The Hindu Business Line : Tata Steel redefines retailing

The purpose of RVM was to redefine the concepts of retailing in steel, upgrade the retail network by focusing on each stakeholder in the value chain and to bring about transparency in retail operations.

Tata Steel has redefined steel retailing in India through its retail value management (RVM) initiative launched in 2002. The initiative has changed the dynamics of a disorganised retail sector and proved that steel can be retailed in an organised manner.

RVM has pushed Tata Steel to the leadership position in branded steel with a pan-India presence. Subsequently, during the last three years, the country has witnessed the emergence of a large number of local brands, especially for reinforcing bars and GC sheets.

Background

In 2003, Indian steel consumption was around 32 million tonnes per annum and it was broadly classified as flat products (hot and cold rolled sheets and coils) and long products (reinforced bars also referred to as rebars, structurals and wire rods).

Steel companies, both in the public and private sector, were targeting consuming industries such as automotive, construction, durable appliances, packaging, LPG cylinder making, fabrication, Railways and general engineering.

Though Tata Steel acknowledged the presence of millions of small retail steel consumers in rural and urban markets, still it never thought that these groups could be reached directly.

Only in 2000-01, structured retailing was identified as the key marketing and sales initiative. Developing a retail network to reach this large number of consumers and support it by brand building efforts was the first step.

Problems and opportunities

In urban and semi-urban areas, the consumers bought small quantities of steel for building houses and volumes would vary from one to three tonnes. In the rural sector, consumers needed galvanised corrugated sheets for roofing application and their average requirement is 50-100 kg.

However, steel producers had no mechanism to reach this market located at the hinterland of the country. As a result, a large number of intermediaries thrived as they were meeting the demands of the small consumers.

In 2000, Tata Steel branded two products — reinforcement bars (rebars) for construction in urban areas and galvanised corrugated (GC) sheets for roofing applications in rural housing - for retailing. While the rebars were called Tata Tiscon, the GC sheets were named as Tata Shaktee.

A two-tier channel structure consisting of distributors and retailers were set up. Customer Account Managers within Tata Steel controlled the distributors, who in turn managed the retail network.

However, the managers were hardly aware of the market dynamics. They had little confidence in the ability of the channel to absorb additional volumes.

Distributors depended heavily on wholesalers as they had virtually no contact with the retailers. As a result, the wholesalers controlled the market and dictated the prices.

The channel functioning was opaque and the system was riddled with speculative trading. During month-ends the company faced tremendous demand for discounts.

Tata Steel did not have a comprehensive database to control the functioning of this channel. So, it failed to assess the quality of the retail network in terms of its coverage and capacity to absorb volumes.

Lack of control led to unethical practices at retail points. Some retailers used the Tata Steel brand to increase footfalls but pushed other manufacturers' products.

The marketing initiative

To get rid of these problems, Tata Steel launched Retail Value Management (RVM) in July 2002. The purpose was to redefine the concepts of retailing in steel, upgrade the retail network by focusing on each stakeholder in the value chain and to bring about transparency in retail operations.

The RVM initiative was implemented by a special team comprising specified CAMs. Each manager was made responsible for the sales of a particular territory.

Since each distributor and each CAM across the country was to be covered, the initiative took around three years to complete.

The RVM team was asked to visit all points of the channel and the entire retail chain to ensure products on offer are chosen by the consumer. On the other hand, the channel had to develop the capacity and motivation to sell higher volumes as per the market share objectives of the respective brands.

Analysis of results

During 2002-05, RVM initiative was successfully completed with 28 distributors of Tata Shaktee and 21 distributors of Tata Tiscon.

The retail network was expanded to reach 3,500 retailers in Tata Shaktee and 1,100 retailers in Tata Tiscon. Since its launch in 2001, Tata Steel stated Tata Shaktee has emerged as the largest selling GC retail brand at 27 per cent market share in the country.

Jindals with a market share of 15 per cent is placed second.

Bhushan Steel with 12 per cent market share is third. In the rebars category (both institutional and retail markets), Tata Tiscon has the highest sales in the country at 750,000 tonnes per year with the nearest competition at 700,000 tonnes per year.

Impact on the organisation

The RVM has helped Tata Steel to respond to the changes in the market place better. During the 10-week process, in addition to the RVM team, senior sales officials visit the territories to understand the needs of the stakeholders.

The retail format has helped the company to reduce volatility in its revenue streams and consequently stabilise profit margins for the distributors and retailers.

This initiative has helped Tata Steel to earn goodwill from its channel partners.

The CAMs along with his distributors and sales team conduct monthly retail sales reviews.

The marketing team is better positioned to appreciate the nuances of retail marketing and to develop area-specific initiatives that would have a greater impact on product sales as well as channel and end-consumer behaviour.