LG DISTRIBUTION CHANNEL PROJECT OF SSFM

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DISTRIBUTION DOSSIER
SUBMITTED TO
Prof. Srinivas Govindrajan
SUBMITTED BY
Akash Swami (BM18006)
Ankita Priyadarshini (BM18010)
Prince Kumar (BM18031)
Priyanka Ghosh Dastidar (BM18032)

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REPORT OUTLINE
OBJECTIVE OF THE STUDY
RESEARCH METHODOLOGY
AN OVERVIEW OF LG ELECTRONICS
CHANNEL DESIGN
ANALYSIS AT DIFFERENT LEVEL OF THE CHANNEL
FIELD FORCE MANAGEMENT
FINANCIAL ANALYSIS
LEARNING

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OBJECTIVES OF THE STUDY
The objective of this research is to understand the sales and distribution mechanism of LG
electronics (more particularly refrigerator as the product category) and perform a field study
to understand the management principles of the distribution channel as well as the field force.
We have preferred Godrej as the competitor of LG and have compared both with respect to their financial
aspects. The report will reflect our study at the retailer/sub-dealer level as well as give an approximate
ideaatdistributor level.
RESEARCH METHODOLOGY
We have conducted a primary research to analyse the market of electronic goods and
understand the distribution channel relationships. Despite of the confidentiality of certain
mechanisms and the hesitation of the distributor in mentioning the exact figures for sales and
profit margins, we managed to collect as much data possible and some rough figures of the
facts that is not meant to be shared externally.
The data was collected basically through the primary source of survey and also by means of some
personal connections to get information at the distributor level. We used simple oral open end
questions to gather the information and noted them down on a note pad.
Our research was limited to:
 CAMS Corner, Camac Street, Kolkata(West Bengal)
 LG Shoppe, Kolden Air conditioning Pvt. Ltd., e-mall-6 ,Kolkata(West Bengal)
 e-zone, e-mall, Kolkata(West Bengal)
 Reliance Digital, Diamond Harbour Road, Thakurpukur, Kolkata(West Bengal)
 Hindustan Electronics, Bhubaneswar(Odisha)
 Astik Electronics, Baripada(Odisha)
*Our Research was restricted to Kolkata (West Bengal) and Baripada (Bhubaneswar Region) (Odisha).

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AN OVERVIEW- LG ELECTRONICS
LG Electronics Inc. (Parent company: LG Corporation) is a South Korean
multinational electronics company with Koo Boo-joon as its CEO. It has its headquarters in
Yeouido-dong, Seoul, South Korea with an employee base of 82,000 people working in 119
local subsidiaries worldwide and has 128 operations worldwide. LG Electronics remain the
world’s second largest television manufacturer. LG Electronics owns Zenith and controls 37.9
percent of LG display. The global sales of the company are USD 55.91 billion (KRW 59.04
trillion). Basically LG comprises four business units:
 Home Entertainment
 Mobile Communications
 Home Appliances & Air Solutions
 Vehicle Components
The main production vendor for refrigerators and washing machines in the Indian sub-continent is
Starion India. LG Electronics remains the world’s second largest television manufacturer. LG
Electronics appointed Mr. Kim Ki Wan as the Managing Director of LG Electronics India
(founded in 1997).

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PRODUCT LINEOF LG ELECTRONICS
Fig. 1. The product line of LG Electronics
Top 10 Varieties of LG Refrigerators
LG Refrigerators List Latest Price
LG 185 Litre Single Door Refrigerator (GL-B195OGSP) Rs. 13,450
LG 284 Litre Double Door Refrigerator (GL-
C302RPZU)
Rs. 26,749
LG 45 Litre Single Door Refrigerator (GL-051SSW) Rs. 6,799
LG 188 Litre Single Door Refrigerator (GL-
B191KPRW)
Rs. 12,690
LG 190 Litre Single Door Refrigerator (GL-B201APDX) Rs. 13,592
LG 215 Litre Single Door Refrigerator (GL-
B221AHDX)
Rs. 15,999
LG ELECTRONICS
COMMERCIALHOME
APPLIANCES
IT SECTORENTERTAINMENT
MOBILES
REFRIGERATOR REF
COMPRESSOR
TV
VIDEO
COMPUTERS
AUDIO VACUUM CLEANER
WASHING MACHINE
MICROWAVE OVEN
WATER PURIFIER
AIR CONDITIONER
AIR PURIFIER

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LG 687 Litre Side By Side Refrigerator (GC-
B247SLUV)
Rs. 73,990
LG 260 Litre Double Door Refrigerator (GL-
Q292SDSR)
Rs. 21,999
LG 308 Litre Double Door Refrigerator (GL-
I322RPZX)
Rs. 31,400
LG 215 Litre Single Door Refrigerator (GL-
B221ASAW)
Rs. 20,188
Fig. 2- Comparision of the number the varieties of top 10 LG Refrigerators with respect to their price range
*From our research we realised that the largest selling variety of LG Refrigerators is of the mid-priced range.
0
1
2
3
4
5
6
7
8
Variety of Refrigerator
Low Priced
Mid-Priced
Premium

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CHANNEL DESIGN
RAW MATERIAL SUPPLIERS MANUFACTURING DISTRIBUTION
CUSTOMER DIRECT/SUB-DEALER
TRADITIONAL DISTRIBUTION CHANNEL OF LG ELECTRONICS INDIA Pvt.
Ltd.
LG Electronics company office
LG Electronics exclusive
single brand retailer
Multi-brand retailers
Dealers
LG Electronics regional office
Sub-dealers
Distributor

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ANALYSIS AT DIFFERENT LEVELS OF THE CHANNEL
DISTRIBUTOR
We managed a conversation with a distributor by the means our personal contacts. We made
contact with Hindustan Electronics, Patia, Bhubaneswar (Odisha) who is the distributor of
LG Electronics products for three districts of Odisha which are Balasore, Bhadrak and
Mayurbhanj in. All the retailers in and around these three districts get supplied from
Hindustan Electronics and it carries out its distribution activities as per the demand. Being a
competitive distributor, it is very essential to ensure proper stocking of the product and their
damage management as well as a smooth communication for marketing and distribution. LG
Electronics has its own warehouse, situated at Chandaka Estate, Bhubaneswar. A reasonably
large inventory is maintained in these warehouses
Margins and rewards: Hindustan Electronics has set different profit margins while selling to
subsequent dealers and sub- dealers. The profit margins vary depending on the product category
in terms of how slow/fast the products moves. Hindustan Electronics denied revealing the
figures of the profit margin and the rewards provided by LG Electronics for acquiring the
targets.
Target setting mechanism: Hindustan Electronics denied leaking any information on the
targets and margins. However, we were informed that Hindustan Electronics places purchase
orders depending on the movement of products in the market and these orders are supplied from
the company warehouse. Hindustan Electronics performs order transactions with the LG
Electronics regionaloffice. They place order in the regional office and the regional office places
order to the regional warehouse. After receiving payments through wire transfer from them,
goods are sent from the warehouse. As far we consider the refrigerators as product categories,
the reorderingsize under this categories is season dependent, in-season time and off-season time.
Hindustan Electronics doesn’t practice any credit policy. Goods are delivered only after the
payment is made in the regional office. However they have their own credit policy according
to which the dealers or the sub-dealers are allowed a grace period of 10 days to complete the
payment.
Monitoring mechanisms: LG Electronics sends the area sales manager to keeps a record of
the flow of goods and health of the mechanism (like complains & reviews) at all levels of the
channel with the help of an ERP system of the company which was confidential and we were
restricted to know about it.
Training and HR input: We were informed by Hindustan Electronics that LG gives a crash
training to the distributors to deal with the dealers or sub-dealers more technically and ensure

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a healthy business relationship. LG Electronics regional office has employed its own employees
so as to groom the sales personnel and thereby maintain a good relationship with the dealers
or sub-dealers as well as better presentation of the products to the customers.
Modes of transportation For the delivery of goods to the distributor the company uses its
own transport, i.e. lorry or truck , and the entire cost of transportation from warehouse to the
distributor location is borne by the company itself. If Hindustan Electronics finds any
damaged goods or any goods that need repairing, it requests repair or replacement within 15
days fromthecompany.
DIRECT RETAILING MODEL (MULTI BRAND)
We visited e-zone of e-mall in Camac Street area in Kolkata, which is a multi-brand electronics
outlet, for the analysis of LG electronics (refrigerators as product category) in direct retailing
model. The agency primarily deals in LG, Samsung, Panasonic, Godrej and Koryo. Under the
refrigerators category it sells onlyLG, Samsung and Panasonic refrigerators. We were informed
that they have certain regulations under which they are not supposed to reveal certain
information regarding their work process. However, the floor manager gave us a basic idea
about our requirements. We were informed that LG has been a fast selling and one of the
market leaders in the product category of the refrigerators. It gives a tough competition to
Samsung refrigerators. e-zone re-orders stocks on a monthly basis, based on previous sales records
and the upcoming season. The floor manager denied to reveal his name and also about the
distributor from whom their outlet is supplied. The in-season (prominently Durga Puja and
January-February month) order frequency is very high for LG refrigerators as compared to the
other brands and the discount for the customers is also
high in that season. We captured a discount price (17.5%)
that was availed to the customers on account of 26th
January, i.e. the Republic day, of this year (2019).
Margins and Rewards: We were told that the dealer
margins fall under their confidentiality and they would not
reveal the exact figure but the profit margin is not more
that 3-4% for all the brands they sell. The discount rate that is provided to the customer on an
average is around 15% of the MRP for the refrigerators throughout the year. In-seasons discounts
are higher and they vary somehow between 15-25% for the refrigerators.
Target setting mechanisms: The floor manager refused to share the information regarding
the exact figures of their targets. However the pressure is high during the Durga Puja season.
e-zone buys its products from distributors on credit basis but only for a period of about 5-6 days
after delivery.

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Monitoring mechanism: LG Electronics sends the area sales manager from company office to
monitor and keep a record of the flow of goods, the stock of their company and a track of
reviews and problems if any. They collect information and record them in their mobiles. We
got to know about the ERP system of LG Electronics. But the floor manager hesitated to
share any further information regarding that.
Training and HR input: The sales person dealing with the LG products in e-zone is trained
and certified by LG Company. They are given training to achieve technical peculiarity of the
products and to deal efficiently with the customers. The training program provided to then
sales persons provides them with proven skills, knowledge and tools they need to drive
margin line performance.
Modes of transportation: The transportation cost of all the products is bore by e-zone itself.
They carry the goods on lorry or pickup trucks depending on the order size.
*Akash Swami & Prince Kumar with the floor manager
at e-zone
DEALER/SUB-DEALER (LG Electronics exclusive showroom)
LG Electronics exclusive showrooms are the franchise of LG Electronics where direct
company-billing and retailing is allowed along with the regular distribution method. The
retailer directly purchases goods from the Company. We visited CAMS corner (Dealer),
Kolkata (West Bengal), LG Shoppe, Kolden Air conditioning Pvt. Ltd, Kolkata and also
inquired from Asthik Electronics (Sub-dealer), Baripada(Odisha) that operates under
Bhubaneswar region. The order frequency of such exclusive stores are entirely on the basis
of requirements that is recorded in the ERP system of the company.The products in CAMS
gets delivered from the warehouse in Baj Baj, Kolkata(West Bengal) and Asthik Electronics
receives its delivery from Hindustan Electronics, a LG Electronics dealer of Patia,
Bhubaneswar (Odisha). For Mayurbhanj, Bhadrak and Balasore districts in Odisha,

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Hindustan Electronics is the distributor. The showrooms deal in all kind of products of LG
Electronics. The variety and availability is always focused upon in an LG Electronics exclusive
showroom. We got a rough idea about the sale of the different variety of LG refrigerators. If we
take ten refrigerators of all varieties, the sale is like two out of ten are small low price
refrigerators, six out of the rest eight are mid-priced refrigerators and the rest two are high priced
refrigerators, which is similar to what we compared in fig.2. The highest selling refrigerators are
the mid-priced refrigerators. The franchisee also allows the sale to customer on credit (Bajaj
Finserv, Citi bank, etc).
*Astik Electronics, * CAMS Corner, Kolkata(West Bengal) * Akash Swami, Priyanka Ghosh Dastidar
Baripada(Odisha) and Prince Kumar at LG Shoppe, Kolden Air
conditioning Pvt. Ltd. Kolkata(West Bengal)
Margins and Rewards: The LG electronics exclusive showrooms earn a profit margin of 2.5% to 5%
depending on the product category. For refrigerator it is around 4%-5%. The discounts for the
customers throughout the year are an average of 15%-25%. For the refrigerators the discount is 20%-
25% on MRP. They are incentivized on achieving their targets in
both monetary and non-monetary ways. Holiday expenses to
Malaysia and Thailand for couple is bore by the company as a
reward to the franchisee. If the holiday package is not accepted by
the franchisee, it is replaced by a certain monetary value.
Target setting mechanism: Refrigerators, Washing Machines
and Air Conditioners LG Electronics are the highest selling
products. The target of these products given to the franchisee is on the basis of the past
performance of the same. The highest selling variety of refrigerator is the mid-priced variety. So the target for this
varietyissethigh.
Monitoring mechanism: The performance of these showrooms is monitored by the area sales
manager. There is a regular inspection of AM/DM in the showrooms, sometimes informed and
sometimes surprise. The ERP system of LG is used to record all the informations. The picture
shows

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*A conversation with Mr. R. Singh, floor manager, LG Shoppe (Picture Credit: Ankita Priyadarshini).
Training and HR input: he entire sales person in the LG
Electronics exclusive showrooms are trained and certified
by the company so as to ensure their knowledge in the
technicality of the products and a better customer relation.
The training program provided to then sales persons
provides them with proven skills, knowledge and tools
they need to drive margin line performance.
*Astik Electronic, Baripada *LG Shoppe, e-mall, Kolkata *CAMS Corner, Kolkata
Modes of transportation: LG Electronics is responsible for the complete transportation process
of goods to these exclusive showrooms. The transportation is carried out by means of lorry or
pick-up trucks as per requirement.
MODERN TRADE CHANNEL
We visited Reliance Digital in the Thakurpukur area of Kolkata to understand the modern
tradedistribution channelfor saleofLG Electronics products. Basically the channel Reliance
Digital goes like:
DELIVER GOODS
STOCK REQUISITION ORDER DELIVERY ORDER TO LOCALWAREHOUSE
PURCHASE ORDER
Reliance Digital
(Thakurpukur, Kolkata)
Reliance Digital
headquarters
(Mumbai)
LG Electronics
headquarters
(Mumbai)
LG Electronics Regional
warehouse
(Kolkata)

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For all stock requirements Reliance Digital places a stock requisition request to its
headquarters in Mumbai. The Reliance Digital headquarter cross examine the requirements and
issues a purchase order to the LG Electronics headquarter. After the payment by Reliance Digital
headquarters in Mumbai, the headquarters LG Electronics asks the regional sales office to
issue the requisitioned products and quantities from its own warehouse. Theelectronicproductsaresold
oncredit aswellasnocostemi.
Margins and Rewards: The prices for the refrigerators at
Reliance Digital are in-store prices which are lower than
actual company mentioned MRP. There are no specific
criteria to incentify for target achievement as
mentioned to us.
Target setting mechanisms: The targets for the products are set on the basis of the past
performance of sales and the sale season.
Monitoring mechanism: The area sales manager pays visit to Reliance Digital to monitor
the sales of the products and record reviews or complains if any.
Training & HR input: The sales person dealing with LG Electronic goods are trained by
the company itself to deal better with the customer and inform them the technicality of the
products. The training program provided to then sales persons provides them with proven
skills, knowledge and tools they need to drive margin line performance.
Modes of transport: The regional office of LG Electronics uses its own transport (truck or lorry)
and the entire cost of transportation from warehouse to the store location is born by the
company itself.
*Reliance Digital has strict regulations regarding any revelation of their sales criteria.
FIELD FORCE MANAGEMENT
Training and HR inputs: LG Electronics appoints sales executive to work as field force to
expand its depth deep into the market and analyse the changes in the market and understand
the need of the customer. The field force undergoes training to ensure their knowledge into
the technicality of the products and more specifically focus on their HR skills because they
are the people who get to deal with both the customers and consumers. The training ensures
their versatility and capability to build a relationship quickly. The sales executives need to
have passed with at least a graduation degree irrespective of the career backgrounds (BTech,
B.E, BComm,etc). Their works is to basically strike a conversation with a customer, get the

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form filled and complete the administrative tasks, get the payments processed from
customers, build rapport with customers, etc.
Target setting mechanism: The job of the field force is completely target based. They are
given targets to collect the interest of the customer regarding a certain product and refer them
to the nearest LG Electronics dealer/sub-dealer. They sometimes convince them to buy small
products like water purifier other small appliances which they would carry with them. They
are given target on the basis of their past performance and their exposure to a particular area.
Monitoring mechanism: The field force of LG Electronics works under the sales managers
of LG Electronics regional office. Each sales manager supervises around 10-15 executives.
The executives report to the sales manager who records their performance and deliveries.
There are counselling sessions and crash training for the underperforming executives.
Rewards and Incentives: LG Electronics always focus on creating a healthy work
environment with a high degree of job satisfaction of its employees. As mentioned before,
the job of the field force is completely target based; the executives are given a fixed salary
and then paid incentives on the basis of each product they sell or each customer they gather.
On over achieving the target, the executives are titled as the best sales person and given
some percentage of their total sales, also sometimes coupon for shopping or dinner at famous
restaurants with family.

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FINANCIAL ANALYSIS
LG
SALES AND DISTRIBUTION SPEND (in millions of Korean
won)
TRANSPORT EXPENSES 1562610
RENTAL EXPENSE 359510
COMMISSION EXPENSE 2223800
BAD DEBT 14850
Total 4160770
ADVERTISING AND PROMOTION SPEND
ADVERTISEMENT EXPENSE 1233146
PROMOTIONAL EXPENSE 736264
Total 1969410
MARKET SPEND
Total 6130180
S&D SPEND% 67.87353716
ADVERTISING AND PROMOTION SPEND% 32.12646284
68%
32%
LG Electronics
S&D SPEND%
ADVERTISING AND
PROMOTION SPEND%
LG Electronics has been a
successful market leader and
this justifies the advertisement
and promotional spend being
approximately only 32% when
compared against sales and
distribution spend which
makes the rest 68 %.LG
Electronics keeps a record of
its transaction globally in its
annual reports. There is no
geographically published
annual report. This justifies its
greater proportion as
compared to advertisement
and promotion spend.

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Godrej
SALES AND DISTRIBUTION SPEND
POWER AND FUEL 90.5
RENT 7.34
INSURANCE 1.75
FREIGHT 43.38
COMMISION 4.82
SELLING AND DISTRIBUTION 13.37
PROVISION FOR DOUBTFUL DEBTS AND
ADVANCES
0.08
LOSS ON FOREIGN EXCHANGE TRANSLATION 2.39
MISCELLANEOUS EXPENSES 54.02
Total 217.65
ADVERTISING AND PROMOTION SPEND
Advertisement and Publicity 1.8
Total 1.8
MARKET SPEND
Total 219.45
S&D SPEND % 99.179768
ADVERTISING SPEND % 0.8202324
Godrej
S&D Spend
Advertisement &
Promotion Spend
Godrej was founded in the year
1897. Being a respected and
established company, we assume
that Godrej doesn’t believe in
spending much in its
advertisement and promotion.
Customer reliability is what gives
confidence to Godrej.

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COMPARISION OF MARKET SPENDS OF LG AND GODREJ IN
CONTEXT OF SALES & DISTRIBUTION SPEND AND
ADVERTISEMENT & PROMOTION SPEND
*All the pie charts are reflecting approximate values of every component.
POWER AND
FUEL
42%
RENT
3%INSURANCE
1%
FREIGHT
20%
COMMISION
2%
SELLING AND
DISTRIBUTION
6%
PROVISION
FOR
DOUBTFUL
DEBTS AND
ADVANCES
0%
LOSS ON
FOREIGN
EXCHANGE
TRANSLATION
1%
MISCELLANEO
US EXPENSES
25%
GODREJ
TRANSPORT
EXPENSES
38%
RENTAL EXPENSE
9%
COMMISSION
EXPENSE
53%
BAD DEBT
0%
LG

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When the distribution expenses and rental expenses of both the companies are compared,
it could be implied that Godrej spends very less on its distribution channel as compared
to LG. LG being a market leader focuses on the efficient supply and proper stocking of
its products, which reflects LG’s huge spends on its distribution channel.
A major difference can be drawn from the spend behaviour on the commission when
both the companies are compared. LG being the market leader focuses on maximizing its
width as well as its depth in the market. This justifies the huge spend on the commission.
LEARNINGS
With the help of this research we went into a considerable depth of the sales and
distribution process of LG Electronics. We experienced the knowledge of the
unique distribution model that LG has put in practice. Mr. R. Singh, the floor
manager of LG shoppe, e-mall and Mr. Hari Sankar Das of Astik Electronics
were very helpful. Despite of the confidentiality, Hindustan Electronics shared a
reasonably effective information that gave us an idea of the channel
management at distributor level. Alongwith the distribution model for regional
agencies, LG has also adopted a modern trade distribution system for retail chains like
Reliance Digital. We realised that primary research is much more important and
relevant than secondary data. This research being a primary research made us
realize that effective communication with the primary sources is necessary to be
able to derive the data.
This research was a valuable experience for us.