 "LG's premium dilemma")
It is not usual to hear a market leader talk about a turnaround. But the managing director of LG Electronics India (LG), Soon Kwon, said last month that 2014 would be the "real turnaround year" for the Korean electronics giant in India. LG may have nearly 33 per cent share in the overall consumer durables market of Rs 48,000 crore (in January-December, 2012), but it is being challenged not only by its Korean rival, Samsung, but by Indian brands as well in almost every segment. Its overall share has slipped from 35-37 per cent in 2012 and earlier.
LG had raced to the top within three years of its India-entry in 1997. It left popular indigenous brands such as Videocon, Onida and BPL behind by cracking the winning code - penetrating the mass market with products that were low-priced but of a better quality than domestic brands. Shripad Nadkarni, founder-director of MarketGate Consulting says, "LG did a lot of things right. It came in at a time when Indians were not exposed to global standards in domestic goods and won over consumers with the right quality-price value propositions, an aspirational range and scale."
However, in 2007, it decided to shift its focus from the mass market and go premium, under the aegis of Moon Bin Shin, LG's then-managing director, and in line with the global mandate. It was also reported that higher margins of 7 per cent would get realised rather than the 3 per cent prevalent at that time. Since then, LG has launched a whole range of expensive products - inverter air-conditioners, ultra high-definition and 3D TVs, direct-drying, front-loading washing machines, ultrabooks and Blu-ray home theatres. However, observers say that is where it seemed to have lost the plot.
In 2011, LG had aimed for Rs 20,000 crore in sales from its Indian operations. But, it could garner only Rs 16,200 crore. In 2012, Kwon says LG's revenue was at Rs 16,000 crore. "The last two years have been challenging for every player in the consumer durables market. We are very optimistic about this year and hope to achieve a 20 per cent growth. There is no magic to the business. You have to have a good product," says Kwon.
One of the segments where it has visibly suffered is air-conditioners (ACs). The home-grown Voltas has chipped away at its dominance (Samsung has suffered a loss in AC market share, too). LG plans to maintain its share of about 24 per cent (from around 28 per cent two years back) in this segment. "Yes, we had lost market share slightly, but that was mainly because we trimmed the window AC portfolio [a sub-category, where it has around 35 per cent share] ," says Saurabh Baishakhia, Business Head (air conditioners), LG Electronics India. LG's shift in focus from multi-brand outlet sales to its own-showroom sales in ACs also took a toll. According to a recent study by an independent research firm, market share of LG in air-conditioning from multi-brand outlet sales had dropped to 17.3 per cent in February 2013 from 26.3 per cent in March 2011.
At present, LG gets about 30 per cent of its revenue from televisions, 10 per cent from air-conditioners, 30 per cent from other home appliances, less than 6 per cent from mobile handsets and the rest from business-to-business products.
The segments it enjoys over 30 per cent market share include refrigerators, washing machines, microwaves and window ACs. It also has a 36 per cent share in the nebulous 3-D TV market at the high-end TV panels - the kind of product it wants to specialise in.
LG is not letting go of its premium hopes yet. "Premium is not just about the product. Premium is the brand for which the consumer is ready to pay more," Kwon says. He spoke on the sidelines of LG's Tech Show, where LG showcased a 55-inch OLED television which is supposed to be the slimmest in the world (launched at $12,000 in the US market). On display were its futuristic products such as pocket photo printers and large capacity washing machines.
But LG has not lost a sense of the rural markets either, the ones driving up the volumes for the durables industry. About 15-18 per cent of its revenue comes from rural markets. One of its profitable categories remains the CRT TV, which some companies such as Sony have exited long back. LG, on the other hand, will provision for low-cost panel TVs for the rural masses. "Every company will have to work on bringing LCD/LED TVs at a price below Rs 10,000. We will act depending on the market demand. About 80 per cent of our CRT TV sales come from rural areas," Kwon says.
Straddling premium and mass will be a difficult task for a consumer brand, as it sends out conflicting signals, according to brand experts. Nadkarni asks, "I am not quite clear what LG as a brand stands for today. It had tried to position itself on the 'health' plank a while back but seems to be diffused now."
While Samsung's durable line has basked in the halo effect from its roaring mobile phone business and bridged the premium-mass gap, LG has had no such luck. But LG's mobile phone category is seeing a buzz in the US with renewed advertising spends. This along with product innovations could help it get back traction in India.
LG had raced to the top within three years of its India-entry in 1997. It left popular indigenous brands such as Videocon, Onida and BPL behind by cracking the winning code - penetrating the mass market with products that were low-priced but of a better quality than domestic brands. Shripad Nadkarni, founder-director of MarketGate Consulting says, "LG did a lot of things right. It came in at a time when Indians were not exposed to global standards in domestic goods and won over consumers with the right quality-price value propositions, an aspirational range and scale."
However, in 2007, it decided to shift its focus from the mass market and go premium, under the aegis of Moon Bin Shin, LG's then-managing director, and in line with the global mandate. It was also reported that higher margins of 7 per cent would get realised rather than the 3 per cent prevalent at that time. Since then, LG has launched a whole range of expensive products - inverter air-conditioners, ultra high-definition and 3D TVs, direct-drying, front-loading washing machines, ultrabooks and Blu-ray home theatres. However, observers say that is where it seemed to have lost the plot.
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Nadkarni says, "Even though LG got on to the premiumisation wagon, Samsung had already raced ahead. Samsung was prolific with its launches, especially mobile phones, introducing new models in different categories almost every month. This rubbed off well on its appliance business too." LG has to reckon with not just its Korean counterpart but also domestic players such as Godrej Appliances. "Godrej, for example, has reinvented itself as an insightful player with a focus on design as the differentiator," says Nadkarni. A few point out that LG should not have abandoned the volume mass segment to begin with.
In 2011, LG had aimed for Rs 20,000 crore in sales from its Indian operations. But, it could garner only Rs 16,200 crore. In 2012, Kwon says LG's revenue was at Rs 16,000 crore. "The last two years have been challenging for every player in the consumer durables market. We are very optimistic about this year and hope to achieve a 20 per cent growth. There is no magic to the business. You have to have a good product," says Kwon.
One of the segments where it has visibly suffered is air-conditioners (ACs). The home-grown Voltas has chipped away at its dominance (Samsung has suffered a loss in AC market share, too). LG plans to maintain its share of about 24 per cent (from around 28 per cent two years back) in this segment. "Yes, we had lost market share slightly, but that was mainly because we trimmed the window AC portfolio [a sub-category, where it has around 35 per cent share] ," says Saurabh Baishakhia, Business Head (air conditioners), LG Electronics India. LG's shift in focus from multi-brand outlet sales to its own-showroom sales in ACs also took a toll. According to a recent study by an independent research firm, market share of LG in air-conditioning from multi-brand outlet sales had dropped to 17.3 per cent in February 2013 from 26.3 per cent in March 2011.
At present, LG gets about 30 per cent of its revenue from televisions, 10 per cent from air-conditioners, 30 per cent from other home appliances, less than 6 per cent from mobile handsets and the rest from business-to-business products.
The segments it enjoys over 30 per cent market share include refrigerators, washing machines, microwaves and window ACs. It also has a 36 per cent share in the nebulous 3-D TV market at the high-end TV panels - the kind of product it wants to specialise in.
LG is not letting go of its premium hopes yet. "Premium is not just about the product. Premium is the brand for which the consumer is ready to pay more," Kwon says. He spoke on the sidelines of LG's Tech Show, where LG showcased a 55-inch OLED television which is supposed to be the slimmest in the world (launched at $12,000 in the US market). On display were its futuristic products such as pocket photo printers and large capacity washing machines.
But LG has not lost a sense of the rural markets either, the ones driving up the volumes for the durables industry. About 15-18 per cent of its revenue comes from rural markets. One of its profitable categories remains the CRT TV, which some companies such as Sony have exited long back. LG, on the other hand, will provision for low-cost panel TVs for the rural masses. "Every company will have to work on bringing LCD/LED TVs at a price below Rs 10,000. We will act depending on the market demand. About 80 per cent of our CRT TV sales come from rural areas," Kwon says.
Straddling premium and mass will be a difficult task for a consumer brand, as it sends out conflicting signals, according to brand experts. Nadkarni asks, "I am not quite clear what LG as a brand stands for today. It had tried to position itself on the 'health' plank a while back but seems to be diffused now."
While Samsung's durable line has basked in the halo effect from its roaring mobile phone business and bridged the premium-mass gap, LG has had no such luck. But LG's mobile phone category is seeing a buzz in the US with renewed advertising spends. This along with product innovations could help it get back traction in India.