



STUDY OF DIRECT RETAILING MODEL (MULTI BRAND)
LG Electronics has exclusively allowed direct retailing for a few specific regional players that deal in
multiple brands and products categories. In Bhubaneswar, M/s. Kalinga Salesis one such agency that
deals directly with the LG Sales offices for procurement and sale of LG products apart from stocking
and selling other brands like Samsung,Sony,Whirlpool, IFB and Panasonic. In refrigerator category,
the agency maintains a brand portfolio primarily comprising LG,Samsung and Whirlpool, while for
washing machine category it stocks brands like LG,Samsung,Whirlpool and IFB.
RATIO OF FAST MOVING AND SLOW MOVING CATEGORIES
For a multi-brand store like Kalinga Sales, LG has been a slow moving brand in the TV and home
entertainment category, but despite of stocking other brands LG products move very fast in the
segments like refrigerator, washing machine and air conditioner segment.
Kalinga Sales, being the stockist for multiple brands, prices the products from different brands across
any product category in a comparable manner. The comparison of selling prices of Washing
Machines and Refrigerators of LG with those of other leading brands is illustrated below. The prices
are average of the selling prices of both, high and low end models for all product types, for better
comparison against competitors’ prices.

Price in INR

100000 88000

86000

50000

Prices of Refrigerators
29430

28190 27200
15470 14790
15950

0
Side-by-Side

LG

SAMSUNG
Whirlpool

Double Door
Single Door

Price in INR

26070 18800
30000 26990
17150 19240
20000
10000
0
Front Loading

Top Loading

Prices of Washing Machines

11430
10060

10950

LG
SAMSUNG
Whirlpool

Semi Auto

IFB



18



MARGINS ALLOWED AND COMPARE WITH RIVAL BRANDS
Based on the speed of movement of products, Kalinga Sales classifies the products categories as
Category Killer, Premium and Luxury items, in decreasing order of movement speed in the market
respectively. The following figure illustrates the best available profit margins for Kalinga Sales under
each of them.

Maximum Margins in Direct Retailing (Company Billed)
10.00%

7.00%

10.00%

3.00%
5.00%
Margins

0.00%
Category
Killers

Premium
Luxury

Currently, there is no promotion scheme running in the store.
LG Electronics being one of the primary revenue generating brands, the agency was able to aptly
place different variants of various product categories of LG across the showroom.

19



Reordering is done periodically depending on the season. During in-season, reordering takes place in
shorter intervals about 15-20 days, whereas during off-season interval, the company reorders in
monthly or maximum within 40 days. The following figures shows the reordering quantities for
refrigerators and washing machines category for different product variants.
Refrigerator

Refrigerator

40
35
30
25

LG

20

SAMSUNG

15

WHIRLPOOL

10
5
0
Side-by-Side
Door

Double Door

Single Door

Washing machine

25

Washing Machine

20
LG

15

SAMSUNG
WHIRLPOOL

10

IFB
5
0
Front Loading

Top Loading

Semi-Automatic

20



The agency offers no credit to any of its customers. Sales is transacted strictly on cash/cheque
payment. For cash payment, the agency offers a discount upto 1% and the volume discount of 3 to 5
percent on bulk purchases.
M/s. Kalinga Sales, Sahid Nagar, Bhubaneswar

(Front Entrance of M/s. Kalinga
Sales Agency)

21



STUDY OF MODERN TRADE CHANNEL
SALES MIX OF THE SUB-DEALER
To understand the functioning of a modern trade distribution channel for sale of LG products (only in
Washing Machines and Refrigerators categories) we choose e-Zone, which is a multi-brand
electronic store under Pantaloons Store. e-Zone is a nation-wide retail chain for selling of electronic
products across different brands and categories under one roof. The e-Zone store in Bhubaneswar
deals in products by LG, Samsung, Panasonic, Sony, Sharp, Philips, IFB, Whirlpool and Godrej among
others.
PROCUREMENT AND DELIVERY OF GOODS
e-Zone marts at local Pantaloons stores do not directly procure any goods. For all the stock
requirements, e-Zone places a stock requisition request to its headquarters in Mumbai. The
Pantaloons headquarter verifies the requirement and subsequently issues a purchase order to the
LG Electronics head country sales offices. Once the payment is made by Pantaloons head office in
Mumbai, the country sales office of LG Electronics asks the regional sales office to issue the
requisitioned products and quantities from has its own warehouse, situated at Chandaka Estate. For
all the delivery of goods, the regional office of LG Electronics uses its own transport, contracted
under Chourasia Roadways, and the entire cost of transportation from warehouse to the store
location is borne by the company itself.

Price in INR

For the comparison of selling prices of Washing Machines and Refrigerators of LG with those of
other leading brands, we have chosen the prices of highest selling brands across both categories
againstthat of LG. The comparisonis illustrated below. The prices are the average of the selling prices
of both, high and low end models for all product types, for better comparison against competitors’
prices. The prices for all the products at e-Zone are in-store prices (e-Zone prices) which are lower
than actual company mentioned MRP.
75990 82990
100000
50000

Refrigerator

23950

22490 24500

0
Side-by-Side

19790
14990
13570

LG
SAMSUNG

Double Door

Single Door

Whirlpool


Price in INR


40000 31990

25000

20000

Washing Machine
19550

15490 17580

0

LG
SAMSUNG
Whirlpool

Front Loading
Top Loading

IFB

22



MARGINS ALLOWED AND COMPARE WITH RIVAL BRANDS
At e-Zone, Pantaloons has a maximum profit margin of 5%, which is adjustable according to the
category of product that it is selling. In any case, prices are always maintained above the Minimum
Operating Price (MOP) and some margin is kept in every transaction.
Apart from seasonal and festive sales promotion schemes, e-Zone has a few schemes that run
consistently through the year. One is that, it prices all its products below the MRP stated on the
product. Secondly, it provides the exclusive option of paying the price in EMIs of 6/9/12 months at
almost 0% interest rate.
e-Zone has a exclusive floor space in the local Pantaloons store where at entire floor is dedicated to
the display of products. These products range in different categories and different brands. Sales
promotion offers/schemes (brand wise or product wise) are exclusively displayed.

23



e-Zone has a reorders on a monthly basis and as per sales forecasts. Due to the fact that prices are
non-negotiable in multi-brand electronic retail chain stores, the movement of products is relatively
slower than stand-alone electronic retailers, the reordering size for e-Zone is relatively lower. The
average reordering size for refrigerators and washing machines of different brands is illustrated
below.
35
35
30
25
20
15
10
5
0

28
23
LG

20

SAMSUNG
7

8

Whirlpool

8

IFB

Refrigerators

Washing Machines

NB: - The figures are average number of sales per month for across all product types/variants.
PAYMENT TERMS AND CONDITIONS, CASH DISCOUNTS
Pantaloons HQ procure goods for e-Zone on direct payment and local e-Zone stores have no role to
play in deciding the payment terms. Although e-Zone provides its customers an interest-free EMI
option adjusted over different periods. It also provides a cash discount of maximum of 2% to its
customers for payment through cash.
NAME AND ADDRESS OF THE RETAIL-CHAIN STORE
M/s. e-Zone, Pantaloons Retail, Elegant Electronics, SahidNagar, Bhubaneswar

(Mr. Chiranjeeb Mohanty outside
Pantaloons Retail store in Sahid
Nagar)

24



CONCLUSION
AND
LEARNING

25



CONCLUSION
Through our field study, we understand the unique distribution model that LG has put in practice,
where it proprietorship of the distribution to a single agency like Mahaveer Agencies in a sales
region, to carry out the distribution of its products to sub-dealers/retailers. Apart from that LG also
has a Direct Sales Network where it narrows the distribution channel by handing out franchise rights
of exclusive only-LG showrooms, called LG Shoppe, to an agency like SpectraVision that can
stock/display/sell its products. This Direct Sales model is also open to specific agencies like Kalinga
Sales that are large regional players in multi-brand electronic retailing.
Alongside the conventional distribution model for regional agencies, LG has also adopted a modern
trade distribution system for electronic retail chains like e-Zone, Next, Reliance Digital, Tata Croma,
etc. Under this model, the LG allows the movement of goods between the regional SKUs of both
parties under the control of their respective HQs. This model is becoming more and more relevant
with the advent of retail-chain stores in tier-II and tier-III cities.

LEARNING
At the end of the study, we are now able to appreciate the fact that a field survey is an exhaustive
and comprehensive task, and here primary research is much more important and relevant than
secondary data. We have also learned that undertaking a marketing survey requires us to effectively
communicate with primary sources to be able to derive data out of them.
Overall, it has been a task that is rich in experience.

26



27

Channel management study lg final