Reverse auction system for bulk consumers must stop
H L Jain, Advisor, Hi-Bond Cement (India), makes clear the stand that cement manufacturers must take to survive the current tough times. Excerpts from the interview.
What factors must be considered while chalking out a media plan?
Media plays a very important role in building a brand image for the product. It has to be structured properly to suit the marketing goal. The plan will depend on the targeted geography, the quantum of product to be sold, the target consumers, and the budget allotted. It must be understood that promotion channels like television and national newspapers must be resorted to only if you are trying to promote a premium product with a substantial profit margin, since these modes of promotions are very expensive.
What are the challenges in marketing and how do you tackle them?
Challenges are always to be kept in mind while designing marketing strategy. For example, if you have to compete with an international brand or a well established, famous, national brand, you have to convey how your brand is superior to others. You must communicate effectively how your product is better than its competitors in terms of product quality and allied services that come with it. Your marketing should prove your product`s superiority to its consumers.
Has cement production remained as profitable a venture as it was in the past?
Cement manufacturers have barely recovered any profits due to sky-rocketing prices of raw materials. Added to it, there is the extra cost of transportation and logistics. This has impacted the profit margins drastically. Cement demand has not grown to the extent we had expected it to grow in the last two years; demand had been less with respect to the production capacities we have built up. There is a huge gap between supply capability and the actual demand from the market. As a result, cement manufacturers are forced to reduce prices.
Which is the better strategy, distributing through few large dealers or routing it via an extensive network of small dealer outlets?
Distributing cement through large dealers is a thing of the past. Now almost every producer has an extensive network to reach not only the smallest dealer but also the end consumer directly. This strategy in the commodity market always works better as we are able to give better value to the end user.
What are different modes through which cement is sold in India?
Cement is in essence a commodity, although some producers are branding their product, trying to convince people that the product is different from the general commodity available in the market. However, some consumers see it more as a commodity. This has led to a price gap between different brands. However, now the government has introduced a two- tyre excise duty, one for the general consumer based on MRP and the other for largescale consumers, at a concessional rate. The second type of sale is like a commodity sale and usually there is not much difference in the prices of two separate brands. That is because the largescale consumer buys only at the lowest possible price and no producer can afford to lose this consumer. Secondly, this type of deal cannot be made through dealers as the product is to be sold directly to the consumer. The dealer is restricted to the role of being only a canvasser.
How do you reach construction professionals ranging from civil engineers and consultants to contractors and masons, at different levels?
From time to time, companies organise engineers meets, contractors meets and masons meets in every area that is targeted for product sale. The meets share technical presentations that educate these professionals about the characteristics of their product.
Quality perception of cement varies from customer to customer. How do you factor this in your marketing plans?
Quality perception varies from brand to brand, application to application and at times, from customer to customer. The requirement of the precast or prefabricated product customer is different from construction contractors and therefore, if one has to be popular among all sectors then the product has to be good in all respects; even its one- day strength has to be more than 21-22 and so on, and fineness has also to be very good, that is +3000.
Other than price and quality, which other factors influence buying decisions?
For some customers, credit facility and timely deliveries are important factors. A few producers offer credit facility to largescale consumers if they provide bank guarantees or other financial instruments that ensure return of credit.
What is your mantra for surviving the tough times?
Today, the cement industry is passing through a very critical stage, particularly after the decline in GDP growth consecutively over the last two years. Cement demand is now at its lowest, new capacities are being added, which is pushing cement prices lower.Cement companies can no longer make sufficient profits. The situation will worsen if this continues.
The reverse auction system for bulk consumers must stop. Just as it is wrong to take advantage of the market and sell products at abnormally high rates, it is also wrong to sell products at grossly unjustifiable low prices and consequently, become defaulters with shareholders, banks, suppliers, contractors. After all, it is the hard-earned money of the common man which is invested in these companies. The marketing people have no right to play with their money and sell products at their own price.
I remember in 1997, such a situation prevailed in the cement industry when cement was being sold on a ´payable when able´ basis. At that time we rose to the occasion and said that we will sell material only on a ´cash and carry´ basis. That changed the trend in the entire cement market in India and the whole cement industry started selling on a cash- and -carry basis. The need of the hour is to sell cement at a reasonable cost with a reasonable level of profit.
Cement manufacturers have barely recovered any profits due to sky-rocketing prices of raw materials.
The reverse auction system for bulk consumers must stop. Just as it is wrong to take advantage of the market and sell products at abnormally high rates, it is also wrong to sell products at grossly unjustifiable low prices.