DISTRIBUTION MANAGEMENT

MINI PROJECT

DISTRIBUTION CHANNEL OF NOKIA IN

INDIA

Mobile Industry:

Less than one decade ago in India mobile phones were considered luxury

goods. Today India’s mobile telecommunication industry is the fastest growing

market in the world and the considerable underclass are almost as well connected

as the rich. Over the last decade the liberation of the mobile industry coupled with

the availability of low cost devices, reduction in tariffs, better network coverage

and an affordable service helped the industry undergo a major process of

transformation. Siddarth Ugunkar founder of bSmart mobile, said that one can now

see almost every Indian in Mumbai on his or her mobile phone, whether they are

executives, businessman, shop owners, students, housewives, drivers or even

rickshaw pullers.

As a society India has readily embraced the mobile culture which has

provided the country with prosperous economic rewards. According to the World

Bank estimates every 10 mobile phones per 100 people in a typical developing

country can boost GDP growth by 0.8% points. India is expected to hit 893 million

users which is 64.69% of the population by 2015.

Handset companies in India:

Apple Celkon mobile G Five

HTC Karbonn mobiles Lava mobiles

LG Micromax mobile Motorola

Nokia Oinda Panasonic

Samsung Sony Ericsson Sony

About Nokia:

Founded- 1865

CEO- Risto Siilasmaa

Nokia is a Finnish communications and information

technology multinational corporation that is headquartered in Espoo, Finland.

Its Nokia Solutions and Networks company provides telecommunications

network equipment and services, while Internet services,

including applications, games, music, media and messaging, and free-of-charge

digital map information and navigation services, are delivered through its wholly

owned subsidiary.

As of 2013, Nokia employed 87,771 people across 120 countries, conducts

sales in more than 150 countries and reported annual revenues of around €30

billion. Nokia is a public limited-liability company listed on the Helsinki Stock

Exchange and New York Stock Exchange. It is the world's 274th-largest company

measured by 2013 revenues according to the Fortune Global 500.

In 2013, Nokia sold what was once the world's largest vendor of mobile

phones to Microsoft as part of an overall deal totaling €5.44 billion (US$7.17

billion). Stephen Elop, Nokia's former CEO, and several other executives will join

Microsoft as part of the deal. In March 2014, the deal is yet to be closed due to

regulatory issues in Asia.

Nokia unveiled its third range on 24 February 2014, the Nokia X family,

which runs a modified version of the Android operating system. The range

includes three mid-tier devices; Nokia X, Nokia X+ and Nokia XL.

Nokia distribution structure:

Nokia Priority Dealers:

Nokia Exclusive Stores namely PRORITY DEALERS are all franchised

outlets .The franchisee must fulfill certain criteria, for example, in the case of an

existing store that would be converted to a priority dealer, there must be a certain

number of footfalls, the location of the store should be prime real estate in that

region, and certain other standards.

Nokia provides support to these outlets in the form of help in visual

merchandising, furniture etc. against a certain deposit by the owner which is

refundable at the end of the contract if need be.

Multi Brand Dealers:

Apart from its Nokia Priority dealers and concept stores, the company distributes

its product to many organized multi-brand mobile stores with nation-wide presence

in India and recognized for their service and price discounts. Few of the major

players are:

Poorvika Mobiles

Univercell

The Mobile store

Sangeetha Mobiles

Besides these there are individual mobile retailing stores as well as wide variety of

retail stores like electronics goods dealers, Stationary shops, etc who have started

selling mobile phones over past few years. HCLI has also established over 150

Nokia Care Centers managed by HCLI and franchisee operations.

Nokia Chennai factory

Nokia Mother Warehouse, Gurgaon

HCL Distributor

Re-distribution Stockist Supplier (RDSS)

Retailers

Nokia Distribution process:

Role of Channel Partners:

Nokia:

Nokia manufactures its mobile in Chennai manufacturing plant and then it transfers

to Nokia’s mother depot which is located in Gurgaon. They also provide assistance

in selection of channel partners like redistributors, Dealers, Franchisees, etc.

Besides this they provide monetary assistance in Store development for Nokia

Priority dealers, help in promotion of products on mass scale as well as in store and

training of the sales force of partners at every level.

HCLI:

HCLI Info has been handling distribution of Nokia phones for 10 years. HCLI

currently has 30,000 channel partners (dealers), some of which it will transfer to

Nokia. The pilot phase was launched in Mumbai and Bangalore to test the new

distribution model. The absence of any other distribution partner ensures that there

will be no price-cutting. In both the territories, Nokia phones were made available

for a uniform price.

HCLI starts distributing Nokia’s product from Gurgaon depot. HCLI takes order

from 4 redistributors appointed in Chennai to cover North, South, East and West

zones and then it supplies the product to the dealers with the help of RDSS (Re-

Distribution stockiest supplier).

Re-Distribution stockiest supplier (RDSS):

There are 4 RDSS in Delhi NCR region with territories divided as North, South,

East and West Chennai. RDSS are supposed to operate only in their designated

territorial zone. In case of conflict HCLI acts as the arbitrator.

RDSS, assisted by Nokia, also take responsibilities like recruiting sales force,

training and developing. Stocking norms of Nokia- HCLI agreement says that

HCLI depot should have 7 days supply, RDSS in city should have 5 days of

supply.

Dealers:

Nokia Priority dealers, Multi brand and individual dealers in Delhi NCR are all

served by RDSS. Dealers are explained the features of every new launch mobiles,

different schemes and offers by Nokia’s representatives. Re-supplies are always

just a phone call away and the delivery is made within a few hours. Besides, Nokia

assists most dealers in the region in the store set-up and design. The price points

sometimes dictate the type of outlet.

Margins at each level:

The margins for the Nokia distribution segment have not been disclosed separately

but are clubbed with the overall contribution of the office automation and telecom

segment. Tentative margins found on the basis of discussions with dealers were:

Nokia and HCLI have never publicly declared their margins. Nokia business is the

largest contributor to HCLI’s revenues and profits. Nokia product distribution was

the largest contributor to HCLI’s sales (about 72% in FY2012). As a percentage of

PBIT however, the share of Nokia distribution was at 61%. Since 2006, when

Nokia took over 50% distribution channels from HCLI, revenue growth has almost

been flat.

NOKIA

HCL Infosystem

Redistribution Stockist Supplier

Dealers

Priority

Stores

Concept

Stores8% margin2% margin

18% margin

Margin not declared

10% margin

When comparing with its competitors, Nokia offers almost half to one-eighth

margins on its phones. Compared to 2% offered to dealers by Nokia, LG and

Motorola offer around 8-10% and Samsung 18%. But still dealers prefer to go with

Nokia as it has much more surer sales and have excellent support from RDSS and

the company.

Distributors Coverage Plan:

HCLI being the first level intermediary between Nokia and dealers, HCLI collects

the goods from mother depot in Gurgaon and supplies to 5 RDSS across Delhi and

Noida. Gurgain depot itself functions as RDSS for the Gurgaon. HCLI agents

deliver the ordered mobile sets to RDSS within 4hrs of receiving orders. Mother

depot maintains stock capable of catering to atleast 7 days of demand in its covered

territory.

In turn, RDSS ensures the delivery of goods within 4 hrs of the order made,

sometimes even quicker. Night time orders are delivered net day morning. As each

RDSS is given a small geographic territory, making quick deliveries does not

prove to be hard. Although territories are geographically small, the number of

retail stores in each zone makes them commercially attractive to operate in. The

small delivery time and close-knit relations with RDSS allows dealers to even

order the mobile pieces as and when customer walks in demanding the handset.

Again compared to this, Nokia’s rivals have appointed much more number of

distributors in each region. Samsung has 15 or more distributors to cover Delhi

NCR region. But Still Nokia manages to give services better than its competitors.

Infrastructure required by distributor:

Nokia’s sole distributor currently in India is HCLI. Their deal was first inked over

a decade ago just when Nokia was entering into Indian telecom market which was

perceived to be ready to take a big leap forward. Nokia wanted an established

partner with proven record in handling distribution across India. HCLI had an

excellent wide-reaching distribution channel and support centers. This partnership

helped Nokia in having a focused approach towards increasing penetration to Rural

& Semi-urban areas and improvement in market share across the country.

Nokia-HCLI have not declared any of their agreement details on public domain

and hence its not known what infrastructure HCL is supposed to maintain as per

the agreement or what infrastructure they have dedicated or use for servicing

Nokia. Few details available in public domain are:

Service provider for the repair of Nokia Mobile Phones in   India

Pan India service network in 21 L3 locations equipped with state of art

equipments

Mobile care vans across the country to increase remote coverage

Nokia repair facility

100+ repair benches with 75K handsets/ month repair capacity

L4 repair capability

HCLI maintains the mother warehouse located Gurgaon.

Support provided by the company to the distributor:

Nokia has an extensive support program dedicated to providing key benefits to

HCLI and RDSS agents and qualified mobile phone dealers throughout Delhi.

Nokia offers qualified dealers unprecedented access to Nokia's products and

support services to better satisfy customer needs for Nokia products. It offers the

tools and point-of-purchase support dealers need to deliver the best possible

customer solutions to Nokia end users. Nokia also offers dealers extensive

merchandising support such as counter top displays, product brochures,

demonstration phones and a Nokia premier dealer plaque

Point of Sales(POS) system : Nokia provides point of sale systems and software

to dealers to help them manage their selling activity better. It encourages dealers to

move away from their cash registers to IT managed account system. Almost all the

Priority dealers have moved from cash registers to POS systems.

In-shop Branding

Schemes: The concept of mobile recycling was first introduced by Nokia, a

campaign was launched to encourage people to give their damaged Phones to

Nokia care, & avail the discount on buying a new one. Besides, Nokia offers

multiple schemes to push sales of lagging mobile models. These schemes come in

form such as added cash bonus of Rs.300-1500/ set for selling a 5 specific lagging

set in 4 days.

Retail element: Nokia assists priority dealers by assisting in the payments for the

retail element part of their stores while the dealer is supposed to take care of the

expenditure incurred on the services other than the retail element. The service

charge payments for the retail element could be split into 'core' and 'additional'

elements, with dealers paying pro-rata with for only those services they all have

use of, and an additional element for any extras it specifically requires.

Sales Collaterals: Nokia provides promotional collaterals and brochures to the

dealers directly to help in promoting sales. They regularly send in posters and

pamphlets of latest releases, updated brochures and handset fact-sheets to assist

dealers in closing the sales.

Training the dealers:

Nokia sends in its executives to dealers to train them on the features and selling

points of new launches and handset models not performing to their potential.

Mostly these tasks are taken up by the delivery executives who also inform the

dealers about their latest launches and the feature sets of these phones.

Dealer encouragement schemes:

Nokia has cash rewards to promote and motivate the dealers. They offer cash

rewards for making predetermined level of sales fortnight which may ranges from

Rs.500 to Rs.5000. For their high performing dealers they offer all expenses paid

local/foreign holiday trips.

Credit/ Payment terms:

Nokia operates of quick delivery and quick payment terms with RDSS and

mobile dealers. Deliveries are made super-quick, 4-5 hrs, and payments are

supposed to be made quickly too.

Nokia and HCLI have been under long term contract which has been in place for

over a decade now, with terms and conditions having been revised twice in this

period. Margin and credit period agreement between Nokia and HCLI have never

been declared publicly. But its speculated that its revenue sharing model based on

total sales in a particular period.

Nokia having a very strong brand and market presence, exhorts tremendous power

in market. It allows a very small credit period to the RDSS which in turn squeeze

dealers, giving them equally small credit period. RDSS are allowed a credit period

of 7 days, which in turn give dealers also 7 days credit period only. Although

dealers moan about the short credit period, the power Nokia has in market and

demand for Nokia phones makes it imperative that dealers carry Nokia mobile

phones in their stores.

Again on this front, Nokia has tighter norms compared to its rivals. Samsung and

LG offer double the credit period offered by Nokia. Samsung and LG offer 15 days

credit period, compared to Nokia’s 7 days.

Major Problems Faced by the distributors:

Terms and condition of the deal between Nokia and HCLI has never been revealed

in the public domain. Hence, the problems faced by HCLI are not known publicly.

Since, the deal to divide distribution territories was signed in 2006, there has been

some issues for HCLI. HCLI shares have suffered on share market. Nokia has also

refused to confirm or deny plans on appointing distributors for the territories under

its control after the revised agreement.

On its part RDSS are quite happy with their functioning. They are satisfied with

the products, quantum of sales and promotional support provided by the company.

Even dealers spoke very highly of Nokia. Multiple dealers were contacted and not

a single one had any problem with Nokia’s distribution or service. Some dealers in

other states were also contacted and they also had nothing to report on the problem

front.

A few minor issues that possibly could become concern in future were :

Credit period given by Nokia is very low compared to its competitors – just 7

days compared to 15 days offered by Samsung and LG

Margins offered are very low compared to competitors who could become

larger player over new few years. Nokia offers just 2% margin to dealers

compared to around 10% offered by LG and 18% offered by Samsung

The damage piece policy has been cause of concern for some dealers/ RDSS.

Although minimal damaged pieces have been reported over years, if any

physically damaged handset is found, it sometimes leads to dealer/RDSS

having to bear with it.

Major Points of conflict:

There has been no point of conflict reported by RDSS or the dealers over the

years. Nokia-HCLI have marked the territories very effectively and have

been strict in ensuring that territories are not encroached upon by dealers or

RDSS. There has also been no conflict amongst channel partners at different

levels or channel partners at same level. Payments, delivery of goods

ordered and services have also been impeccable.

Relations between Nokia and HCLI are deeply ingrained in their system and

if there has ever been any conflict or disagreement, it has never been

reported in any open forum.

Major Problems/ Issues identified:

With market scenario changing, smart phones are increasing their share of

total mobile phones market. Although Nokia too has presence in this segment,

but with multiple recent offerings launched by Blackberry, Apple and

Samsung market is set to become more competitive for Nokia. Compared to

Nokia all these companies are offering better credit terms and margins and

this may lead to dealers and RDSS moving over to these competitors.

Dealers reported Nokia’s executives never try to pressurize them in keeping

their phones on prominent displays or push sales when customer walks into

the store. On the contrary, LG, Samsung and other rival brand’s sales

executives repeatedly exhort dealers to keep their products in prominent

displays. They even ask the dealers to push their handsets when customer asks

for Nokia. Till now Nokia has done strong promotion and relied on the pull of

its products and brand to make the sales. But in future, as the market gets

competitive, Nokia will find this tougher and should start forming strategy to

counter such moves of its competitors.

Service centers of Nokia are managed by HCLI in assistance with Nokia

personnel. Although, defects and problems in handsets have been very low

compared to competitors, the handling of service has not been impeccable.

Service centers usually take time and at some centres have long waiting list.

This makes customers to move to cheaper and convenient local mobile repair

shops. As parts used are not genuine and sometimes results in handset

damage, customers end up blaming Nokia as much as they blame Local shop.

Recommendations:

Review the margins offered to dealers and RDSS periodically taking in

consideration the competitive structure of the market

Review the credit period allowed to dealers and RDSS periodically taking in

consideration the competitive structure of the market

Have a multiple complaint channels as channels tend to get choked due to the

bulk of complaints coming in everyday. Nokia Priority dealers can be used as

centres where complaints can be registered and can be dealt in an organised

way

Nokia has to be make its sales executives more pushy keeping in mind the

tougher competition from previously smaller players like LG and Samsung

Nokia needs to provide better purchase centric schemes to the dealers. These

schemes can be given on a sales basis so that they solve dual purpose

increasing the sales and acting as an incentive for the dealers.

The distribution network of Nokia is very wide but there are certain areas

where no brands has reached like sector -3,4, Harola market in Noida ,

Govindpuram in Ghaziabad , Certain areas on GT road, but in these areas

distribution is not very effective and thus Nokia should work on its distribution

in these areas.

Some dealers said that missing piece in Nokia’s product line is absence of

stylish mobiles in range of Rs.3000-5000. This highlights reliance of Nokia on

HCLI for market information gathering. Nokia in itself is disconnected from its

dealers and has no mechanism to gather this insight from them.

References:

www.Nokia.co.in

www.hclinfosystems.in

http://toostep.com/debate/nokia-to-have-its-own-retail-distribution-model-

will-this-he

http://davidhowse.wordpress.com/2010/08/10/converting-a-wholesale-or-

distribution-business-model-to-a-retail-model-an-alberta-marketing-

perspective/

http://press.nokia.com/PR/199601/775828_5.html

http://www.hclinfosystems.com/news45.htm

http://dqchannels.ciol.com/content/reselleralert/106022101.asp

http://www.businessweek.com/globalbiz/content/aug2007/

gb20070831_914354.htm

http://www.businessweek.com/magazine/content/09_32/

b4142056700653.htm

http://www.thehindubusinessline.com/2008/06/27/stories/

2008062751790400.htm