Let there be light

Can stoves and lanterns light up Philips' fortune?

The list of products that Philips could bring to India in the near future sure looks impressive. There is a “light alarm” that will wake you in the morning by adjusting the lights in the room. No more waking up with a jolt from the shrill ring of the alarm clock. Then there is a “light shower” which will help you get out of jet lag in no time and medical equipment that will remove the disorder of snoring. The products use cutting-edge technology and could well be expensive — only for the well-heeled.

That is the line-up for the future. At the moment, Philips is ready with products at the other end of the value spectrum. All set for a commercial launch are Philips lanterns. And some time in May, it will launch a pilot to try out in the rural markets a wood stove (chullah). The quest for fortune at the bottom of the value pyramid has driven Philips to markets no multinational lifestyle company has seriously served so far.

The stove (if the three-month pilot which will be run in the Guntur district of Andhra Pradesh succeeds) and the lantern could open a whole new market for Philips — poor rural householders and slum dwellers. Rivals in the lifestyle space say this is an audacious move to stay afloat. The company has lost market shares in categories like television and mobile handsets, though it continues to be strong in audio players, a low-tech space vacated by the large players.

Small appliances, Philips’ forte, are a Rs 3,000-crore per annum market growing at about 15 per cent per annum. The company has clocked double-digit growth in the last few years. But the market is tough. There are over 600 makers in the country, though there are only about half a dozen well-known brands. Others play the price game, thanks to rampant excise evasion. So, Philips needs to think out of the box to grow.

Sense and simplicity
Stove and lantern could well be the next big thing for it. Having realised that growth in the future will come from BRIC (Brazil, Russia, China and India), it has decided to come out with products that meet consumer needs in these markets. “These countries have been given higher empowerment to look at unique demands and new value spaces in their markets,” says Philips Electronics India Managing Director and CEO Murali Sivaraman.

Product innovation is not something new to Philips. It has done several innovations in its small appliances ever since it entered the market in 1992. Thus, it fitted its juicers with a sieve so that the juice that comes out is of uniform thickness. Research had shown that children drink juice when it is tasty and smooth.

For better grinding, it rotated the jar of its grinder in the reverse direction as the blade. At the same time, noise levels were brought down by 25 per cent so that the housewife can know what’s happening in the rest of the house even when the grinder is on. For this, the company even spoke to aeronautic engineers! Similarly, it has fitted its mixers with a hand-like plastic top on the consumer insight that women often hold the machine from the top when in use.

In mid-2007, it came out with a water purifier for the urban markets. It used ultra-violet filtration, filled whenever the water ran through the taps and indicated through a light whenever the filters had run their life and worked no more.

The new products are something else. The stove took over two years to develop and was worked on jointly by the company and its Dutch parent. It is made of steel and a fan, which runs on battery, is fitted at the bottom. As a result, the flame, claim Philips officials, is as good as that of a gas stove. The stove runs on wood as well as cow dung. The price for the pilot is Rs 2,500. As some rural households may find that expensive, Philips has come out with a smaller stove without the fan for Rs 1,000. This was developed along with a non-government organisation called Tara in Maharashtra. The Philips brand is displayed prominently on the body of both the models.

Meanwhile, its portfolio of lanterns is ready for areas with no electric power. These come in the price range of Rs 1,000 to Rs 3,000. Philips has made two categories of lanterns: One, which can be charged on a solar panel; and two, which can be charged from electricity. The consumer insight here was that people feel secure when there is light around. In most rural households which do not run on electricity, people use kerosene to light their lamps and lanterns. This is unhealthy. To address this demand, Philips has come out with lanterns. These can be used at home or can even be carried to the fields.

Brand promise
But do stoves and lanterns gel with the brand perception of Philips? It may have ceded market share to nimble-footed Korean rivals in consumer electronics, but it is the largest player in lighting and is seeking to build its healthcare business. Both depend critically on modern technology. In this scenario, is it prudent to come out with low-tech products like a stove or a lantern?

Sivaraman says these do fit into Philips’ brand promise of sense and simplicity. “Our brand is a household name. It reaches every corner of the country through our audio and lighting products,” says he. Other Philips executives add that the popular perception of Philips may not be that hi-tech. “Most people,” says Philips Electronics India Vice-president Mahesh Krishnan, “still associate Philips with a radio.” In other words, a stove or a lantern may not be a significant climb-down for the brand.

Some years ago, Philips decided to take the health and wellness platform globally. People had started to become more health conscious and Philips quickly caught on to it. At least the stove, according to Sivaraman, flows from the same plank. The top-end stove cuts smoke emission by 95 per cent and the stripped-down stove by 75 per cent. Both reduce fuel consumption by 45 per cent. Smoke spawned by traditional stoves in rural households is known to cause respiratory problems. Philips stoves aim to reduce that risk.

That may be fine, but experts on rural markets are quick to point out that smoke also rids rural homes of pests and insects. So, it may not be perceived as such a bad thing. Also, the Philips stove offers only one burner, whereas rural homes run at least two at all times in the traditional fireplace. In order to remove the old fireplace, farmers may have to buy more than one stove. This could push up the final cost of ownership. The availability of liquefied petroleum gas in villages too is improving by the day.

Sivaraman is aware that there are problems like these. More could show up during the pilot at Guntur. The pilot will determine how many stoves can be sold at what price points and what communication would be required to the consumers. So, the final strategy will be fine-tuned only when the pilot is over. Sivaraman therefore is still not sure if it will be a “wow” product or a force multiplier for Philips.

Reaching the market
Still, plans are being made to sell it and the lantern in large numbers. Philips plans to be out with the stove in the market in the next festival season which starts in South India in August and the rest of the country around October. In fact, says Sivaraman, these could also be exported to parts of Africa and Asia.

Won’t be a cakewalk, warn rivals. Harish Kumar, the chairman of Maharaja Appliances, a leading player in small appliances, says concept-selling in India is tough. The challenge for Philips, he says, will be to get the distribution in place. “It will need a large network to sell these products,” says he.

Philips thinks it is ready for the challenge. It has its own dealers in towns with a population of more than 100,000. But if it wants to make a commercial success of its stove and lantern, it needs to reach as many of the country’s 600,000 villages as possible. With its bulb and tube lights, Philips actually reaches a large number of villages. It now plans to use the same network to sell its stoves. It is thus setting up a unified Philips sale channel exclusively for the rural markets. “The stove will be the spearhead,” says Krishnan.

What it means is that rural shops that stock Philips bulbs will also stock the stoves. Sales executives of Philips’ wholesalers will be trained to go to the villages and demonstrate how the stove works. The company also plans to tap farmers’ co-operatives to sell it. In Punjab, for instance, Philips has already tied up with about 150 co-operatives to sell its bulbs, mixer-grinders and irons. It could very well push its stove through the same channel. Another option that the company could use is selling the stove at mandis. Philips is also in talks with the renewable energy ministry to include the stove in its Village Energy Security Programme.

A bigger challenge for Philips will be to get the price right. Only once the Guntur pilot is over will it know if consumers are willing to buy at these price points (Rs 2,500 and Rs 1,000). Farmers, the company is aware, make money only twice a year when they harvest their crops, though expenses are spread evenly through the year. This makes pricing the key. Sivaraman says Philips has tried to keep the price of the stove low. It could have come out with a 100 per cent smoke-free stove but that would have pushed the price up. So, it settled for 95 per cent reduction but brought the price of the stove down to Rs 2,500. The pilot will also test if farmers need credit to buy these stoves. The company may use farmers’ co-operatives if credit support is required, says Krishnan.

The other issue would be where to produce the stove. Potentially, it could be sold all over the country. There are households in every state which use firewood or cow dung. Since the stove is bulky, transporting it over long distances could be unviable. In that case, does it make sense for Philips to assemble it close to the markets? Or outsource production to third-party manufacturers? Sivaraman is not sure if this model could work as this could allow slippages in quality. “We are paranoid about quality,” says he.

And there is light
At the moment, Philips’ lanterns are ready for the market. Apart from the lighting network, the company has dovetailed its lanterns into the “Lighting a Billion Lives” initiative of The Energy & Resources Institute. Over 2,000 lanterns have already been distributed in 42 villages across nine states. Five hundred have been deployed in Myanmar.

Philips is hopeful companies will adopt villages under their corporate social responsibility programmes and people there will be given these lanterns. Some may set up a solar panel in the village, which can charge up to 50 lanterns. These lanterns can then be given on hire for four or six hours. “The business model is viable and self-sustainable,” says Philips Senior Director (strategy and business development) Rakesh Sharma.

Sharma incidentally mentions that most innovations carried out by Philips on its small appliances were copied by rivals in very little time. This, in fact, is an industry-wide problem. There are several small players in the market place who operate out of hubs in Delhi and Ambala and copy the designs of the industry leaders. The danger is all the more there in the case of Philips’ lanterns and stoves. Since the technology is basic, it may not be worthwhile for Philips to apply for patents, given the expenses involved and the time it takes.

Whatever faults rivals may find with the stove and lantern, they all agree Philips has got its timing right. There is substantial purchasing power in the rural markets because of the high prices set by the government for key produce like wheat and rice, and the cash given out under the National Rural Employment Guarantee Programme running in all the districts of the country. Several companies are fine-tuning their strategies for the rural markets. And Philips is no exception.