)
With the severe fall of rupee value against dollar, a slowing economy and negative consumer sentiment, consumer durables companies (CDCs) are being forced to think of alternatives and supplements to their existing business models.
Cost management becomes a key aspect; companies are also looking at increasing the penetration in markets beyond metro cities, tier-I and tier-II towns, essentially the ones that do not solely depend on the salaried class. These markets, mainly rural and semi-urban (likes of municipal towns), have low penetration and the marketing spend is comparatively less. “While the key strategy for all CDCs is aggressive marketing, the implementation is different,” said a senior marketing executive of a leading one.
Better penetration
For instance, South Korea’s Samsung Electronics has decided to bombard the market with a number of products in each category, at every price point, from low to premium, so that every potential customer is covered. Besides, it is expanding the retail footprint in newer markets, the likes of municipal towns (with more than 50,000 population) and increasing presence in existing markets where there is scope.
Japanese giant Sony has always positioned its products at the slightly high-priced segment. It has also announced plans to launch low-range Bravia televisions, starting at Rs 14,000, targeting tier-II and tier-III towns. According to retailers in north and east India, all companies are fighting for front display and some are making better offers and offering higher margins to retailers. According to officials at Samsung Electronics and LG Electronics, both companies are trying to ensure “better display” in each store, whether a modern retail outlet or a small one in a city. “During tough times, efficient channel management is a must,” said a Samsung spokesperson.
Currently, CDCs get about 35 per cent of their revenue from the rural market, which is growing at a much faster rate in terms of volume, though on a lower base.
However, home-grown Videocon has a different strategy. It gets 65 per cent of revenue from rural markets, quite the opposite of the trend. Besides a wide rural network, Videocon has another advantage. It still sells products like CRT televisions and single-door and direct cool refrigerators, which its competitors exited sometime earlier. These categories still sell well in rural areas because of the costing. As part of aggressive marketing strategy, all CDCs have been launching new products every month across categories, ensuring at least one product launch each month. On an average, companies are launching about 15 per cent more in numbers of products this year, according to industry sources.
Affordability
Prices of consumer durables have gone up and are likely to do so even more because of the rupee devaluation.
“During tough times, companies need to showcase desirability, affordability and flexibility to lure consumers,” said Canon India executive vice-president Alok Bharadwaj. Canon has, for the first time, decided to offer zero-interest equated monthly instalment (EMI) options.
EMI schemes, coupled with exchange offers, have worked well in India. The mobile handset category, for instance. After it started offering exchange offers linked with EMI schemes, Apple’s sales surged 417 per cent in India in the past year. Samsung, LG, Sony and BlackBerry are no exception. EMI schemes worked well in the handset segment, especially because it is credit card-linked and backed by exchange offers, said a Samsung spokesperson.
“EMI schemes make expensive products affordable for consumers as they don’t need to pay the entire amount upfront. Sometimes, consumers also upgrade to the next level while buying a device. So, companies are getting better revenue,” said a retailer in Delhi.
Increasing local manufacturing
Keeping the long-term gains in mind, consumer electronics companies are trying to increase production as much as possible. Local manufacturing helps to control costs, but companies can’t suddenly start production in India for various reasons, with unavailability of majority of equipment in India. According to a study by Corporate Catalyst India, just 30-35% of electronic component required for manufacturing are available from local sources and semiconductors are imported almost 100%.
For instance, the steel finishes that are used in refrigerators are not locally available. Similarly, energy-efficient compressors, motors, and some blowing agents and electronic components have to be imported too.
“The reality is that the supply base in India has not developed in line with the evolution of the appliance industry. Hence, while local sourcing or local manufacturing makes common sense in a situation where the rupee has depreciated so severely, business realities are such that imports cannot be completely eliminated. That said Indigenising sourcing and manufacturing wherever possible, and increasing exports, are on the agenda of mitigating actions for the challenge caused by the sharp depreciation of the rupee,” said Shantanu Dasgupta, VP (corporate affairs and strategy), Whirlpool of India.
However, the government's move early this week to ban duty-free imports of flat-panel television sets beginning August 26 is expected to give local manufacturing a leg-up. Almost 1.5 to 2 million flat panel TVs out of a 6-million-unit-strong-market is imported every year. By slapping a steep duty of 35% to discourage imports, Anirudh Dhoot, director, Videocon Industries and president, Consumer Electronics & Appliance Manufacturers Association, says local demand will grow giving a fillip to domestic manufacturing.
According to industry estimates, almost 65 to 70% of parts going into locally manufactured products such as TVs, refrigerators, washing machines and air conditioners come from markets such as China, Japan, Indonesia, Malaysia and Taiwan. Also, high-end products in these categories are completely imported from abroad since it makes no economic sense to produce them here.
The same goes for categories such as laptops, tablets, micro-wave ovens and digital cameras, which are all imported as completely built units from abroad.
Barring high-end models and new product categories such as water purifiers, Whirlpool produces all entry and mid-level home-appliance models in the country. Plans are to have more products manufactured here, he says. But persons in the know say this plan is partly linked to Whirlpool's strategy of converting India into a manufacturing base for its Asian operations.
Companies such as Samsung and LG also say they have no plans to cut production in India. "We manufacture all our consumer electronic products here barring a few high- end refrigerators, ultra high-definition TVs, and microwave ovens. Our decision to manufacture locally was taken a long time ago and we subsequently made the appropriate investments," a Samsung spokesperson says.
Industry sources say that it takes upto a year to set up a manufacturing plant in the country. A new production line, on the other hand, could take upto six months to become fully operations. So a decision taken now to set up either a new production line or manufacturing plant will be realised only one year down the line.
Looking at high cost of imports, Panasonic has decided to take two crucial decisions. They mainly include increased focus on B2B (business-to-business) products to keep up profit margins; and to increase local production, especially India-specific products, to maintain volume growth.
“The B2B segment can help expand our margins and lead to better profitability. The costs are lower as there are no ad budgets and distribution expenses. We are putting more efforts on our enterprise product line targeted at the healthcare, security and education space. To drive cost efficiencies in the consumer space, we have increased our production capacity at our plant in Jhajjar, Haryana with an investment of USD 200 million over a five-year period,” said Manish Sharma, MD- Panasonic India.
Some companies, however, are trying to leverage the export route to take advantage of the rupee devaluation. "We invested at the right time, and that has helped us to fight against the falling rupee. We have also started exporting. Exports actually would give us better growth in this market condition. We expect to get about five% of our revenue from exports to Sri Lanka, Nepal and Bangladesh, this year," said Kanwal Jeet Jawa, managing director, Daikin Airconditioning India.
