Route-to-market

RTM (Route-to-market) is ways and means of distribution of product to shoppers or end-consumers.

This article will cover Direct RTM strategies.

I will be sharing my experience and studies from different FMCG (first of all my own experience working with Unilever, Coke, Haleeb and now Dawlance - Consumer Good Electronics).

Route to market is simply the channel or model of distribution or medium through which a company sells its products to its shoppers.

There are essentially two ways of doing it :

(A) Direct

Company is directly responsible for distribution of products.

(B) Indirect

Company distributes its products through indirect means, like intermediaries in the form of distributors, dealers, agencies and many 3P agencies.

DIRECT RTM STRATEGIES

Trade Expo Fairs / Exhibitions

This is fairly common in White goods industry that companies directly participate in fairs / exhibitions to display and sell their product. Whereas, it is uncommon in FMCG. You will not display a detergent or a new chocolate unless it is a major innovation. Whereas, you will certainly display new innovations in consumer goods or electronics. The most common and famous trade fair in consumer electronics is "Canton Fair" held in China now officially known as the China Import and Export Fair, held bi-annually in the Spring and Autumn in Guangzhou, Guangdong Province. The fair represents many business development opportunities. Buyers from all over the world come to the Fair to find suppliers and discover the latest trends and products currently being made in China. All progressive organizations use the Fair as a platform for the expansion of international business and to review the newest developments in their industries.

For FMCG, foods and beverages, SIAL- Inspire Food Business, is world's leading food innovation network, organized in Abu Dhabi, Paris, Canada (Toronto and Montreal), Jakarta, China, and Manila. SIAL Abu Dhabi is a business- class trade event for the Middle East Food Industry. The exhibiting companies get to develop their business in the Middle East region, promote their brand and develop sales network. Almost all food sectors, right from vegetables, ingredients, organic products to dry products; meet to share views and develop business. 

The basic objective in participation in trade fairs is to show cause company innovation, products and networking with professionals coming from different industry, for future business development and efficient procurement needs.

Company own Web based Ordering Portal

If you google the online feature (for company own web based online ordering), you will notice that this is fairly common in case "Online food ordering" for chain of restaurants and fine dine restaurants, fast food chains, Chinese restaurants and all others. A few home furniture and garments manufacturers offer online ordering. Also book stores, like "Liberty Books" offer online order. Some other non FMCG in cement industry and paints industry also do the same.

The basic idea behind having own web based portal is to "Offer …

Having worked with companies like 3M, Unilever, Coke, Haleeb and Dawlance, it is my firm belief that irrespective of any company or industry, a sales person is expected to perform on following sales KPI's :

1- PRODUCTIVITY (measured as %)

Productivity is defined in %. A sales person has to visit x number of customers in a day. Out of x customers, y number of customer gives order or sales is made to them. So productivity is defined as y / x %. What is a good productivity : some say, 75% -80% but I say if one is able to achieve 65% productivity then it is a good % number. 

X is always a pre-defined route visit plan, or PJP (Permanent Journey Plan).

Having an effective PJP is key to getting the required productivity rate.

Making of an effective PJP is dependent upon following :

a) Impulse vs. rational buying categories

Impulse categories such as chocolates, candy, gums, mints, chips, battery cells, cold beverages, etc... generally have large number of customers in a PJP. 

As compared to rational / decision buying based categories such as appliances, auto, generators, furniture home which requires more rational decision-making and hence there are less number of customers in a given route plan 

b) Volume per outlet / Drop Size

When product categories have low volume per outlet or drop size, then number of customers in a PJP are high vs. categories with high volume per outlet. This is also linked to vehicle load management. For instance, sales person of chips or chocolates or confectionery items will have more customers in a given route plan than a sales person with appliances.

The type of supply vehicle is dependent upon the drop size. In case of appliances, you will have less customers and large vehicle size, whereas, in case of low sales per outlet, the vehicle size is small with large number of customers. Here the selling model can also be conventional (a different topic) depending upon the SKU complexity or range of categories within single business unit.

c) Section ROI (Return on Investment)

One of the most important considerations while making a PJP is section ROI. Given margins of the category and cost of sales, the route has to be designed in such a balanced way that return on investment is high. If that particular section or route does not generate healthy margins, then interest of all concerned reduces with period of time.

Since margins cannot be altered (due to company's profit decision), therefore, increasing sales should be the objective along with rationalized cost. Sales can be increased by either increasing the drop size (vertical growth) or increasing productive outlets (horizontal expansion). For example, a particular section generates sales of 10 units of soap bars from 5 outlets. Hence drop size is 2 unit and productive outlets are 5. To increase sales (assuming productive outlets remains the same), you can increase drop size from 2 to 3, resulting in sales of 15 units. 

d) Geographical Proximity

Selling cost becomes high when customers in a given route plan are far away. This also increases travelling time from one customer to another. TMS study (Time and Motion Study) also focus on the concept that time spent inside the outlet should be more compared to travelling time between outlets and time spent in office. Unless the PJP is defined for a particular channel (channel specific category) it is advisable to make route plan with customers in geographical proximity. 

Exception could be example when sales person sells a certain product category to a particular channel, for instance HORECA. Now customers in this channel may not necessarily be located close to each other. But again, the consideration will be profitability and focus. If HORECA customers do not generate healthy net margins (with cost implications) then it is unwise to segment the route plan.

Channel wise PJP plan makes sense if it generates good margins within a product category and doing so increases the desired volume and share.

e) Channel based PJP 

The above is a viable and effective strategy as long as the customers within the channel justifies volume base. Customers' behavior and buying pattern are similar, hence promotional, and pricing strategy can be be tailored to their needs.

This also leads to focus from shopper point of view and trade marketing strategies can be applied. 

2- AVERAGE # of SKU's / ORDER or LPPC (Lines per productive call)

A sales person has X number of SKU's to sell. Out of x, he is able to sell only y number of SKU's. Hence average SKU / order would be "no. of actual SKU's order / sales / (divided by) total number of customers with actual orders / sales"

This particular KPI attaches significance to the fact that a sales person is doing 'RANGE SELLING'. This concept has however evolved into a channel-specific-SKU based approach. This simply means that not all SKU's sell everywhere. For instance you would not find a sachet pack in a super market. Or you will not find a 10 Kg or premium pack on small X neighborhood (X and Y store).

Hence, trade marketing strategies evolved to define channel and SKU wise assortment and plan-o-gram techniques. And it makes sense. Distribution cost becomes effective whereby varying RTM (Route to market) strategies are used to penetrate different products in varying channels.

3- UNIQUE PRODUCTIVE OUTLETS

This particular KPI determines whether a sales person is visiting all outlets in a given route plan on routine basis. It is a simple measure of direct coverage. Also linked to control in maintaining a healthy retail : wholesale ratio.

Suppose, a salesperson has to visit 100 outlets in a month as per PJP. Out of 100, only 95 customers or outlets places order in a month. Hence, unique productivity is 95%. A healthy score for this KPI is +95%. 

When this score drops, it simply means that sales person is selling on key outlets, which leads to customer dependency. This is a measure of how effective retailing occurs which sustains the growth momentum in the long-run.

However, the new evolved concept is 'Cost-to-Serve'. Customers are segmented on the basis of volume…