Sales division split helped Tata Steel buck slowdown

Written by Aveek Datta | Mumbai | Updated: Jun 17 2014, 14:51pm hrs
Tata steelIn fiscal 2014, Tata Steel sold 8,515 kilo tonne (kt) of steel products, 14% higher than the previous year. (Reuters)
Tata Steel has restructured its sales and marketing set-up for the country in a manner that has helped it maintain volumes amid a generally sluggish domestic market, the company says.

Earlier, Tata Steels sales and marketing division in India was divided into two verticals flat products (such as corrugated sheets) and long products (like TMT bars). Under the earlier arrangement, the sales and marketing teams under the two verticals had to deal with clients across sectors that used these products respectively.

Since January, the sales and marketing division has been split into four main divisions automotive and special products; branded products, retail and solutions (catering to the likes of construction companies and retail buyers in rural areas); industrial products, projects and export (catering to infrastructure companies and suchlike); and downstream transfers (consisting products like wires).

According to the companys latest investor presentation, this focus on further strengthening customer relationships and increasing market penetration has been one of the main reasons for the firms ability to buck the trend of falling demand for steel in India and register volume growth across verticals.

In fiscal 2014, Tata Steel sold 8,515 kilo tonne (kt) of steel products, 14% higher than the previous year. Sales of steel products for the automotive sector, in particular, registered impressive 15% year-on-year growth despite the overall automotive steel products market falling 5%.

According to Atrayee S Sanyal, chief of marketing and sales, branded products, retail and solutions at Tata Steel, any product-centric marketing organisation tends to club different sets of buyers under the same product. For instance, in Tata Steel, earlier the same sales team selling long products would cater to both individual home-builders and large corporations. This raises the question that should the sales manager focus on a large company that buys in greater volumes but at competitive prices, or should he connect with retail and small customers who buy in limited quantity, Sanyal said in a phone interview from Jamshedpur.

The focus was not sufficient given the existing bandwidth of the organisation.

As part of its efforts to service customers better, Tata Steel is also laying greater emphasis on the professional background of team members while allocating customers. For instance, sales personnel catering to Tata Steels retail buyers, such as a homebuilder in a rural market, are being hired from diverse fields such as FMCG companies. A lot of people have also been recruited from IT companies to provide digital branding thrust to some of the firms branded products for the segment.

On the other hand, sales staff that reach out to Tata Steels larger clients, such as auto companies, have to have thorough knowledge of metallurgy and the needs of vehicle makers and their component suppliers, so as to be able to convince them of the quality of the steel.

One of the reasons for the restructuring is to be better equipped for higher focus on the substantially incremental amount of industrial and branded steel products that Tata Steel will have to sell once its upcoming plant in Kalinganagar, Odisha is commissioned, which the company expects to happen during the January-March quarter this fiscal.

The idea of moving away from a sales structure framed around product classification and towards a new one based on the industries and customers is also the result of what the company has learnt from its European operations, Sanyal says.

Tata Steel Europe operates in a similar fashion. They have 13 verticals, which are customer-facing, says Sanyal. This also helps Tata Steel India keel alignment with what is happening in Europe.

Over the last few years, Tata Steel Europe has been reeling under the crisis, which has hit demand for steel and its financials. It adopted this structure around three years back, and it has helped the European operations see a gradual turnaround.

Rakesh Arora, managing director and head of research at Macquarie Capital Securities (India), says that adopting this sort of a marketing structure might help steel firms cross-sell to their existing customers, thereby boosting volumes, but doesnt improve price realisation too much.

They are likely to benefit more from the branding initiatives for long products, which can help them earn a premium over competitors who are mostly unorganised, Arora said.