Sayantini Cosmetics: The
Dilemma of Distributors' Margins
A Case Study on Channel Conflicts
and Distribution Margins
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Introduction to the Case
• In December 2023, Sayantini Cosmetics faced
issues with its distribution channel due to
changes in margin structures.
• Key stakeholders: Cyrus Desai (General
Manager) and Amit Ganguly (Zonal Manager,
East).
• Problem: Distributors were unhappy with
reduced fixed margins and the introduction of
variable margins, leading to a boycott.
Overview of Sayantini Cosmetics
• Company Profile:
• - Product range: Moisturizers, perfumes, hair
dyes, skin care, nail polish, soap, shampoo,
and more.
• - Distribution network: Urban and rural areas
with an established reputation in the cosmetic
market.
• - Goal: Increase sales revenue and distributor
motivation through a new margin structure.
Changes in Distributors' Margins
• Old Margin Structure:
• - Urban Areas: Fixed Margin 5%, Variable
Margin 1%.
• - Rural Areas: Fixed Margin 5%, Variable
Margin 0.5%.
• New Margin Structure:
• - Urban Areas: Fixed Margin 4%, Variable
Margin 3%.
The Dilemma
• Problem Faced:
• - Distributors boycotted the company’s
products due to dissatisfaction with the
margin changes.
• - Sales Executives struggled to convince
distributors, leading to stock-out situations
and lower sales.
• - Cyrus Desai, an experienced manager, faced
a dilemma: stick with the new system or
revert to the old structure.
Channel Conflicts
• Types of Channel Conflicts:
• - Vertical Conflict: Disagreement between
different levels of the distribution channel
(e.g., manufacturer and distributor).
• - Horizontal Conflict: Distributors within the
same level (e.g., urban vs. rural) feel
competitive pressure.
• - Multi-Channel Conflict: Distributors
competing with alternative channels like
direct-to-consumer (D2C).
Root Cause of the Conflict
• Conflict Drivers:
• - Reduced fixed margins: Distributors
perceived this as a loss of guaranteed income.
• - Increased variable margins: Distributors felt
that performance-linked pay would
disadvantage them, especially in rural
markets.
Strategic Options for Cyrus Desai
• Option 1: Revert to Old Margin Structure
• - Pros: Restore distributor confidence, resolve
the boycott.
• - Cons: Does not incentivize higher sales.
• Option 2: Stick with New Margin Structure
• - Pros: Align distributor incentives with
company goals.
• - Cons: Distributor dissatisfaction.
Suggested Strategy
• Mitigating Channel Conflicts:
• - Open communication with distributors.
• - Short-term incentives or rebates.
• - Support and training for performance-based
sales.
• - Phased margin adjustments to avoid
disruption.
Conclusion
• Summary of Key Takeaways:
• - Distribution margin changes created conflict
at Sayantini Cosmetics.
• - Challenge: Balancing company growth with
distributor profitability.
• - Importance of communication and gradual
transition to resolve conflicts.
