As consumers, we all understand ‘claims’ very well as we use them in our daily life. We claim for rewards from an airliner, a grocer or from our employer. Many a times, we don’t feel like asking for these rewards simply because the effort to claim may not be worth the claim. To the contrary, reward provider doesn’t have a choice than verify and settle an eligible claim.
Today, FMCG companies spend up to 15% of their revenues in trade promotions. Their distributors earn a large portion of their margins from these deals. This makes it impertinent to understand the nuances of claims management for both manufacturers and distributors. These ‘Claims’ can bring harmony between both the parties. If handled badly, it can cause continuous loss of thousands of dollars for one or both the parties.
Consider a scenario wherein the sale for a product does not pick up and stocks are lying at the distributor location. The company decides to offer discount to retailers so that the stock at the distributor’s location can be cleared to give space for new stock. The distributor will start providing discounts to retailers as directed by the company. Due to the discounted price, the distributor margin goes down for the moment, but he can claim these discounts from the company. It is a humungous task for the distributor to go through the ocean of sales data and submit a claim to the company. He has no choice but to take this extra job of counting, submitting and more importantly providing evidence of this sale data.
On the other hand, the FMCG company has to collect, verify and settle thousands of such claims every month. The company needs to ensure that the distributor is compensated correctly and on time. The employer should also respect the financial auditors by showing them support for the payments.
The above example is such a common scenario in the FMCG sector. Companies launch various types of trade promotions for their customers. Many of these promotions reward the customer only if the customer submits an eligible claim. The stakes are very high for both the company and the customers.
So let us define the term ‘customer claims’ used in FMCG companies
Customer claims are financial rewards given to the customers in lieu of completion of agreed services.
What – Financial rewards i.e., money
Who – Manufacturer gives the customers i.e., a company gives money to its distributors
Why – to get some service in return i.e., ‘to sell more’, ‘to stock more’, etc.
When – on completion of agreed services
How – In the form of ‘checks’ or ‘deductions’
While working in the space of customer claims management, I observed multiple challenges faced by FMCG companies and their distributors. Here is my attempt to pin down the top three challenges from both the perspectives.
Distributor’s pain points – A distributor earns a large portion of their margins from these deals. This in a sense, is an earning for him. A distributor is always worried about the following:
Company’s pain points – The FMCG company needs to ensure that every distributor is compensated with the right amount in a timely manner with no space for fraudulent claims. A company encounters numerous challenges as listed below:
As we went through the key challenges faced by companies and their distributors, it is evident that claims management is an increasingly important area for both the entities. By effectively managing the claims process, companies can save cost, and at the same time, build healthy relations with their distributors. Effective claims management provides a competitive advantage over the other players.
Based on my experience, these challenges can be countered by taking the following three logical steps: