QUARTERLY MAGAZINE January 2022 Vol 08
QUARTERLY MAGAZINE January 2022 Vol 08
Focus
Despite being a late entrant into India's two-wheeler segment, CEAT moved ahead in a crowded market by creating a powerful brand, smart marketing strategies and deploying a unique distribution model.
By 2018, CEAT's growth rates in the two-wheeler tyre segment were higher than the industry's. In a 2016 interview with The Economic Times (ET), Anant Goenka, MD, CEAT, explained the phenomenon, “We have strengthened our distribution network by adopting an FMCG model of dealing directly with distributors instead of dealers as the ticket size is small. Two-wheeler tyres are a large business segment, and over 25 per cent of our revenues come from it — nearly twice as much as four years back, when it was close to 10-12 per cent. We were selling about 7.5 lakh two-wheeler tyres a month then, which has increased to almost 14-15 lakh now.”
In the same interview, Anant shared CEAT’s plans, saying, “We want to be the market leader in this segment.”
However, as competition intensified, CEAT's competitive advantage was being challenged.
We kept following the same methodology. A Distribution Sales Executive (DSE) is employed at the distribution point, which is the smallest territory division. Just one level above the DSE sits our employee from CEAT, a territory leader for the company's distribution. Because we weren't happy with the number of outlets, we often sent them a directive to open more. Mostly, they would revert, saying that the outlet profiles didn't match.”
PALI TRIPATHI, Vice President – Sales, Ceat
“CEAT’s need of an innovative solution," Pali recounted, "formed the genesis of the new models, and started looking for other ways of rapidly expanding our distribution.”
Numbers weren’t growing as fast as desired on account of two factors. First, they weren’t picking the right spots to open new outlets — if they had a coverage of 80-90 per cent in the bigger cities, they had limited presence in smaller towns with less than or equal to 10,000 inhabitants, barring villages. Second, sales outlets were not sticking with the company, creating a 'leaky bucket' scenario by getting poached by competitors.
“For the two problems, we threw ourselves an innovation challenge statement, following the ‘Erehwon’ methodology of orbit shifting. You give yourself an extreme problem to solve with an outrageous objective. Instead of an improvement of 10 or 20 per cent, we wanted to reach for the sky — exclusive business and loyalty from the outlets. Where are we, and where are the white spaces on Google maps, were the questions we needed to ask ourselves. Because consumption is a factor of habitat, we had to identify groups of people living together around key drivers of consumption” explained Pali.
Over the years, CEAT had established a substantial sub-dealer base with multiple approaches of expansion like district coverage, town-coverage, etc., based on census data. But high population couldn’t be regarded as the only factor responsible for driving consumption. In areas where population is high, the consumption is low, and vice versa. This is driven by the centres of economic activity like presence of shops from other sectors (hardware, FMCG, textiles, etc.), bus and railway stations, or highway junctions in that area. A new-and-improved model needed account for a critical dimension — its expansion.
Rural planning commenced based on Geographical Information System (GIS) where settlements and all kinds of data (streets, buildings, vegetation, etc., on one map) could be visualised on a satellite image and processed for market digital signatures by image-processing applications. This enabled CEAT to analyse associated networks of a district's retail ecosystem, revealing business hubs existed in several villages below 5k population strata, a ‘white space’ for CEAT, while also identifying villages with high population, low consumption, and other commercial activities, proving the fallacy of population cut-offs. The size of habitat, quality of housing and proximity to road network were better indicators for expansion opportunities. Hence, this approach pushed CEAT to envision its footprint in such areas. Moving beyond the confines of its existing network to map stores selling hardware, automobile, kiraana items, etc., the company gathered more information on high consumption areas. After identifying potential locations for retailing of two-wheeler tyres, CEAT conducted a series of on-ground validation exercises to list authentic and legitimate leads.
For the 'leaky bucket' problem CEAT decided to create a new distribution model to make their business proposition retail-strong. An innovation team was curated for the task.
CEAT, in all its processes, uses customer insights to tailor the structure. Before making data-driven decisions, the company would gather information from the outliers — the polar antonym of the TG’s demographics. In addition to that, integrated ecosystems of loyal people were also identified.
The success of CEAT's new distribution model hinged on the right partnership agreement between itself and the retailers. But first, the company had to identify the right segment to align with and searched for potential trade partners, and reached out to aspiring individuals from various walks of life — retired army veterans, unemployed youth, and women — the only common aspect among them being ambitious enough to navigate the entrepreneurial landscape.
Having articulated the value proposition to the new stakeholders, the company also provided concrete learning tools and financial aid for running a business. After enlisting, CEAT guided them through the process of starting their enterprise, including scouting for a location, enhancing the outlet with CEAT’s standardised branding, and providing them with weekly coaching sessions.
The phenomenal outcome equalled the lofty goals. A journey that commenced two years ago, had covered over 3000 towns in 184 districts, converted close to 10,000 outlets and increased its footprint by 48 per cent in < 10K population towns, thereby testifying to a rapidly growing network. Riding on the back of a timely technology-led intervention and fostering trust in novice entrepreneurs. CEAT created an interdependent ecosystem for itself, its retailers, and customers. The first-generation entrepreneurs are now shaping new identities for themselves.
Today, the CEAT shops following the unique distribution model can be found across Maharashtra, limited to the state only because of the Covid-19 restrictions. The success of these stores will soon be replicated across India.
CEAT’s distinct distribution model possesses the potential to replace traditional ways and become the new standard. It has nurtured a generation of successful entrepreneurs who will become the storytellers of the future.
