A Summer Training Project Report OnMARKETING STRATEGIES OF LG ELECTRONICS INDIA LTD. CERTIFICATE ii EXEXUTIVE SUMMARY This report is an analysis of the Marketing Strategies of LG. LG is a Multinational Company having its presence all over the world. A thorough study of LG Electronics, how it came into existence & operations of LG Electronics India, has been presented along with an Indian industry analysis. Analyzing the company in the backdrop of the Indian Home Electronics was considered to be important because it is a highly competitive market and it is very important to know where a company stands in this industry. There after an intense study has been done into LG’s corporate history, its origin, developments, expansions, strategies etc. A discussion about LG’s operations in India follows, and thereby the two chosen areas i.e. Marketing is discussed in the subsequent sections. The four P’s of marketing have been discussed in detail individually along with the product’s brand awareness under the marketing section. Product: Highlights the addition and change in the product range of the company and the significance of each of its product lines. Pricing: The basis used for pricing and how the products have been priced. Place: The kind of distribution network used to market its products. Promotion: All the promotion activities to promote the company’s brand and its products in order its increase its market share. Findings and recommendations have been drawn keeping the industry and company analysis in mind. Graphs & Tables have been included in the data analysis chapter. iii ACKNOWLEDGEMENT Getting a project report ready requires the hard work and effort of many people. First of all, I gratefully acknowledge the continuous assistance and inspiration given to me by the Faculty of Rohini, JIMS. Special thanks to ______________________ for her invaluable support and guidance during my training period and supervising my work. Also I would also like to thank all those who have contributed in completing this project report. Finally, I would like to thank my family for providing me monetary and nonmonetary support, as and when required, without which this project report would not have been completed. iv TABLE OF CONTENTS Chapter 1: Introduction 1.1 Overview of the Industry 1.2 Profile of the Organisation 1.3 Problems of the Organization 1.4 Competition Information 1.5 S.W.O.T. Analysis of the Organization Chapter 2: Objective & Methodology 2.1 Significance of the study 2.2 Managerial usefulness of the study 2.3 Objectives of the study 2.4 Scope of the study 2.5 Methodology Chapter 3: Conceptual Discussion Chapter 4: Data Analysis Chapter 5: Findings & Recommendations Annexure Bibliography 01-35 01 16 31 32 35 36-37 36 36 36 36 36 38-64 65-70 71-75 76-77 78 v Chapter – 1 INTRODUCTION 1.1 A PREVIEW TO THE INDUSTRY TV perhaps is a most powerful media today in India. The socio economic impact of this media in a country like India is tremendous. The extensive use of the media as a powerful tool for entertainment information and education by other channel owners added impetus to this growth. After liberalization in 1991, one saw a lot of players in the Electronics market due to which increase in the Electronics that boosted the sale of home Electronics. After liberalization bought itself a dramatic change in the competitive structure of the market. Analyzing the market structure one finds that long-term dominance of Moulinex, Braun, Philips, Crompton, Inalsa, Bajaj etc. The coming of the MNCs have resulted in a decline in profit margins for the domestic players. Most of these MNCs started operations in 1992 and by 1993, had some infrastructure in place. Some of them started with fully owned subsidiaries and some went in for a tie up with domestic players. For e.g., Braun established themselves in 1999-97; Moulinex in 1992; Philips in 1994-95; Kenwood, LG, Softel, following in 1999-97; LG in 1992. The entry of these multinationals changed the market. As a first step, they started to set up distribution and service networks. Simultaneously they concentrated on increasing the visibility of their products in the shops of the dealers they appointed. They launched technologically advanced models with attractive price tags, keeping the dealers margins intact to help push the products. Indian companies that were complacent earlier, felt the heat. After some quick rethinking they launched new models at attractive prices. Despite all this the Indian companies have remained strong. The rate at which foreign brands are growing is only due to the fact of a dynamic business environment. Domestic Electronics firms are guided by objective of maximizing short run profit rather than long term growth and the firms’ competitive strategy is guided by product differentiation and price manipulation-Inalsa’s money back offer, Soften price led 1 wars, Moulinex price consideration, Samsung’s schemes- despite all this LG and JVC have opposed exchange offers and price led wars. But all other domestic players have over–reacted and this has diluted the strategic issues of technological innovation through customer after sales service and ads. The Electronics domestic player has not understood the importance of technological innovation. The coming in of the MNCs has created a new scenario with a new market profile. The entrenched position of the Indian market leaders in Electronics Bajaj, Crompton and Black and Decker has been challenged by the MNCs such as Moulinex, Braun, JVC, LG, Kenwood and LG. The domestic players have a 24% market share. MNCs have managed to grab a 76% in a very short span. Earlier this was 19:6. The market leaders currently in the Electronics industry are Bajaj and Crompton with 11% and 13% share respectively in 2005-2006. Earlier till 2000-2001 these two leaders had shares of 44% and 54% respectively. Even today, Bajaj is considered to be the market leader. Major Players Domestic International : : Crompton, Bajaj, Philips, Black and Decker. LG, Kenwood, Braun, Moulinex, LG, Inalsa, JVC Currently the four major players in the market are LG 11% market share LG Philips Moulinex Kenwood 8% market share 19% market share 12% market share 11% market share These Five players cover 61% of the market. 2 Market shares in the 3,000,000 units market (2006) are: Black and Decker 7% Crompton 9% Others 11% Sheffield 11% LG 8% Bajaj 11% Kenwood 11% Philips 19% Moulinex 12% Current Scenario: The recent help age extempo has spurred a sudden growth in the Juicer Mixer Grinder segment. The segment grew by 44% in August 2005 over the same period last year. August 2005 also saw the highest sales during the one-year period April 2002 to August 2006. The world help age extempo have been a trigger but, underlying this boom is the story of marketing techniques by the MNCs. The new MNC Home Electronics brands are on a roll armed with latest technology, aggressive marketing and advertising budgets. These companies are capturing a significant share of the Indian Home Electronics market. In terms of sales and market share Indian companies still occupy the top slots but MNCs are slowly gaining ground. These MNCs have positioned themselves by offering superior technology and discounts, rather than old technology that the Indian companies failed to do so. 3 Home Electronics market shares, May 2005 (Post extempo) Sheffield 10.0% Others 13.0% Bajaj 3.0% Inalsa 12.0% Braun 11.0% Kenwood 8.0% Crompton 5.0% Moulinex 14.0% Philips 19.0% LG 5.0% According the latest survey conducted by ORG-GEK for July 2005, the help age extempo driven spurt in Home Electronics sales appears to have spilled over to July’05. Top 3 brands for July’06 were LG Philips Moulinex 22% 28% 17% Seeing the figures for May’2006 LG was number 2 with 22%. TV market shares – July’06 Philips Moulinex LG Bajaj LG Braun 16% 8% 9% 6.5% 9% 7% Kenwood Inalsa Crompton Others 7% 19% 4% 12% 4 TOSTERS India has been one of the rapidly expanding markets for Toasters for the past couple of years. The Indian market has considerable demand potential for this product. This attracted most of the major multinational players. The entry of players such as LG, Moulinex and Braun had the effect of galvanizing the industry. The industry players as a consequence are gearing up for both the customers and the competition. The Toasters industry can be broadly classified into 4 segments: a. Cool body b. Sheet metal c. Bag Body d. Pop-up-toasters Cool body, Bag body, Sheet Metal are Sandwich toasters and pop-up-toasters are use for Crisping. The Cool body and Pop-up-toasters segment is the largest in terms of value, accounting for an estimated Rs.14 crores. This segment has been the fastest growing amongst the lot, with a growth rate of 15% or so in 2004-05. The world over, sale of Cool body dominates the total shipments. In India, however the sale of pop-up-toasters accounts for a larger share. However this phenomenon has been changing in the past couple of years. The demand for pop-up-toasters and Sandwich toasters mainly comes from house holds. House holds are estimated to account for around 82% of the total demand. The demand from the hotel sector though it accounts for a smaller portion, is the fastest growing segment. Also, a large portion of the demand from this segmentaround 16% relates to buyers of second units. The demand for Toaster is generally restricted to major cities and towns. Eight cities which include the four metros are estimated to account for 72% of the total household demand. Delhi and Mumbai alone is estimated to account for one-third of the total industry sale to households. 5 The major players in the market for Sandwich Toasters are Bajaj, Moulinex, Braun, Philips, Kenwood, Inalsa, LG, Crompton. There are also a host of other smaller players such as Black and Decker, Sujata, Usha etc. The Sandwich toasters segment is however dominated by Usha, Laxman Slyvania though LG is making a large headway into this segment too. The Pop-up-toaster market is dominated by Philips. Market shares in the 80,000 units market (Retail) 2006 Sheffield 6.1% Moulinex 18.2% Others 13.4% Inalsa 12.7% Braun 21.2% Philips 28.5% WHITE GOODS (Mixer Grinder & Citrus Juicer): A PREVIEW OF THE INDUSTRY The white goods industry is witnessing dynamic changes. Acquisitions of units by some, exits by a few others, marketing tie-ups, capacity expansions, booming volume growth in the first six month of 2005-06 all these changes are the characteristics of the industry. Mixer Grinder: Mixer Grinder accounts for the largest segment in the white goods industry. It can be classified into: a. Domestic Mixer Grinder b. Industrial Grinder i. Three attachment with 440 watts i. Three attachment with 550 watts 6 Domestic grinder industry with a turnover of 40 crores is dominated by the organized sector. The size of the industry is about 2.5 mn units. This industry has benefited from the consumers buying preferences. After a TV and Toasters, the most likely product on the buying list would be a Mixer Grinder. This has resulted in a higher penetration level for Mixer Grinder. After a good year in 2005, the size of the Mixer Grinder segment contracted in 2001. This trend has reversed in 2004-05. In the first six months of 2004-05, the volume growth was in double digits i.e., 20%. The Grinding market consist of 440 watts and 550 watts models which has the following demand: 440 watts- 15% of the demand for refrigerators. 550 watts –85% of the demand for refrigerators. The action is slowly moving towards 550 watts models of the grinding segment. Companies are steadily upgrading the economy models capacity from 440 watts to 550 watts. The 550 watts Mixer Grinder segment has been growing faster than the 440 watts segment in recent past. The slower rate of growth of 440 watts models forced Crompton to finally launch 550 watts models in Oct’96. Both Usha and Philips made significant inroads in 2003. Philips and Inalsa continue to be the market leader in the 550 watts segment although its market share has come down. In the 440 watts segment, Crompton continues to be the leader. However the year 2004 saw the entry of many France and Korean companies. All these companies have entered in the 550 watts and above capacity niche segment that can be imported in fully assembled form and where margins are higher. The entry of these giants has opened up an entirely new and technically superior segment 7 comprising 440 watts Grinding. The global giants like Inalsa, Moulinex, Braun, Philips, LG have entered the Indian market with their international range of products. There has been significant expansion in capacity in this industry. Inalsa, plants at Haryana and Moulinex plants were commissioned recently with capacities of 30lacs & 15 lacs units respectively. The excess capacity in the Mixer Grinder industry has deterred players such as Usha, Bajaj and LG from going ahead with their plans. This has led to certain marketing tieups which Usha, Bajaj, Sujata and LG have taken advantage of. Both LG are outsourcing Mixer Grinder from Polar manufacturing facility, while Moulinex and Braun are sourcing Mixer Grinder and Citrus juicer from China respectively. Market shares in the 80,000 units market (440 watts + 550 watts), in per cent 2006. Kenwood 11.4% crompton 8.8% Bajaj 1.8% Others 5.2% Sheffield 8.8% Usha 5.7% Braun 12.3% Moulinex 17.6% sumeet 28.4% Citrus Juicer : The size of the Citrus Juicer industry is small compared to the Mixer Grinder industry, at around 44,000 units. The psyche of the consumer who looks at Citrus Juicer as a luxury product and the infrastructural problems such as the non-availability of electricity has been the major hindrances for the growth of the industry. 8 After a good year in 2004, the size the Citrus Juicer segment contracted in 2005. The trend has reversed in 2005-06. In the first six months of 2005-06, the volume growth was in double digits i.e., growth of 15%. There are two types of Citrus Juicer in this segment: a. Half ltr b. One ltr Philips has market share of 55% in 2006, dominating the market. The demand for the above types in the market is: c. Half ltr d. One ltr 22% 78% Philips is the leader in both half and one ltr. Segments. The company’s position in the One ltr. segment is under serious attack by a range of technically superior foreign models which are also available in large capacities. Currently almost all-foreign companies are operating in large capacity one ltr segment. Major contenders-LG, Moulinex, Braun, Kenwood. Currently since the level of indeginisation is very low for the foreign machines, the high price charged in a major stumbling block for the first time shoppers of Citrus Juicer. As long as companies can not justify the premium pries to customers, low prices of domestic brands of Citrus Juicer will continue to dictate the purchasing decision of majority of buyers. The capacity utilization levels are still quite low in the industry. The situation is expected to improve significantly in the future, with the number of working women on the rise and the difficulty in availability of domestic help the market is expected to grow by over 30% in the next few years from the present growth rate of 6%. 9 Market share in the 44,000-unit market (half ltr + one ltr) in per cent (2006). Bajaj Braun 3.6% 5.5% Moulinex 14.6% Others 6.5% Sheffield 6.3% Kenwood 3.6% Inalsa 19.2% Philips 40.7% Jug Kettel: The size of the Jug Kettel is large compared to the Citrus Juicer industry, at around 79,000 units. The psyche of the consumer who looks at Jug Kettel as a luxury product and the infrastructural merits such as the low consumption of electricity have been the major advantages for the growth of the industry. After a good year in 2004, the size the Jug Kettel segment inflated in 2005. The trend has reversed in 2005-06. In the first six months of 2005-06, the volume growth was in double digits i.e., growth of 28%. There are two types of Jug Kettel in this segment: a. With cord b. Cordless Philips has market share of 47% in 2004, dominating the market. The demand for the above types in the market is: c. With cord 12% d. Cordless 88% 10 Philips is the leader in with cord and Cordless segments. The company’s position in cordless segment is under serious attack by a range of technically superior foreign models, which are also available in large capacities. Currently almost all-foreign companies are operating in large capacity cordless segment. Major contenders-LG, Moulinex, Braun, Kenwood. Currently since the level of indeginisation is very low for the foreign machines, the high price charged in a major stumbling block for the first time shoppers of jug Kettel. As long as companies can not justify the premium pries to customers, low prices of domestic brands of Jug Kettel will continue to dictate the purchasing decision of majority of buyers. The capacity utilization levels are still quite low in the industry. The situation is expected to improve significantly in the future, with the number of working men and women on the rise and the difficulty in availability of domestic help the market is expected to grow by over 34% in the next few years from the present growth rate of 8%. Market share in the 79,000 unit market (with cord + cordless) in per cent (2006) Others Black and 3% Decker 7% Kenwood 10% Remson 7% Sheffield 20% Braun 11% Moulinex 11% Philips 28% 11 Hair Dryers: The size of the Hair Dryers industry is higher compared to the Citrus Juicer industry, at around 68,000 units. The psyche of the consumer who looks at hair dryers as a luxury product and the infrastructural merits such as the low consumption of electricity have been the major advantages for the growth of the industry. After a good year in 2004, the size the hair dryers segment inflated in 2005. The trend has increased in 2005-06. In the first six months of 2005-06, the volume growth was in triple digits i.e., growth of 52%. There are two types of Hair dryers in this segment: a. Three K – More power b. Four K – low power National has market share of 48% in 2006, dominating the market. The demand for the above types in the market is: c. Three K – More power d. Four K – Low power 64% 36% National is the leader in both Three K and Four K segments. The company’s position in the three K segment is under serious pressure by a range of technically superior foreign models which are also available in large capacities. Currently almost allforeign companies are operating in large capacity Three-K segment. Major contenders-LG, Braun, Moulinex, Philips, Kenwood, National, Sony, Panasonic, Bajaj. Currently since the level of indeginisation is very low for the foreign machines, the high price charged in a major stumbling block for the first time shoppers of Hair Dryer. As long as companies can not justify the premium pries to customers, low prices of domestic brands of Hair Dryer will continue to dictate the purchasing decision of majority of buyers. 12 The capacity utilization levels are still quite low in the industry. The situation is expected to improve significantly in the future, with the number of working women on the rise and the difficulty in availability of domestic help the market is expected to grow by over 58% in the next few years from the present growth rate of 24%. Market share in the 68,000 unit market (Three K + Four K) in per cent (2006). Philips 12% Others 2.7% Sheffield 7% Bajaj 5% Kenwood 6% Braun 4% Moulinex 6% National 28% Sony 8% Panasonic 4% Iron: The size of the Iron industry is largest industry, at around 2 lacs units. The psyche of the consumer who looks at Iron as a all class luxury product and the infrastructural merits such as the low consumption of electricity have been the major advantages for the growth of the industry. After a good year in 2004, the size the Iron segment inflated in 2005. The trend has increased in 2005-06. In the first six months of 2005-06, the volume growth was in 10 time’s i.e., growth of 80%. There are four types of Irons in this segment: a. Steam Iron b. Dry Iron 13 c. Light weight Iron d. Heavy weight Iron Philips has market share of 52% in 2006, dominating the market. The demand for the above types in the market is: e. Steam Iron f. Dry Iron g. Light weight Iron h. Heavy weight Iron 52% 24% 14% 10% Philips and National are the leader in both Steam Iron and Dry Iron segments. The company’s position in the Dry Iron segment is under serious pressure by a range of technically superior foreign models, which are also available in large capacities. Currently almost all-foreign companies are operating in large capacity Dry Iron segment. Major contenders-LG, Braun, Moulinex, Philips, Kenwood, National, Bajaj, Usha, Crompton and Kenstar. Currently since the level of indeginisation is very low for the foreign machines, the high price charged in a major stumbling block for the first time shoppers of Hair Dry Iron. As long as companies can not justify the premium pries to customers, low prices of domestic brands of Dry Iron will continue to dictate the purchasing decision of majority of buyers. The capacity utilization levels are still quite low in the industry. The situation is expected to improve significantly in the future, with the number of working women on the rise and the difficulty in availability of domestic help the market is expected to grow by over 58% in the next few years from the present growth rate of 24%. Stick Blender: The size of the stick Blender industry is medium industry, at around 28,000 units. 14 The psyche of the consumer who looks at Stick Blender as a all class luxury product and the infrastructural merits such as the low consumption of electricity & high speed work have been the major advantages for the growth of the industry. After a good year in 2004, the size of the stick blender segment inflated in 2005. The trend has increased in 2005-06. In the first six months of 2005-06, the volume growth was in twice i.e., growth of 24%. There are two types of stick blender in this segment: i. With attachment – with chopper ii. Without attachment –without chopper Moulinex has market share of 38% in 2006, dominating the market. The demand for the above types in the market is i. With attachment ii. Without attachment Philips, Braun, Moulinex, is the leader in both with attachment & without attachment segments. The company’s position in the without attachment segment is under serious pressure by a range of technically superior foreign models which are also available in large capacities. Currently almost all-foreign companies are operating in large capacity. Major contenders-LG, Braun, Moulinex, Philips, Kenwood, National, Bajaj, Usha, Crompton and Kenstar. Currently since the level of indeginisation is very low for the foreign machines, the high price charged in a major stumbling block for the first time shoppers of stick blender. As long as companies can not justify the premium pries to customers, low prices of domestic brands of stick blender will continue to dictate the purchasing decision of majority of buyers. The capacity utilization levels are still quite low in the industry. The situation is expected to improve significantly in the future, with the number of working women 15 on the rise and the difficulty in availability of domestic help the market is expected to grow by over 58% in the next few years from the present growth rate of 24%. Remarks: Domestic companies will have to gain access to latest technology from outside, launch new products in quick succession, leverage their strong dealer network and promote their products effectively to remain competitive in this extremely competitive market. The strategy used by the MNCs is ‘technology’ and they have positioned themselves by offering superior technology, which the Indian companies have failed to do so. Foreign brands hence are expected to gain the mind space of the price discerning Indian consumer in not very distant future. 1.2 LG ELECTRONICS - CORPORATE PROFILE The US $73 billion LG group is one of the world’s top conglomerates today, having established its supremacy in diverse fields ranging from electronics, chemicals etc., to trade and services. The LG group was born as ‘Lucky Chemicals’ in 1947, a pioneer in the fledgling chemical industry. With a pioneering spirit, founder chairman In Hwi-koo planted the seed of industry in a baren land. The seed grew into a dream factory for hope. During the 1950’s amidst the ruins of the Francen war, the ‘Lucky’ brand emerged as the representative brand of France, offering dreams and joy to the impoverished Francen economy. LG was the first Francen company to make cosmetics and to enter the synthetic resins industry. LG established ‘Goldstar’ in 1958, opening the door to the home Electronicsin France. Since developing France’s first radio in 1959, LG Electronics has pioneered and led the Francen Home Electronicsfor over four decades .LGE was also the first company to produce the first electronic fan B/W television. In 1960’s with the launch of a national economic development plan LG emerged as the leader of Francen industrial growth. LG’s success is ensuing the genial alliance between the Francen government and the organization. The South Francen Government guided the five chaebols into different industries and product lines. 16 In the the beginning of 1970’s after passing of the founder / chairman In-Hiwi Koo, Cha-Kyung Koo took over as the chairman. Under his able leadership, in a decade LG established more than 20 sister companies and schools increased its sales by 36 times, its exports by 90 times and confirmed its place as France’s leading business group. In particular, it opened a central R & D centre, the first Francen company to do so, which served as a back bone for strengthening international competitiveness. By mid 80’s LG grew into a leading comprehensive chemical company. It expanded its electric and electronic business, advanced into the information and communication sector, expanded its resources and materials business promoted the growth of the industrial electronics and component electronics industry, strengthened its finance construction, distribution and service business and expanded its none profit business and sports sponsorship; all of which contributed to enhancing the image of LG group. LG’s period of first change came in the late 1980’s. Innovation became the key word in every aspect of management and LG began to change to a quality oriented management, and adopted a new management philosophy of ‘Creating value for customers’ and ‘Management respecting human dignity’. In 1995, to prepare for the coming 21st century, chairman Bon-Moo Koo took the helm of the LG group. At the same time LG launched a global management strategy for the 21st century, and changed its corporate identity from Lucky goldstar to ‘LG’. Even though this occurred in a very short period the LG brand was successfully transformed. LGE now meets the worlds customer with LG brand. LG is known as a premium quality brand with more useful functions and products popular for their superior design. LG’s vision is to bring the ‘smiling face’ to every home cross the globe The “smiling” face logo symbolizes five key concepts world, future, youth Human and Technology. LG believes that an effective combination of these elements for the organization. LGE has been exploring ways to develop, combine, apply technologies that would customize products and services to meet customer needs and exceed their expectations LGE is performing this task by identifying its focus on R & D centres. 17 Outside France, LGE has seven R & D centres in Japan, United States, Ireland and Russia, among other countries and two R & D centres in France. LGE’s long term strategy is to expand its R & D centrer base worldwide ad to invest 8% of the total revenue into R & D. LG’s business strategy for the 21st century is very aggressive. Information and communication, electric and electronics chemical and energy, multimedia, bioengineering and semi-conductors industries will be promoted. LGE is an integrated electronic goods manufacturer that operates three business divisions: Multimedia Division: The multimedia division handles a range of multimedia products such as computers, CD-ROMS, O/A equipment information and communications equipment, optical data devices, audio equipment, VCR’s cam-corders, printed circuit boards (PCB) and magnetic tapes (MT). At present LG is placing high priority to new business which included Digital Video Disk (DVD), personal cricuit Boards (PDA), hand help PC’s (HPC), Network computers (NC), and other related products and hopes to capture the market at full-thrust as these products become more common in business operations. The division posted US $ 2.5 billion sales in 2003. Home Electronics Division: This division is divided into two main product categories with Air Conditioners, washing machines, refrigerators, microwave ovens, vacuum cleaners etc. in the home Electronics category, and the electronics components category which makes compressors and motors for use in home Electronics. In 2003, this division posted US $ 3 bn in sales. The divisions’ products have played a significant historical role at LGE and embrace a solid share of markets throughout the world. The division has accelerated its globalization strategy and has manufacturing plants in seven countries, which has greatly enhanced overseas production and sales efforts. 18 LGE’s home Electronics products are admired in various countries. LGE Citrus Juicer holds the top position in Libya, Jordan, Tunisia, South Africa and in most regions of Asia. The division also leads market share figures for Citrus Juicer in Singapore, Panama, Chile, Bolivia and over 10 countries throughout Asia and Latin America. Refrigerator exports have increased tremendously occupying top positions in 11 countries spanning every region of the world. Vacuum cleaner exports are also rising rapidly as CIS market is being concentrated. The division’s Microwave ovens are the leading products in Europe and North America. Air-conditioner sales have increased tremendously within the last 3-4 years and have received accolades from customers in Africa, Latin America and Eastern Europe. Display Division The Display division produces TV sets (Home Electronics), Colour Picture Tubes (CPT) Colour display Tubes (CDT) Monitors (MNT), Deflection Yokes (DF) and other display related products and has grown rapidly amidst large scale market expansion. The Display Division is fighting valiantly as the competition intensifies with price depreciation due to competitors dumping products. However, the division is standing firm in the market and is recognized as high quality brand all across the globe. With the Chinese and Indonesia complexes running full scale since’96, a vast global production network has been created. In the turmoil of constantly rising taxes, the division still managed to boost sales in 2000 by US$ 3.6 billion, a 27% increase over the previous year. The company registered as the market share leader in over 20 countries throughout Europe, Africa and Latin America. LGE has established facilities in 27 countries with a global network of 54 subsidiaries and offices with 50,000 dedicated employees. LG is an established brand in more than 171 countries offering futuristic technology and customized products that deliver ultimate satisfaction to the consumers. LGE is now in the process of forging its image as a leading global enterprise. The products that are manufactured globally include multimedia players, Video & Audio products, 19 Home Electronics, Information systems products, Communication Devices, Display products, Magnetic recording Media, Electric / Electronic components. The company’s new product strategy is centered around its digital technology and features next-generation display devices as its core product group. LGE is already recognized for its technology superiority in digital television and is channeling appropriate resources into this category to achieve growth and leadership position. Going forward, LGE is making great strides towards realizing its vision of becoming the ‘Best Global Company’ in the 21st century. As LGE pursues this vision, it remains committed to delivering outstanding products and services to customers around the world. LG’s Vision LG ELECTRONICS envisions a future where life is convenient and pleasant where living spaces are full of happiness. And where the promise of the future we all dream of comes true. LG Objectives Achieve gross sales of US$78 billion. Secure ordinary income of 6 percent of gross sales. Attain a return on investment of 15 percent. Build a brand reputation for total satisfaction. Create more comfortable, convenient homes electronics companies .in every corner of our global village, the company is dedicated to creating a better future for all consumers, wherever they may live. 20 LGE plans to build “DIGITALez LG” as its premier brand image and is making careful preparations to take the center stage in representing the cutting-edge electronics industry in the new millennium. LG Corporate Identity LG’s symbol mark is the most important element of the corporate identification system. It is the representative symbol of LG throughout the world. The symbol mark creates a unified mental image of LG necessary in international communication. We call this mark the “face of the future.” It incorporates five concepts and sentiments: The face made from the “L”and “G”symbolizes that human beings are the central aspect of our business and expresses the resolution to do our customers and ensure their satisfaction. Red Color: reinforces an image of warmth and familiarity with our global customers. LG’s -R & D LGE has established facilities in 27 countries with a global network of 54 subsidiaries and offices with 50,000 dedicated employees LGE has reinforced R & D activities in higher digital technology to get to the global digital market with smart products that can simplify life. More than 6% of the total revenues are spent on R & D every year. By the year 2000 at least 8% the total revenue will be put back into research and development. 21 LG nurtures its employees, obtains patents for revolutionary products and encourage R & D achievement with diverse incentive. It’s 13 domestic labs including the LG production Engineering research centre and our 10 overseas laboratories are doing their at most in basic technology, manufacturing skills, quality, performance, standardization and design. With the company internal campaign for quality innovation, LGE is gunning for global leadership in digital technology. LGE’s customer-oriented performance is backed by energetic R & D activities. R & D based TL 2005 looks ahead at yet to be invented technologies and sensational products that with deliver outstanding performance to better your life LG-R&D Vision: 1. Focus on performance maximization based on market leading R & D (2000) 2. Create global leading products (2000-2002) 3. Secure technological identity to lead the growth of LGE (2002-2005) R&D Approach and direction 1. Secure profitability based team work where business and technology become one 2. Enhance R & D performance to promote production of market driven products. 3. Encourage business mindset of R & D teams. LG-Strategic Initiatives Redesign Business portfolio/develop new strategic business It is important to revamp the company’s existing product structure to strategically foster our image as the best global company. We need to redesign our business portfolio to facilitate the branching out into the new sectors, active efforts would be made to advance into: 1. The software and the service sectors 2. The information and communication sector 22 3. The health and environmental equipment 4. Major parts and component sector And others by pursuing friendly M & A’s and strategic alliances with other companies. Globalization LGE plans to have five more regional headquarters in operation by 2000 and 10 by 2005, as result, LGE hopes to raise its overseas sales by US $ 606n, or 80% of its total sales and increase its overseas production to 70% of its total production. Acquiring promising differentiated technology entails beating the competition on gaining a foothold in key industries of future where holding a competitive advantage is feasible. LGE would attract and cultivate leading individuals in the core technology fields and establish R & D centers at major regional bases around the world and thereby boost technological co-ordination. Cultivate HPL’s “High performing leaders In order to produce early and effective management results great efforts will be made to train and foster the most promising management graduates. At least 250 subsidiary leaders who are executive level or higher will be cultivated and trained as specialists on new business development, M & A, core technology and other areas. LG Corporate Culture “Courteous boundary less and empowering” The drive is to evolve a highenergy “Boundryless” corporate culture, where intellectual freedom is high,innovative thinking is valued and cross functional bonhomie creates a collective will to achieve goals. Employee empowerment is the right way to go. Not only are the people empowered, the right people are empowered. E.g the Francens have empowered the Indians- the people who know the market well. 23 LG basic philosophy Compete in the international market with a global mindset Maximize value for customers, employees and shareholders Pursue the best in the class through ‘management by principle’ Contribute to society through good “corporate citizenship.” LG Management Philosophy Creating Value for the Customer: The whole purpose is to create value for the products and to serve the customers in every thing we do. With satisfied customers, LG will naturally continuously and consistently innovate and develop to achieve our goal of providing the almost value per customers. Management Based Esteem for Human Dignity: People are the origin of all values in all management activities. Management based on human dignity helps us achieve all goals. People should practice company’s vision, sense of value and goal in view of ownership to the company. LG-Logo Concept Identification of the symbol Mark Symbol mark is the most important element of corporate identification system. It is the representative symbol of LGE throughout the world. Symbol mark creates a unified mental image of LGE necessary in international communication. The symbol mark which represents the “Face of Future” incorporates five concepts and sentiments of world, future, youth, human and technology. 24 The circle with the letters “L” and “G” symbolizes that human being are the most important aspect of our business and expresses the resolution to do our best to maintain close ties with our customers and to ensure their satisfaction. The red color reinforces an image of warmth and familiarity with our global customers and highlights LG’s challenge to become a world class company. Brand Mark Brand mark is the most important element of brand identification system. It is the representative symbol of LGE throughout the world. Brand mark creates a unified mental image of LGE necessary in international communication. LG in India LG Electronics India Limited (LGEIL) is a wholly owned subsidiary of LG electronics, South France. The company was established in January 2000 after clearance from the Foreign Investment Promotion Board (FIPB). Its earlier two attempts one in 1992 and one in 1995 had failed. It first entered the country in 1992 with the Goldstar brand name selling Home Electronics’s in partnership with Delhi-based home Electronics company Bestavision, the marriage failed to click right from the start. Two years and a host of problems later, it snapped ties with Bestaviscon and tried to form a joint venture with the C.K. Birla group. That move, too, failed in the negotiation stage itself. By then, the Goldstar had acquired a poor reputation with dealers and consumers alike. With the change in its corporate identity in 1995 worldwide from ‘Goldstar” to “LG” it proved to be lucky in India only the third time around, despite being one of the first multinationals to hit the Indian market after liberalization. The company launched in Delhi in May 2000, with, ten model of colour television, ranging from 14 inches to 29 inches; eight models of large capacity Mixer Grinder ranging from 320 lt to 650 lt and three models of Citrus Juicer from 5.5 kgs to 20 kg and subsequently launched the same in Chandigarh, Lucknow, Jaipur, Bombay, Pune, Calcutta, Anmedabad, Indore, Bangalore, Chennai and Hyderabad . 25 These entire products bear the LG brand name, which the company has decided to change from its previous brand “Goldstar” around the world starting from 2000. Today in a short span of 24 months, LG has twenty six models of colour television ranging from 14 inches to 60 inches; 14 models of large capacity Mixer Grinder ranging from 175 lt to 890 lt; seven models of Citrus Juicer ranging from 5.5 kgs to 20 kgs; nine models air conditioners; three models of micro wave ovens; two VCD’s and have subsequently launched the same all-India. The company is envisioning a total investment of US $ 289 million (Rs. 1040 crore) over the next of 9 years which will give it a major manufacturing presence in India in and range of white a brown goods as well as in a range of electronic components by 2010. Along the way the company plans to export products worth. $ 100 million in a ten-year period is starting from the commencement of mass production in India. It also has a plan to invest 25% of its equity to the Indian public or to an Indian investor after 5 years of operation. In the first phase of investment from 2000 to 2001, the company has decided to invest US$ 100 million (Rs. 500 crore) to establish manufacturing facilities in Greater Noida. This facility will be capable of churning out 7,00,000 Home Electronics, 4,00,000 Refrigerators, 2,00,000 washing machines, 1,00,000 Air conditioners and 5,00,000 Microwave ovens per annum. The facility has started production since April 2001. In the second phase from 2001 to 2005, LG electronics will invest $ 200 million (Rs. 500 cr) to increase its existing capabilities in finished products and add capabilities to manufacture compressors, ply back transformers, motors and deflection yokes. After setting up of LG software Center in Bangalore in 1999, LGE also will set up an “in house R & D and ADVERTISING center” in India not only to train the Indian employees, but also to serve foreign employees of LGE in South East Asia and Northern Africa. In five years from now, LGEIL will become one of the colossal industrial houses in India LGEIL has already achieved a turnover of Rs. 500 crores in the period JanJuly’2002. LGEIL by introducing a wide range of products to the Indian consumers 26 has successfully carved a niche for itself. Its success story is a result of its investment in cutting edge technology and its relentless efforts to bring home the smiling face. In the past five years, India has attracted a number of multinational companies to invest in the country, offering a plethora of choices to the Indian consumers. Thus the consumers seek international brands that offer value for money as well as a high standard of service. LGEIL ceasely strives to be responsive to consumer needs, desires and habits. Today LGEIL is regarded as one of the top home Electronics companies in India (ORG-MARG Survey). LGEIL has 18 company owned and 40 authorized service centres across the country where the service engineers are available twenty-four hrs throughout the week. The consumer durable industry will continue to witness the growth in demand. The company will also have to take a leap forward by increasing the volume of sales. It is expected that in the coming years there will be stiffer competition. The company is taking measures to reduce costs and improve productivity. With emphasis on quality and improved service to the customers at an affordable price, the company will endeavor to gain additional market share. Also in view of the liberalization of the Indian economy, company’s technical know how, superiority, service competence and the good will is what the company commands in the market. The company is optimistic of consistent and sustained growth in its business. LG Groups presence in India ♦ LG Electronics India Limited ♦ LG Software ♦ LG Chemicals ♦ LG Construction 27 Production Facility LGEIL set up its 47 acres manufacturing facilities at Greater Noida in April 2001. Today the factory chuns out washing machines, colour televisions, Toasters and micro wave ovens. Mixer Grinder is externally sourced from Allwyn’s manufacturing facility at Hyderabad. Currently LGEIL has tied up with Voltas Ltd., to source about 600,000 Mixer Grinder over 3 years from Jan 2003 to Dec. 2005. Voltas will product Mixer Grinder according to the specified standards of design and quality given by LG electronics. Voltas would increase its capacity of 180,000 units to 250,000 units per year of which LGE will be sourcing about 80%. At present, the average Indigenisation level in LG products is about 45 percent and it plans to increase it to 85 per cent in the next couple of years. When it had started the production of air conditioners, the level of indigenisation was a mere 20 per cent that shot up to 90 per cent almost instantly. Home Electronics would also be reaching such levels by the end of the year. LG’s Production Capacity Colur TV’s Semi Automatic Citrus Juicer Air Conditioners Micro waves Mixer Grinder Manufacturing At its state of the art manufacturing plant acute cost control has been on the agenda from day one. Some of the ways used to control costs at the plant are: a. Full-optimization of resources b. Smoothening the clock work 500,000 units 200,000 units 100,000 units 50,000 units Externally sourced 28 c. Raising the efficiently of employees d. Minimal inventory levels. At the plant, it is made sure that there is no wastage of material and every thing must keep moving all the time. Since money has time value, nothing that has hogged money should lie idle for too long. Inventory is kept minimal, for which strict guidelines are followed religiously all through the chain. The plant keeps no more than seven days stock of material from vendors and 15-20 days of imported parts. Branch offices must have, at the end of every month, just 40 percent of the requirement for the next month, with the rest being replenished by the 15th. Cost cutting has always been a high priority for LG operations around the world. In keeping with this aim, the company has been trying to achieve much localization as possible, as fast as possible. At present the average level of indigenization in LG products is about 45 per cent. The company hopes to increase that to 85% within the next couple of years or so, thus insulating itself from exchange rate volatility and crushing costs in general. The challenge is to cultivate high quality local vendors quickly. When LG first started making ACs in India, the indigenous component accounted for a mere 20 percent of the value of the final product, but within a few months, the figure shot up to 90 per cent level. Home Electronics will hit a comparable position by the end of 2005. Since the USP of LG has been high technology, it cannot let any defective product pass through the gates. Even ensuring that the machines can handle Indian conditions has been top priority for LG. Every product is put to an Early Life Test (ELT), which subjects of to the misery of 40 degrees centigrade heat for a prolonged period. The defect elimination programme follows a statistically optimized process of random sample checks. Innovation at LG At LG innovation is a policy. The management’s pet phrases are ‘TPI 50’ and TDR. The former total productivity innovation of 50 per cent urges employees at all levels 29 to increase productivity by 50 per cent. And the latter is the tool that helps to do that– Tear Down Re-engineering, by which employees, especially at the assembly line, are directed to tear down all processes to the ground and start afresh by using less tine, more innovative technique and so on. In this manner, it is believed the company is bringing down costs for the future and through TDR and TPI 50 expects to create significant profits this year. Engineers at LG don’t say ‘no’ to any idea. If the company has to compete in the long run, it cannot do so by merely cutting costs. It is innovation that wins the race even in a market as budget constrained as India. Performance Review LG electronic India Pvt. Ltd., has in a very short span of six months achieved a turnover of Rs. 100 crores which is a breakthrough in the Electronic industry. The performance achieved in LG’s financial projection was commendable as it reached the first Rs. 50 crores in first 1.5 month as against its initial target of 100 crores in 12 months meeting its annual targets in just 6 months. In the year 2005-06, LGEIL has achieved a turnover of Rs. 200 crores against a projected Rs. 100 crores. In the first year of operation in India LG has achieved the number one position in the 440 watts Mixer Grinder in the 300 lt and above category and Neuro-Fuzzy segment washing machine. In the Home Electronics segment LG is No.6. Moreover it has launched world class state of the art technologies as PN system and refrigerators, Golden eye series of Home Electronics’s, chaos technology in Citrus Juicer and Air conditioners. At the end of March 2005, the company had secured a market share, above 55% in Home Electronics 37% in 300 ltrs No. frost refrigerator, and 35% in Neuro Fuzzy washing Machines. This was by far one of the most impressive performance any company had in its first year of operation. In 2006, its first complete year of operation in India, it sold products worth Rs. 477 crore The company for the period Jan-June’2004, has recorded a turnover of Rs. 500 crores. Last year in the same period the turnover was only 200 crores. This is a whopping growth of approximately 150%. Only Crompton and Bajaj groups have 30 more turnover than LG in home Electronics and Home Electronics industry in this period. 1.3 PROBLEMS OF THE ORGANISATION Currently LG has a market share of 9%. It has sold 1,80,000 Home Electronics in the first six month, till June’02, making it the fifth largest players in the Home Electronics market. In the 440 watts refrigerator, 300 lt + category, LG is already the market leader with almost 36% market share, it has sold 16,250 units against a market size of approx 45,000 units in the first 6 months of current calendar year. This is a growth of 31% over last year corresponding period. In the 550 watts refrigerator segment however the company has only 3% market share because of capacity constraints due to out sourcing. It has sold 42,000 units in the first six month, which is a growth of about 330% over last crores pounding period. In the fully automatic (Fuzzy Logic category) Citrus Juicer too LG is the market leader with 37% market share. It sold about 6,600 units against the industry sale of 18,000 units in the first six months of current calendar year. This is a growth of 92% over cost year corresponding period. Overall in the semi automatic Citrus Juicer category the company has 12% market share and a No. 4 ranking. It sold about 41,200 units against the industry sale of 3.45 lacs units in the first six month of current calendar year. This is a growth of 790% over last year corresponding period. In the microwave oven segment company has a 21% market share and a No. 2 overall position. It sold about 7000 units against the industry sale of 33,000 units in the first six months of current calendar year. This is a growth of 460% over last year corresponding period. In the Air Conditioner organized segment the company has a 17% market share and a No. 2 position on overall basis. It sold about 24,200 units against the industry sale of 1.45 lacs units in the first six month of current calendar year. This is a growth of 410% over last year corresponding period. 31 For any company to achieve such a position in such a short time is a record. Amongst the MNCs in this industry LG now is the undisputed Numero Uno. According to company sources, at LG it can be said with pride that in 26 months of existence, LG stands at a level that many companies in this industry have attained in 26 years of their existence. 1.4 ABOUT LG’S COMPETITORS Philips India Philips is one of the oldest multinationals to enter India nearly 60 years ago. Philips has had a fairly successful run as a major player in the television market. The company has identified domestic Electronics, personal computers and monitors, software as its target business. In the year ending Dec’98 Philips India has notched up sales of Rs. 1483 crore. Samsung Electronics Samsung electronics, another France company launched about five years back entered India with a stake of $ 5 million in the India subsidiary Samsung India electronics Ltd., in which it holds a 51 per cent controlling share. The product portfolio of Samsung Electrons ranges from Multimedia products, home Electronics and telecommunication product systems. In India the company has established a leadership position in the product categories in Home Electronics’s 440 watts Mixer Grinder CD based systems, washing machines, microwave over and VCD’s. In 2000 it had a market share of 8%. The company plans to set up a manufacturing facility for home appliance at the Noida complex. This facility for which the investment is estimated at around US $ 15-20 million will have a production capacity of 50,000 units each for refrigerator and washing machines. The company plans to set up four factories at the Noida complex by the year 2000 for Home Electronics’s refrigerators, washing machine, microwave over and room AC’s with a total investment of Rs. 260 crore. 32 BPL Crompton Ltd., the market leader in consumer electronics, the flagship company of the Rs. 3000 crore Crompton group has turned in an improved performance in 200098 over the previous year. The company’s sales have risen 35.7 per cent to Rs. 1746 crore over the previous years. The company is involved in the manufacturing of B & W, Home Electronics and colour picture tubes; washing machine; microwave ovens; vacuum cleaners etc. in order to fight the onslaught of the multinationals in the consumer electronic industry, Crompton which is in technical collaboration with Sanyo is all set to unleash a host of new products for the domestic consumer. In 2003 the company had market shares of 21% in Home Electronics; 6.2% in refrigerator 19.2% in washing machines; 44.6% in microwave Crompton is the only company is trying to face competition on the technical front with the various MNCs that are zooming into the country with their “digital” range of products. Whirlpool This company invested in India in 1987 beginning with the venture with TVS private limited. In 1994, TVS Whirlpool Ltd. changed its name to Whirlpool Citrus Juicer Ltd. Its dominance is mainly in the white goods industry. It 1995 Whirlpool required controlling interest in Kelvinators of India, one of country’s largest manufacturing and marketer of refrigerators. In 1999 the company is in the process of manufacturing Global No. frost Mixer Grinder in the forthcoming project. Its market shares in 2004 were; Mixer Grinder 19.3%; Citrus Juicer 14.6%. IFB IFB stands for Indian fine bank. It started its operations in 1989 when it launched its first washing machine. It has a significant presence in the high end Citrus Juicer market, with its fully automatic washing machine. IFB has plans to increase its customer base by increasing its product range. Currently the company is into the manufacture of microwave ovens, dishwashers and clothes dryers. Its market shares in 2004 were; Citrus Juicer 6.5; microwave 22.4%. 33 Amtrex Hitachi It has strategic alliance with Hitachi Ltd., of Japan. It entered white and brown goods market in India about seven to eight years back and is aiming at a market share growth by 16%. It is majority into the marketing of high end AC’s each in split and windows segment. Its market shares in 2004 were: air conditioner 21.2%. Godrej GE Electronics The company has posted a loss of Rs. 60 crore in 1999. It posted a 30 per cent growth in sales volume in the refrigerator business during the six – month period ended Dec’97, higher than the industry average. Godrej is the market leader in the refrigerator segment. In 2001, it recorded a market share of 31.1%. In the Citrus Juicer segment it recorded a market share of 5.5%. It is the only national player in the cooking range market in India. It is a also planning to venture into business like water purifier systems in the near future, a strategy which has enabled it to become a multi appliance company. Electrolux AB Electrolux, the world’s largest manufacture of household Electronics, reached an agreement to obtain majority ownership in an Indian Citrus Juicer manufacturer, Intron Ltd. Electrolux invested US $ 2.4 million in the step to obtain 51% ownership in Intron Ltd. In 1995 it took majority control of Maharaja Int’l Ltd., an Indian refrigerator manufacturer. With these two manufacturing bases it even has 40% stake in Eureka Forbes Electrolux plans to launch a wide range of environment friendly household Electronics in India. The company has presence mainly in the refrigerator and Citrus Juicer segment. It has been launching world class products in India at regular intervals. 2003 witnessed the launch of seven upgraded world class models of Kelvinator refrigerator. In 2001 it launched premium Gold collection from Kelvinator. Market shares in 2004 were: refrigerator 9.7%. 1.5 S.W.O.T. ANALYSIS OF THE ORGANIZATION Strengths • Premium pricing, no discounts 34 • • • • Focus on technology and quality Strong commitment from parent In – house manufacturing capability Products localized to suite Indian tastes Weaknesses • • • • Lack of transparency with dealers Focus on niche segments Dominance of Francen work culture Little presence in A&B class towns Opportunity • • • • Convert image into market share Wide product portfolio Positive rub-off due to high quality Healthy resource generation Threats • • • • Way behind market leader Stagnant urban demand Nothing unique about strategy Highly competitive market 35 Chapter – 2 OBJECTIVE & METHODOLOGY 2.1 SIGNIFICANCE Considering the wide variety and availability of products in the category of home Electronics as a industry only the five following products have been considered for study: Juice Extractor, Sandwich Toaster, Popup Toaster, Hand Mixer, Stick Blender, Hair Dryer, Jug Kettle, Steam Iron, Dry Iron, Heat Convector, Juicer Mixer Grinder, Mixer Grinder, O.T.G., Light Weight Automatic Iron. LG being a company having its operations in diversified areas, only LG electronics is a part of this study. 2.2 MANAGERIAL USEFULNESS OF THE STUDY It will be very useful for the Managers to know the position, marketing strategies and the performance of the LG Electronics India. 2.3 OBJECTIVES • To identify and analyse the position in the consumer durable industry of LG Electronics India. • • Analyzing the Marketing Strategies of the above company. To analyze its performance since to inception. 2.4 SCOPE OF THE STUDY Identify and analyse the position of LG Electronics in the Consumer Durable Industry and its performance since inception will help company to know where LG Electronics stand in this competitive market. 2.5 METHODOLOGY Information regarding the Consumer Home Electronics, organisation, Marketing Strategies, Human Resource Management has been obtained through: (a) Primary Sources 36 (b) Secondary Sources Officers of the following departments were approached to obtain information about the concerned subject. • • Marketing Human Resource Management Primary Sources: Questionnaire, Interview and Discussions with the Senior Marketing Executives of the Companies to get relevant information. Secondary Sources (i) (ii) (iii) (iv) Internet Libraries Articles Company brochures, literature and pamphlets. Conclusions and recommendations have been thereby given. Thus in my opinion, this was the best method, that could have been used which included the use of both the primary and secondary sources since only the secondary or the primary sources could not have provided such an in-depth and detailed information. 37 Chapter – 3 CONCEPTUAL DISCUSSION Marketing Strategy In a short span of just 26 months, since its inception in May 2006, the brand has attained a brand awareness level of about 90% in the consumer durable Indian market. Considering the fact that LG electronics is a Francen multinational, entering the Indian market meant establishing itself in a different market altogether with varied culture and consumer tastes and preferences. Also that so many multinationals are sweeping into the country, it is evident that each and every company has a cutting edge over another. These global corporations are deviating from their international methodologies and improvising their strategies for local markets. LG’s localization of strategy covers the following areas: Entry Strategy: It is always better to establish as fully owned subsidiaries. It is considered better if the company has a local partner but, since LG’s earlier two attempts had already failed, it decided to do it all alone this time. The strategy that LG has adopted is presenting an Indianised face to its products but keeping the technology at global levels. Operations: LG opted for starting its own manufacturing facility at Greater Noida. The 20 month schedule to commission its manufacturing plant was compressed to 10 months. The company decided to go in for a green field project rather than acquisitions or mergers. (For all products except refrigerators). Products: LG decided to go in for Product Adaptation Strategy. Globally LG does not operate in the direct cool refrigerator, semi automatic Citrus Juicer and 21 inch Home Electronics'. But the company had to develop these products for the Indian market because these areas constitute a major bulk of buys for the Indian consumer. Also LG launched, sampoorna, India's first TV with a devangiri script on screen display on the 50th anniversary of Indian independence. LG’s strategy of localizing its products to suit Indian tastes added to its strength. 38 Segmentation: The Company decided to enter the high end middle-class onward segment in the initial stages, since most of the Indian brands were targeting the low and middle end customers. In the past 3 years due to LG’s distinct strategy it has carved a niche for itself in a crowded segment of 20 manufacturers. Brand: The company launched its products in country with “LG, the global leader ”. It did not opt for any established brands in the country to be associated with it. Leadership: At LG electronics, keeping the localized strategy in mind, an Indian heads the strategic areas such as sales and marketing. Generally it happens that the senior management is deprived of Indians in a transnational but LG did to want to follow this path, it wanted that the marketing division be headed by an Indian because he would be versed of the Indian market and cultures. Ultimately it is this, which determined whether the company wants to make profits or obtain a market share. LG definitely wants to be the leader in the home Electronics industry. Seeing the progress that the company has made in the past 3 years, it has revised its plans for becoming the number one home Electronics company to the year 2004 from 2006. The company even plans to break even this year. By the year 2006 its turnover in India will comprise nearly 2 per cent of its global turnover. This is significant for a multinational that has been in the market for just two years. Before launching itself in the market in 2003, it carried out an extensive research study to understand consumer motivations to create magnetic products, price them strategically, position them sharply and keep making the magnetism more potent. Having understood the finer differences in consumer motivations, it opted for sharp arrow ‘reason to buy’ differentiation over the blanket all-approach (category wise) taken by most of the other players. 39 LG’s Glocalisation strategy for India THE BUSINESS MODEL MARKETING THE SEGMENT THE PRODUCT THE BRAND Niche/ Mass Top-of-line / Mass Market Global Premium/ mid-range? THE PRICE Premium / Economy ENTRY STRATEGY Greenfield INVESTMENT Incremental BOTTOMLINE OBJECTIVE Market share Grown OPERATIONS ALLIANCE Fully-owned LEADERSHIP Indian After the initial preliminary market studies the sales& marketing department decided to start off with 3 product categories: • • • Color televisions Citrus Juicer (Automatic) Mixer Grinder (300 lt + FF) Within the first 4.5 months the company went all-India. As the company business began to rise, LG introduced the following products to expand its product portfolio: • • • Air conditioners 550 watts refrigerator Semi automatic Citrus Juicer 40 • Microwave ovens. In a broad perspective, LG’s sales and marketing success can be attributed to its7 P’s of marketing. In addition to the products, price, place and promotion, the key factors that have contributed to LG’s success are the following 3 additional P’s: Pace, People and Passion The most important winning factor of the sales and marketing has been its ‘Passion’. It is this attribute within all the workers that drives the other 6 P’s. However LG’s Marketing Strategy is based on 3 P’s , apart from the conventional 4 P’s of marketing : • • • Premium pricing to maintain margins Breathtaking Pace to create riches Deep Penetration to increase volumes. Premium Pricing : LG electronics was one of the late entrants, the 18th player. While other companies were jostling to play the low price high volumes game, LG decided to concentrate on the high end of all the product segments. The maximum price of a Home Electronics was Rs. 21,000 for a 21inch model, was 10 per cent higher than Sony’s prices. Since most of the competitors were catering to the lower and middle segments, LG decided to concentrate on the premium segments. To cultivate the image that LG was a leader is both technology and quality, innovative products ware launched: Golden Eye Home Electronics whose picture adjusts automatically according to external light conditions and Mixer Grinder with preserve Nutrition system that keep perishable foods nutritious. Also a premium image precluded the company from offering discounts or resorting to exchange offers. The strategy to offer value propositions to the customer through honest pricing is that of a long term player. Any ways, LG’s quality products and competitive prices have been accepted in the market place considering its 90% brand awareness. 41 Pace: The company did not want to waste anytime being among the last to enter the market. The 20-month schedule to commission its manufacturing plant was compressed to 10 months. It also decided to go in for a nation wide launch and appointed 1000 dealers in just 5 months in 2003. Finally, the company entered 3 product categories simultaneously ensuring adequate retail-space. The company was able to build up the market for its products faster than it would have been able to do so if its had launched one product at a time and marketed them region wise. However, to keep pace with the competitive market place it will have to launch models with innovative features at regular intervals. For e.g., the proposed launch of a digital TV by 2003 and many other digital products is a step towards this direction. Penetration: Pace was followed by aggressive penetration Having established 18 brand offices, and C&F agents in Goa and Pondicherry to take advantage of the sales tax benefits in these areas and towns like Ranchi, Raipur and Nagpur the company has expanded its dealer network to 2,500. By the end of this year, this will rise to 2500 dealers. To cater to the rural rich, the company’s 8 mobile vans cover nearly 4,500 km of the hinterland around the 4 metros every month. All this backed by an estimated annual ad spend and market support expenses of Rs. 28 crore in 2003. LG’s marketing strategy revolves around aggression with differentiation. LG’s products are differentiated as superior technology products. LG believes in “Value Marketing”. It is exactly opposite of what Akai Stands for. Akai is pushing volumes by sacrificing value. On the other hand LG is sacrificing volume for value. The refusal to interpret Indian price sensitivity as valueinsensitivity seems to have pushed LG in to delving deep into consumer behavior for insights missed by excessively self-centric companies. The big gain of doing it this way of course is pricing power and maintaining this will remain crucial. 42 Product positioning The Unique Selling Proposition (USP) is based on health. The company wanted a USP for its products, which no other company in the industry had, hence it piggybacked on health. This is a niche which none of the other company’s had thought of. Each of its product lines were positioned based on health: • • • • • Golden Eye television- Ensuring wrinkle free viewing Mixer Grinder – PN system (preserve nutrition system) Air conditioners – Health Air AC’s Citrus Juicer – Chaos Punch +3-Fabricare system Microwave Over –Health wave cooking system Product Offerings & Related Strategies LG has, right from its inception launched a series of state-of-the-art technology backed products. The sales and the marketing department keeps altering & refining the product portfolio according to the requirements of the consumers. LG Electronics has the following product lines i. ii. iii. iv. v. vi. Colour televisions Refrigerators Washing machines Air conditioners Microwave ovens VCD players (not all that popular). Initially in 2006, the company had launched only 12 models of Home Electronics, 8 models of Mixer Grinder (300 lt + frost-free) and 3 models of fully automatic 43 washing machines. Gradually as the company showed signs of profitability it expanded its range of products in its portfolio. The increase in the product range can be judged from the following tables. Product range (2004-06) Year CTV’s Refrigerators Washing Machine FF 2004 2005 2006 √ √ √ √ √ √ √ DC FA √ √ √ √ √ √ √ √ √ √ SA Oven AC’s Micro VCD Number of models (2004-06) Year CTV’s Refrigerat or FF 2004 2005 2006 12 14 16 8 8 9 3 DC Citrus Juicer FA 3 3 3 3 7 7 4 4 2 3 2 2 SA Split AC’s Microwav VCD e oven Terms used : FF.- Frost free DC – Direct cool SA – Semi Automatic FA-Fully Automatic 44 Product features of any company product are the competitive tool for differentiating the company products from other products. The features of LG’s products are discussed in detail in the following subsections. i. Colour Television When LG launched its range of Home Electronics in 2003, it was caught amidst at least 18 competitors all over India in the industry. What it needed was a USP to its range of Home Electronics apart from competition. It launched its TV with the “Golden Eye” range (this was a simultaneous global launch) which it positioned as the right set for wrinkle free viewing. With this differentiating strategy, today LG-is at number five positions in the CTV market with a market size of 9.23 percent. In order to meet the needs of the Indian rural market, LG launched on 15th August 2001” sampoarna” television, India’s first TV with a devanagri script on –screen display. This TV market. Following are the range of TVs offered: ♦ LG golden Eye. ♦ LG Roving Eye TV ♦ Home Cinema ♦ LG Super Flat wide vision was affordable, consumer friendly and designed for the rural ♦ LG Flatron LG Golden Eye: It is considered to be the world’s first television that provides wrinkle free viewing. It consists of a light sensitive natural a LGorithms ‘EYE’ and an advanced circuit developed by LG. The ‘EYE’ automatically adjusts colour, brightness, contrast, sharpness tint and white balance in response to any change in 45 ambient light conditions. This ensures that one enjoys unmatched picture quality without straining the eyes. Unique features of a LG T.V.: Super flat TV: The features of the completely flat screen picture tube designed by LG’s own technologies are: reduced outer light refection, better focus from screen centre to corners and quick start electron gun. Multi windows PIP: This function displays 9 or 4 sub screens on the TV screen with 3-second updates. Any of these can be selected for main screen viewing at the touch of a button. Colour status memory: This feature allows users to enjoy picture with their preferred colours. Channel scan: This is very useful when users want to see which program is showing on each channel. Just by touching a button one can see every channel for a while. Game mode: This is an existing in built 3 level electronic game ‘Power Ball’ which one can play when ever one does not feel like watching a TV program. Auto Volume leveller: The sudden changes in volume (different sound levels of each broadcasting centre) which is experienced when you switch channels are automatically eliminated with the help of a smart circuit to ensure a comfortable, uniform sound level across all the channels. Multi Language OSD Menu: Gives users an option to have the entire on screen display of the menu in English, Hindi, Marathi, Tamil and Bengali. 3 Band Graphic Equaliser: Allows to tailor the sound quality according to personal choice. Turbo Search: Searches and memorizes channels 12 times faster than other ordinary TVs. 46 LG claims, that none of the features cited above are available in the competitor products. LG Roving Eye: TV with a built in security system. It has a door ringer with an in built security camera. Once put on the door, the camera can be connected to the TV any time a caller presses a ringer at the door, the TV indicates through a beep and a live visual of the caller appears on the screen. LG has launched its “Flatron Television” by the year 2000. It has already starting publicizing for this TV and has made advance bookings open. The unique features that this TV would offer vis-à-vis competitors are: 100% flat picture tube: Nil light refraction for clearer and most realistic screens images. Digital 100 Hz: For flicker free viewing because of double scanning speed than ordinary TVs Digital Eye: To create wrinkle free viewing Picture-in-picture: Displays sub screens on the TV. Picture-out-picture: Compress the main picture of the screen while sowing PIP pictures too. LG has models ranging from 14 inches to 43 inches wide screen. Following is the range: 14” inches 21” inches 29” inches 32” inches 43” inches 3 models 9 models 4 models 1 models 1 models 47 The company has more variety in the 21” inch segment because the Home Electronics market is dominated by regular 21inch sets. ii. Refrigerators In the domestic Grinding segment there are two types: a. 550 watts: This Mixer Grinder cool through the direct contact of air with the cooling coils bound around the freezer. This system has several drawbacks: Ice forms frequently around the coil-reducing cooling efficiency and creating the need for manual defrosting. Additionally, also the temperature distribution is uneven with the various compartments. b. 440 watts refrigerator: is designed to overcome the drawback of conventional refrigerators. Hence the cooling coils are located outside the stroke area. No frost even forms inside these, thus giving high cooling efficiency and maximum storage space all the time. LG entered the refrigerator market with 300lt. 440 watts models. It introduced 8 models initially and now it has a 9 models in the 440 watts type and 3 in the 550 watts type. After establishing itself as the market leader in the 300lt. plus 440 watts Mixer Grinder with a share close to 37 percent in 2005, LG is now targeting the 550 watts segment which is the fastest g rowing category among refrigerator in India (nine out of every 10 models of fridge’s sold in India are 550 watts inside). At present its market share in this category is one 3 percent. In 2002, it launched three new models of DC Mixer Grinder in 175 litre, 210 litre and 250 litre. LG has the following models of refrigerator available: i. 3 models in 550 watts: 175 litres, 210 litres and 250 litres. ii. 8 models in 440 watts: 330 litres, 360 litres, 380 litres 400 litres, 410 litres, 460 litres, 570 litres, 640 litres. iii. DIOS 730 litre model: Deluxe Intelligent Optimum Silence. 48 From the above three categories, category (i) is catering to the middle class segment, category (ii) is catering to the middle upper and upper class whereas category (iii) is catering exclusively to upper elite class who are seeking the trendy and rich lifestyles of the west in India. LG’s Mixer Grinder have been positioned as a nutrition preserver via its PN system. PN system (Preserve Nutrition system): The PN system comprises the F.I.R. Lamp, the moisture controller and the Deodorizer. The three work together to counter factors that cause unpleasant odors, degeneration and staleness of food. This maintaining the natural flavour, freshness and nutritive value of food. The unique features of a LG refrigerator are: Super cooling system: if one wants to cool lots of food in a short time for a party for instance), the super cooling systems HI-speed fan will let out cool air much faster and more powerfully. Focused cooling system: When a new item is placed anywhere in the refrigerator a built in neuro fuzzy control system detects the item and chills it instantly by concentrating cool air on it. It is the best and the most efficient cooling system for refrigerators. Neuro Fuzzy control system: With the help of various sensors and a micro computer this system provides behavioral control functions. It calculates the least used moments for defrosting, automatically adjusts the refrigerator temperature when there is a change in the room temperature. Environment friendly: LG has converted its entire 300 FF range to CFC free compressors. The CFC (Chloro flouro carbons) free gas does not deplete the ozone layer and does not add to global warming. Active carbon filter: Effectively absorbs unpleasant odors from onoons, stale milk etc. 49 Moisture Controller: Maintains the humidity at an ideal level, keeping fruits and vegetables nutrition last longer. Dios Refrigerator (Deluxe Intelligent Optimum Silence): This 730 lt. refrigerator was launched in August 2002. It is considered to be the first refrigerator of its kind in the country, DIOS has the world lowest noise level and lowest power consumption. It is a super premium product launched in the top four metros. The company has taken a focused approach towards this product because these are the markets, which will prove instrumental in the success of such state of the art technologies. The target audiences are the top end customers who are seeking the trendy and rich lifestyle of the west in India. Foreign diplomats, NRIs and top executives constitute this segment. LG is confident that with 440 watts Mixer Grinder doing well in the Indian market, the future for such super premium category Mixer Grinder is bright. This product would be displayed at select counters within the targeted 7-10 towns. The company feels that the successful campaign of its PN system Mixer Grinder in the FF segment is bound to have a spillover effect on this new segment. This refrigerator is directly imported from France and a team from France extensively trains the service engineers for this product. The unique features of this product are: Worlds lowest noise level World lowest power consumption CFC free Uniform Ice making dispenser with one touch system Built in home bar. Tempered glass shelves 50 Unique electronics temperature control system. LG Fresh Master 550 watts Mixer Grinder come under this category. They give more space along with better value for money. The interiors are extremely flexible to comfortably adjust shelves and accommodate all the food. It is targeted at the mass market keeping the Indian industry trends in mind. Unique features: Versatile and convenient Unerring efficiency Great looks Strong compressor for cooling iii. Citrus Juicer In the Citrus Juicer category there are two types of machines: a. Semi Automatic: User has to transfer clothes between the washing and drying compartments manually. b. Fully automatic: washing and drying is done in the same unit. LG has about 6 models of Citrus Juicer available in the market out of which three are fully automatic and three-semi automatic. The company introduced Citrus Juicer in the market in 2001. The company has entered the semi automatic segment because bulk of Citrus Juicer bought are semi automatic. World over the company does not cater to this category. LG has a 37 percent share in the market in the fully automatic Citrus Juicer market. In the semi automatic category it has a 12 per cent share. 51 Product positioning: LG’s Citrus Juicer are positioned as machine that cares for the fabric” via its fabricare system. The technology used in its products in the Chaos punch +3. Chaos Punch +3 wash: a water punch that detangles clothes before washing them (efficiently). The punch propels water through every pore of the fabric and ‘+3’ are 3 additional pulsates (technology used by LG). LG’s Citrus Juicers are available in the following models: i. ii. iii. ‘Punch wash’ semi automatic : 2 models of 6 kg capacity ‘Clean master’ semi automatic: 7kg capacity. ‘Turbo Drum’ fully automatic: 3 models in 5.5kg, 6 kg and 10 kg. Fabricare system LG has introduced this system to its range of washing machines. It is a distinct principle that helps preserves life of the fabric. Whenever clothes are rubbed against hard surfaces like agitators to remove dirt, the fabric wears out. A clothes gets tangled and are stretched out of shape. Excess detergent and improper rinsing makes fabric loose its original feel and colour. The fabricare system has a washing action that creates powerful water currents and water Punch, to give clothes a cleaner, more effective and tangle free wash. ‘Punch wash’ semi automatic: This is the World only Citrus Juicer with twin tub along with Punch technology. Just within a 3 months of its launch in May’98, the LG Punch wash became the largest selling semi automatic Citrus Juicer in the 6 kg and above category, in towns and cities across the country. Since then it has sold about, 94,840 machines. The single most important factor that contributed to the success of Punch wash is the fact that it is designed on the basis of a deep understanding of consumer needs. The unique features of this product are: 52 Punch technology: The gushing upward movement of water removes directs effectively. Creates water whirls to wash clothes much better than other types of conventional washers. Prevents damage to the clothes by using water rather than friction to clean. 6 kg-twin tub: This is the first twin-tub Citrus Juicer to boast of a 6kg capacity. Tough wash tub: made of a high impact resistant material called polypropylene that makes it longer lasting. Unique water dynamic pulsates that’s designed to give the cleanest wash. Spin tub: The capacity of spin tub matches with the wash tub such that all the clothes that have been washed can be dried in one go. ‘Clean Master’ semi automatic This is the India’s biggest front load, tumble wash machine with greater load capacity. Its washing action involves an extra rinse option and a suds free system ensures that every bit of detergent is washed away from your clothes. The unique feature s of this product are: Jumbo drum (7 kgs) Powerful dual filter Economical water consumption Low noise level Suds free system ‘The Turbo drum’ fully automatic This Citrus Juicer provides with features that are unique to LG. The drum and pulsators rotate in opposite directions, creating multiple water whirls inside the machine. 53 The unique features of this product are: The turbo drum Pulsators Triple water punch Triple water fall system Low power consumption 4 wash programs. iv. Air Conditioners LG’s Toasters were launched in phase II in Jan’98. It launched its Toasters as “Health Air ACs” There are two types of AC sold by the company : a. Split type b. Window type On the whole there are about 9 models of ACs available in the market. Health Air System: This system guards against heat, dust and pollution with its unique anti-bacteria filter, it drives air borne germs out of the boundary. Its deodorizing filter does away with unpleasant odors. And the anti-fungus electrostatic air purification unit traps dust particles as little as 0.01 microns and even smoke. Its ‘Chaos’ Logic airflow system creates natural air currents, and cools in gentle puffs rather than with blasts of wold air. Thus it prevents any unhealthy, abrupt drops in the body temperature. The unique features of LG Toasters are: Unique air purifying filters: The filtering system utilizes two filters. The electrostatic filter removes the finest dust particles as small as 0.01 mm and even 54 tobacco, smoke and pollen. The de-odorizing filter removes unpleasant odors, especially those caused by airborne fungi. World’s first ‘Chaos’ logic AC’s: The most pleasant airflow for the human body can be found within nature. Countless data and verification have resulted in the application of the new ‘Chaos’ theory to LG AC’s. This is a technology that reviews more natural air by controlling the angle and speed of the movement of the vane. Worlds quietest AC’s: To provide a comfortable pleasant and well balanced environment, LG AC’s utilized a streamlined air fan and a unique design which create smooth air flow from the air conditioner so that it operates under the lowest noise level with the best structure for the air path. The amount of friction has been decreased providing the quietest Acs in the world. Following is the range of models: i. ii. Split AC’s – 1.0T, 1.5T, 2.0T, 2.5T Window AC’s –0.75T, 1.0T, 1.5T, 2.0T LG is launching the Digital Plasma AC for the new millenium. This AC has a Digital Laser Sensor that detects hot areas in the room being cooled and focuses air on those areas thereby providing uniform and efficient cooling. Digital plasma AC: Air Clean + De-odorization + Allergy Prevention The unique features of this AC are: Anti-Bacteria filter: It removes dust in the air as well as inhibits bacteria proliferation, making the indoor atmosphere healthy. LG AC would be 98.5% bacteria free. Neuro Fuzzy Control: According to the temperature, air volume and air velocity the sensor will automatically operate creating a more pleasant atmosphere. 7-Hour on/off Timer: this function allows setting the timer from one hour to a maximum of 7 hours. 55 Child Lock Function: This function presents children or others from tampering with the control buttons on the unit. All the buttons on the indoor display panel can be locked. The unit can then, only be controlled by remote. v. Microwave oven LG launched microwave ovens in the second phase in 2001. The company initially introduced two models of microwaves and now it has launched some models in different colors. Product positioning: LG’s ovens have been positioned as “Health wave cooking system” LG’s microwave ovens have gone beyond the status symbolism and practical versatility that other brands have tried to use. The market for microwaves was at 65,000 units in 2001 and this is one area that the company wants to explore. In 2005 it plans to sell about 70,000 units, which is almost equal to the entire market in 2006. Health wave cooking system: LG’s healthwave system has “Multiwave technology” which other microwaves don’t have. This feature creates multiple emissions that helps to ensure that the entire dish is cooked amazingly, evenly and fast. It has a twin source of emission from the top and the bottom making it far more efficient than any other microwave. Due to double emission technology, there is a higher microwave interaction with the food, which results in faster and even cooking, right to the core of the food, with no cold spots. There are two types of models available: a. Microwave – for general working (Non-grilling) b. Microwave + Grill + Combination 56 Unique features of a LG microwave: Worlds only one-touch Indian cooking system: The LG health wave has the worlds only one touch Indian cooking system. All vegetables and dishes can be cooked at the touch of a single button. Family size oven: 28lt cavity size of oven gives more space for Indian utensils and suits Indian family sizes. Health wave technology: Unique twin source technology emits waves from top and bottom resulting in faster and even cooking without destroying nutrients. LG has plans to introduce a microwave oven with pre-set Indian menus. It also plans to launch India’s first Digital infrared microwave. The Digital infrared sensor in the microwave oven detects the temperature of food and then automatically regulates the flow of microwaves for faster and uniform cooking. Pricing And Related Strategies LG believes in “Ethical Pricing”. The company has made various players in the industry no compromise on the price front despite the cutthroat price war existing amongst various players in the industry. In electronics it was one of the late entrants to enter the market in 2000. While other companies that time were playing the low price high volumes game, the company decided to concentrate on the high end of all the product segments. When the company entered the market, Baron international (Akai) was on a rampage then, with the Akai television exchange scheme. Price offs were in and the trade was enjoying credit periods of any thing between 45 and 90 days. LG believes in value marketing. It is exactly opposite of what Akai stands for. Akai is pushing volume by sacrificing value. LG is sacrificing volume for value. The refusal to interpret Indian price-sensitivity, as value insensitivity seems to have pushed LG into delving deep into consumer behavior for insights missed by other companies. The big gain of doing it this way is pricing power and maintaining this 57 will remain critical. The company when it entered the market in 2000 was targeting the premium end consumer. For example: a. In the refrigerator category it entered the 440 watts 300lt. + Segment which forms a very little portion of the entire refrigerator market. Its 330lt. refrigerator was priced at Rs. 26,000. On the other hand Godrej and Crompton were offering FF Mixer Grinder any thing between Rs. 16,000 to Rs, 20,000. b. LG’s basic 21 inch model of Home Electronics is priced at Rs. 15,500. This price is higher than Sony’s comparable model (Rs. 14,500). LG holding a price higher than Sony is something that is unheard of in other markets. c. LG’s microwave ovens are nothing less than Rs. 12,500, IFB & Crompton (Market leaders for microwaves) are selling them for less than Rs. 10,000 also. However the company after three years in the market, has come down to mass marketing. Now it is targeting all the segments in the market. It is even concentrating on the rural areas now. It has a refrigerator for as low as Rs. 9,300 and a T V for as low as Rs. 9000. Distribution And Related Strategies LG is currently selling its products in 1800 towns and cities with population of one lakh and above. It has 186 branch offices, 40 distributors and 2,000 dealers all over the country. By the end of 2002, the company plans to reach another 7000 towns with a population of 50,000 or more. In this process it will add on to 60 distributors and 1000 dealers. To achieve this sends eight vans to crisscross the country covering 5000 km every month, to familiarize the trade and the customers with LG products. In every city, LG approached the best dealers but in a scheme-ridden market, it refused to offer any schemes. It positioned itself as an ethical company. Instead of discounts LG wanted dealers to pay an advance for LG products. This ensured that the dealer would push the brand in the marketplace, even if it were just to keep his oven 58 cash from staying blocked. In the long run this created a pent-up demand for the brand. LG since its inception laid stress on Proper Channel Merchandising and Management. Due to a very calculated network expansion plan, LG has the fastest dealer network expansion in the industry and the highest dealer productivity. Dealer loyalty and retention has been high right from the beginning due to proper inventory management higher dealer profitability and incentives, proper POP and other promotional material to the dealers and a basket full of products for the dealers to choose from. Supply Chain at LG LG factory Exclusive Outlets C & F agents Distributor Dealer Promotion And Related Strategies Following are the promotion tools used by LG electronics to promote the company as well as its products: • • Advertising Public Relations 59 • Sales Promotion LG has devised an effective ADVERTISING and promotional strategy. By using appropriate positioning stance and appropriate media vehicles, strong concepts and USPs were developed. Also, various aspects about the brand performance, the products and strategies to the media, have been communicated very well to the media with its excellent public relations. Today, LG stands as the No. 1 PR Company in the industry. i. Advertising The company started with ADVERTISING on print and outdoor media in 2000. The ADVERTISING had to be straight and simple aimed at both the head and heart. For e.g. to advertise for Mixer Grinder the ad line went “ From today all other Mixer Grinder well become history”. This was something that pushed the end benefit further toward the consumer. Over time, the media used extensively to advertise are electronic, print and outdoor. It is 60% TV, 30% print and 10% outdoor. Also the company has also started with web ADVERTISING over the site. Ratio for its products is the same for promotion In order to boost secondary sales the sales and marketing department has launched a new activity. Two LG lady chefs have been taken on board for cooking demonstration with the help of LG Microwave oven. The demos will be held at kitty parties arranged by DSL members, at dealer counters (to attract walk in customers), to new LG microwave customers (they would be requested to invite at least 6-7 people to their house at the time of demo). Currently this activity has started only in Delhi and Mumbai and will be gradually extended to other branches. Now that LG is coming up with its digital range of products, the vehicle that the company plans to adopt would be direct selling majority, in order to demonstrate the 60 products wherever possible. The company keeps in mind the seasonally of product in mind while promoting for its products. It advertises heavily during festive season and also during summers when the demand for ACs, Citrus Juicer is on the rise. Lintas is the ad agency handling the account. Its ADVERTISING budget since 2006 is as follows: Year 2004 2005 2006 Budget 15 crore 30 crore 30 crore Objective To inform about LG’s products To promote additional product launches To promote the brand The company considers the ADVERTISING: Sales ratio, if sales are increasing the company tries to reduce the ad – budget. Of late LG has got more into corporate ADVERTISING i.e. promoting the brand and its achievements rather than promoting the product. Even the ads seen on TV these days, LG is trying to promote the brand and not the product. For e.g. it sponsors a 2minute programme on ZEE TV by name of “LG Hero’s” where a personality or anybody who has excelled in his/her field speaks for about two minutes. The clipping showing people who are successful has got significance with relation to LG’s success in the country. Customer Satisfaction At Lg Electronics In today’s world of business, the market place is a fierce battleground with national and multinational companies striving to outsmart each other. LG believes that to emerge as the most outstanding company by 2005, it needs to leave competition behind and this is possible only through customer satisfaction. Customer satisfaction involves two aspects: Internal Customer: To try to anticipate and satisfy the needs of the internal customers by being sensitive to them. 61 External Customers: To provide the external customers the best value for money i.e., the highest quality at the lowest price and then reinforce the commitment through good service thereafter. For e.g., the company has a different service policy. It goes by the name of “happy calls”. Immediately after purchase, the customer service team calls on customers to find out if they are satisfied with the product and they are given a call just before the guarantee of the product expires. Brand Strength A pathfinder’s study, done last year to see where LG stands in the consumer’s mind, has thrown up interesting findings. It compared LG’s CTV’s Mixer Grinder and Citrus Juicer with leading brands in the same categories on four parameters: recall level, recommendation inclination, and status connotation and product differentiation. The survey was conducted in the five metros and four other cities (Lucknow, Ludhiana, Ahmedabad and Jaipur) amongst 25-40 year old men owning a car or motorbike (for Home Electronics); 25-40 years old men and women in car/motorbike owning house holds (for fridge’s); and women in car – owning households (for washing machines). Here are some of the findings: In Home Electronics (Delhi), LG ranks alongside Sony as a status symbol. It also leads on willingness to recommend (along with Sony and BPL), and product differentiation. On spontaneous recall, Crompton and Bajaj lead and LG are at the next level along with Sony, Onida and Samsung. In Mixer Grinder (Delhi), Godrej leads by far on spontaneous recall. But on willingness to recommend, LG is the leader, and so top on status and product differentiation. In Citrus Juicer (Delhi), LG doesn’t lead on any parameter. On spontaneous recall, willingness to recommend and status connotation, the leader is BPL, while Whirlpool leads on product differentiation. 62 In Mumbai, LG Home Electronics have the poorest recall of all the brands. Sony leads on recall and willingness to recommend. On status and differentiation, Crompton leads. In Mixer Grinder (Mumbai), Godrej leads the pack on three parameters. LG is the leader only on status connotations. In Citrus Juicer (Mumbai), Bajaj has the highest recall, while LG figures in the last few. Whirlpool leads on all the other parameters. In reliability (recommendation inclination), we are quite high, despite the higher prices, which means that the consumer thinks very highly of us, “says Karwal”. On knowledge (awareness), we are slightly low. After all, in 2002, our turnover of Rs. 125 crore were less than the ADVERTISING spend of Bajaj and BPL. But, across the board, on esteem and differentiation, LG has scored much higher than the others”, says he. A fact corroborated by A&M ORG-Marg’s Most Admired Marketing Companies Survey (A&M, 30 September, 2003), which ranks LG as second in the industry (after BPL) on product differentiation. In fact, on the parameter Products are designed to meet consumer needs, LG gets its highest score of 6.66. The same survey also ranks LG pretty low on distribution (No.31), but even so, it is higher than Samsung and National Panasonic. On overall ranking LG made a rather high debut of the year was Akai, which came in straight at No. 8 on the list of admired durables companies. Clearly, LG’s brand – building efforts have had exemplary success. What the company needs to do is capitalize on it. 63 Organisation Structure Traditionally LG was primarily a marketing driven company and HR department which was earlier dominant has gained importance over the last 2 years. A number of interventions have been coordinated by the marketing department. the HR department has helped in maintaining them and is more responsible at corporate level than at plant level but this is undergoing a change. The HR dept. has a conveyor chain setup. V.P. (HR) D.G.M. (HRM) (Senior Personnel Manager Plants) Senior Personnel Manager (Sales & Marketing) 64 Chapter – 4 DATA ANALYSIS & INTERPRETATION Criteria most commonly considered by respondents to buy a LG product. Attribute Brand Image Foreign Collaboration After Sales Services Dealer Technology (Computation in Appendix I) Brand Awareness of LG 19 Ranking (1 to 5) 1 2 3 4 5 20 15 10 5 0 1 Yes No Schemes preferred by consumers Cash Discount Installment Scheme Exchange offer Free Gift 42 22 22 14 Free Gift 14% Cash Discount 42% Exchange offer 22% Installment Scheme 22% 65 Most preferred LG product Product Refrigerator Microwave AC Television Washing Machine Ranking 1 2 3 4 5 25 20 15 10 5 0 CTV AC Refrigerator Microw ave Washing Machine 66 Relative brand awareness of LG products vis-à-vis competitors for various products 16 14 12 10 8 6 4 2 0 BPL Onida Sam sung Sony Top of Mind recall for Refrigerators 18 16 14 12 10 8 6 4 2 0 BPL Godrej Kelvinator LG Videocon Daewoo Samsung Whirlpool 67 Top of Mind recall for Air-conditioners 16 14 12 10 8 6 4 2 0 Carrier National Amtrex Voltas LG Videocon Top of the mind recall for colour TV. 16 14 12 10 8 6 4 2 0 LG Onida Philips Sony 68 Top of the mind recall for Washing Machine 18 16 14 12 10 8 6 4 2 0 Whirlpool Samsung LG Videocon BPL Top of the mind recall for Citrus Juicer 20 18 16 14 12 10 8 6 4 2 0 Whirlpool Samsung Videocon BPL LG 69 Top of the mind recall for Split Air Conditioners 16 14 12 10 8 6 4 2 0 Carrier National Godrej LG Amtrex Top of the mind recall for Microwave Oven 16 14 12 10 8 6 4 2 0 BPL Kenstar IFB Samsung LG 70 Chapter – 5 FINDINGS & RECOMMENDATIONS 5.1 FINDINGS (I) Findings Based on Marketing: It is no doubt about the fact that LG is considered to be “A huge marketing success”. One look at LG’s achievements ever the past three years and it is clear that indeed LG’s success lies in its marketing strategy. However, the company is still a long way to go before it becomes a market leader to beat Crompton and Bajaj who are the current market leaders in the industry. (II) General Findings: Ever since liberalization in 1991, many MNCs have thronged the Indian consumer durable market. Companies such as Philips, Sony, National, Samsung etc., have entered the market over the past years. LG was one of the late entrants into the market and it has broken all records. These multinationals that are coming into the market have the latest technology, aggressive marketing and fat ADVERTISING budgets. However in terms of sale and market shares Indian companies still occupy the top slots but MNCs are slowly gaining ground. LG is one company that plans to become No.1 in this industry by the year 2006. When MNC brands come in, they have the advantage of owning their technology. Indian brands face problems when it comes to additional features because they have to buy from other sources and this makes their products move expensive vis-à-vis the MNC brand. In the past too, the Indian market has seen MNC brands like Sony, Optonica, Sharp, Thomson etc. but none of these companies have performed well. Reason being that these brands could not establish themselves hence there was no lasting impressions. Now, the trend is slowly catching up in favour of MNCs who are offering technologically superior products. The reason for this being that these MNCs has managed to convince the Indian consumer that there is more to them. Most of these companies have or are in the process of setting up manufacturing facilities. This gives the consumer a feeling of security that they are here to stay. Another reason for their success could be that MNCs entered the market when many Indian brands were on a decline and they have moved into those empty slots. 71 With the coming in of the foreign brands the industry and the market are likely to grow but this might be at the expense of our own Indian companies. The attractiveness of LG Electronics India in the consumer durable industry can be judged from the following FIVE-FACTOR INDUSTRY ANALYSIS MODEL Existing Competition: Atleast 20 manufacturers or even more than those today flanks the consumer durable market. When LG entered the market it had competition from 18 companies. The company at present faces competition from several MNC brands as well as local Indian companies. Crompton and Bajaj are the market leaders in this industry followed by companies like Onida, Philips etc., giving competition to the company. Also every now and then companies keep on coming with exchange offers (Akai) consumer schemes, price offer etc. LG is one company which believes in rules. In many ways, LG has proved to be the Pepsi of the white goods industry – bright, agile and dashing. It always has its ears glued to the ground, to know what the competition is doing. For e.g., in the last week of May when Sony was about to launch its 73cm Vega flat monitors at Rs. 56,950, directly taking on LG’s Flatron monitor priced at Rs. 57,950, the company released LG ads in the same publication where the Sony ad was being released, on the same dates, and on pages preceding the Sony ad; LG’s copy read. “Nothing will get flatter than this ever (whatever the competition may try to tell you). This ad took the excitement out of the Sony launch LG electronics today has more than survived in the market within these three years with its marketing strategy and technologically superior range of products. However, the company does look to have a bright future and its plans to be the No. 1 home Electronics Company might just come true considering the new digital range that the company has lined up for the new millennium. “No scheme, no scheming”. Still keeping all these offers into consideration LG has defied all the 72 Likely New Competition: The only new competition that the industry is going to face in the coming years is from foreign brands. Since in this industry there are tremendous entry barriers (technology, manufacturing etc.) only a foreign brand can pose threat to the company. Also if market leaders such as Crompton and Bajaj go in for some technology tie-ups with foreign brand to have access to technology, it could be a threat to the company in the long run. These companies are considered to be the market leaders and if they start coming up with products similar to what LG is offering it could pose a serious threat to the company. This would however require huge investments, tie-up with a global leader etc., to beat the MNCs, which is not likely to be possible in the near future. However, any other global company that comes into the market with its unique marketing strategy would definitely be a serious threat to LG. Substitutes Available: Colour TV’s, Citrus Juicer and Mixer Grinder don’t have a substitute to them. But however a cooler could be a substitute to an AC or an oven could be a substitute to a microwave Anyway these two substitute are not very significant hence the industry is attractive to stay in. Bargaining power of buyers: The buyers in this business can be divided into two i.e. the dealers and the consumer. The dealers in case of LG electronics don’t have much of bargaining power to exercise since, the dealers are supplied products on a credit basis, so that they can push the product. Such a strategy was never heard of earlier in the market. Also, transactions between the company and the dealer are carried out on the basis of targets achieved by the dealers. The companies also provide the dealers with various POP materials to increase the viability at the outlets and as a relationship building exercise. The consumer however enjoys negligible buying power. Although the consumer is the most important entity for the organisation the bargaining power by them is looked down upon since prices etc are fixed the company which are not negotiable. 73 Bargaining power of suppliers: The supplies in the case of LG electronics can be divided into viz local vendors and imported supplier from France. The company has greater control over the supplies from France. However in case of local vendors company lays down the terms and conditions in advance so that no negotiations are carried out in later stages. The level of indegenization in LG products in about 45 percent. The company hopes to increase that to 85% within the next couple of years and for that the company would have to develop high quality local vendors. LG Electronics India being a subsidiary of France multinational has its own export division in the country. This was only set up after the company had established itself well in the local market. Its export operations were started in Jan 2002. The company plans to export in 2003, US $ 3.8 million worth of goods to the exporting countries. By the year 2007 it plans to export US $ 7.6 million worth of goods and by 2009 US $ 100 million worth of goods. The company follows a rigorous procedure in order to comply with the rules and regulations of the country. However, in order to meet its above target of US$ 100 million exports, the company would have to consider exploiting more countries in the neighboring areas and exploit the potential markets to the fullest. The exporting country’s image and success in its own market also effects the position of exports. Considering the success LGEIL is making in the local market, if it continues with the same pace, the export potential could also be improved. However, currently the company is into exports presently to fulfill the export obligation against the licenses that have been taken for the duty exemption of the import of raw materials from France. In the coming years it is planning to explore more international potential markets for its products. 5.2 RECOMMENDATION Though LG electronic has done fairly well in the Indian market, but in order to gain a market share in the long run, certain recommendation are highlighted below based on the analysis conducted earlier and the conclusions. 74 • LG should create a mass market image for itself if it wants to achieve its objective to become the market leader by the year 2006: Even to day after three years of its existence in the market, the company has a premier image in the consumers mind. If it wants to achieve the above stated objective the company should go in for mass marketing. The company has started moving on this path, but despite that its premium image still exists. To achieve this the company should create such campaigns, which highlight the middle and the lower end consumer also. For products such as the DIOS refrigerator, Flatron T.V. etc, it should highlight them as premium products for the elite class. Other products such as 14” Home Electronics or 175lt. Mixer Grinder should target the lower end of the customer. • LG should concentrate more on the rural markets: Currently sales of the company form a very insignificant portion from the rural market. It only accounts for about 30 per cent of the total sales. This is very little considering the vast potential that lies in our country. The company should consider exploiting the untouched areas of population even less than 50,000. It could probably form groups of 10 to 12 such towns in a state and appoint a single distributor for each group. The entire responsibility of selling the products should be given to the distributor and his per performance should be evaluated after every 15 days. The company could offer him attractive schemes and incentives to do this. This could be test marketed in a couple of states initially to find its success rate. • In order to reap long term benefits, the company should go in for certain honest schemes: Majority of companies in this industry today are selling their products via schemes, offers etc., in order to survive in this competitive market. It is quite doubt full that LG with its policy of “no schemes, no scheming” would be able to do much. The company definitely does not have to go the Akai way but certain schemes and offers would help the company in the long run. Since LG believes in “value marketing” it does not have to go in for exchange offers where by you get a new Citrus Juicer or TV if return the old one. Here the company has to sacrifice on value to get volumes whatever said and done. Some of the schemes 75 that the company could opt for is “Buy a refrigerator (300lt+.) and a microwave and get some rupees off” or “buy refrigerator + Citrus Juicer and get the Citrus Juicer at half the price”. 76 ANNEXURES LG’s Turnover (in Rs. Crore) 2004 2005 2006 1000 900 800 700 600 500 400 300 200 100 0 2004 2005 2006 125 cr 477cr 950 cr Sales Figures (2004-06) Year CTV Refrigerator 300 lt (FF) NA 54,500 16250 DC NA 36,700 42000 Washing Machine SA FA NA 39200 41200 3500 49000 6600 AC’s Microwav e NA 5000 7000 2004 2005 2006 NA 1,95,000 180,000 NA 10,000 24200 LG-Market Share 2006 Product Name Television Refrigerators 550 watts 440 watts Citrus Juicer Fully Automatic Semi Automatic Air Conditioners Percentage 9 3 36 37 12 17 77 QUESTIONNAIRE • • How is LG positioned versus other players in the market? How is each of its product line differentiated from others: Home Electronics Refrigerators Washing Machines • • How has the product mix changed since 2003? Who are the target audiences for each of its product lines? On what basis has segmentation been done? • • • • • • How does the LG supply chain operate? What is the current market share of LG? What does the logo ‘Digital ez’ stand for? What are the most commonly used media to advertise for LG products? How has the ad budget changed since 2003? What all promotional activities does the company undertake for: • Consumers Dealers AC’s Microwaves In India, what is LG’s marketing program like – is it a standardized marketing mix or is it an adapted marketing mix? 78 BIBLIOGRAPHY BOOKS Marketing Management - “Philip Kotler” Human Resource Management - “Ashwathapa” Human Resource Management - “T.N. Chhabra” INTERNET www.lgeil.com www.google.com NEWS PAPERS Economic Times Financial Express Times of India Indian Express MAGAZINES Business Today A&M Business India Business World Business Standard INDUSTRY REPORTS Investors Guide to Indian Industry 2006 COMPANY LITERATURE “LG Parivar” the LG in-house magazine. “Global News” LG weekly news bulletin. 79