Here’s how Blue Star plans to manage the move from industrial marketing to retail
Balasubramanium Thiagarajan, president (air conditioning and refrigeration products group), Blue Star, has never been afraid of taking risks and making difficult decisions. Yet, he admits, this one decision has been two years in the making.
Starting this summer, Blue Star, India’s largest central air conditioning (AC) company and leader in the field of commercial refrigeration equipment, will cater to a new audience — the retail consumer. To this end, the Rs 2,556-crore company has lined up a slew of new launches taking its offering of room ACs to over 30 models from the existing 18, priced in the range of Rs 15,000 to Rs 45,000. With this, the company’s room ACs that were hitherto confined to its exclusive dealerships will now jostle for space in multi-brand consumer durable outlets.
This is a whole new ball game but Thiagarajan is in no mood to let the opportunity pass him by. The company estimates the residential AC market at 3.2 million units annually, valued at Rs 5,500-6,000 crore, and is growing at about 20 per cent every year (the total AC market stands at Rs 12,500 crore). Says Thiagarajan, “The residential segment is growing faster than the commercial segment. More importantly, the room air conditioner business is much larger than the central air conditioner business today.”
Notwithstanding its strong brand equity, the move from the business to business market to retail is not going to be a cake walk for Blue Star. The company will now be fighting for the consumer in an extremely competitive market having well-entrenched players with proven marketing savvy, financial muscle and strong consumer durable portfolios.
Here’s how the players stack up. At the premium end of the spectrum are players like Hitachi and Daikin that have their much-admired Japanese legacy to fall back on. In the mid-market segment, where Blue Star intends to compete, chaebols LG and Samsung have secured their position with strong product line ups and competitive pricing. And they are getting ready for a fresh onslaught in the market this summer. Samsung recently launched 14 split AC and four window AC models to take rival LG head on, which has unveiled a whopping 51 new AC models. Then there are players such as Voltas that became the first brand in the air conditioner market to offer consumers an AC in the Rs 10,000 price range. Indian brands like Onida and Videocon too are wrestling for a piece of the action. Keen on roping in the first-time buyer, shop brands of Big Bazaar/Home Town and Croma are also going that extra mile to make ACs a “must-have” appliance in middle-class homes.
| WHO’S THE COOLEST Retail market for residential air conditioners | |
| Brand | Share |
| LG | 28.7 |
| Samsung | 21.5 |
| Voltas | 16.2 |
| Onida | 5.4 |
| Videocon | 3.2 |
| Source: ORG-Marg, volume share in % (Jan-Dec 2010) | |
Ground reality
Sector analysts believe if Blue Star gets it right, there’s enough room for growth. In a nation of 1.2 billion people, penetration of room ACs is a minuscule 3 per cent, in sharp contrast to 40 per cent in China and 70 per cent in the US. Experts say the success of the company’s foray into the retail segment will be decided by how quickly it can master the language of the retail consumer.
Blue Star, on its part, is ready for charge. Thiagarajan says planning for the retail foray began when the company commissioned BIRD (Business & Industrial Research Division of IMRB International), almost two years back, to gauge the consumer mind. So what does a residential consumers look for in an air conditioner? “Our research findings indicate three factors influence a purchase decision — brand, product range and after-sales service,” explains Thiagarajan. The findings of the research helped the company formulate its strategy.
The first step was to leverage the company’s strengths and domain expertise acquired through its institutional sales operations. Installation crew, for instance, walk that extra mile to tell consumers the best place to fit an AC in a room. “As a leader in commercial air conditioning, these are the issues that have come naturally to us,” avers Thiagarajan. At the same time, he says, the design aspect is important to the residential consumer and this insight has been incorporated into the new range of ACs.
“Product features are another big consideration for residential buyers, irrespective of whether they use these or not,” adds Thiagarajan. To that end, Blue Star has committed to triple its investment on research and development (40 per cent of R&D budget is spent on room air conditioners), which is currently only Rs 10 crore a year.
The first of its unique features to hit the market is ‘I Feel’, which is present in the new line-up. “In this the remote control unit comes fitted with a mini sensor which feels the surrounding room temperature and transmits the signal to the indoor unit. The indoor unit then adjusts the temperature around the user rather than the unit, thus optimising user comfort,” says Thiagarajan.
Long distance piping in room ACs is yet another innovation. “In a regular split AC, the distance between an indoor unit and outdoor unit is not more than 10 metre; but in our ACs we allow 20 metre of piping ensuring convenience and easy installation,” adds Thiagarajan.
Marketing experts claim the fight for Blue Star will go beyond the functional benefits of the product. Says KV Sridhar, national creative director, Leo Burnett India, “Blue Star already has a strong equity in the commercial AC segment; it will have to build a strong emotional equity. All companies offer similar technology; the Blue Star brand has to find a larger purpose in people’s lives so that there is strong emotional recall.”
Blue Star hopes its success in the commercial segment will rub off on its efforts in the retail segment. And hence the advertising tag line: “Office-like cooling at home”. Last year, the company rolled out an advertising campaign in certain cities to gauge how consumers respond to the message. The success of the campaign convinced Blue Star to roll it out nationally.
The new ads will go on air during the ICC World Cup 2011. “Our goal is to reinforce our value proposition through the new TV commercial,” says Thiagarajan. The TVC shows a person staying back in office even after others have left because he enjoys the cooling effect of the air conditioning. In the next sequence, he refuses to go back to work because he has installed a Blue Star AC at home.
Draftfcb+Ulka, Executive Director & CEO, Ambi MG Parameswaran feels Blue Star has latched onto the insight that a large part of India works in air conditioned comfort but does not have an AC at home. “Given that Blue Star is a large player in office cooling, the insight should work well.” However, Sridhar of Leo Burnett believes the creative falls short of addressing the entire spectrum of its target audience. “How does it address women and children who are strong influencers in purchase decisions, but have never been in an office environment?”
To begin with, the TVC will be aired on news and infotainment channels, but going forward the company will also add movie channels and general entertainment channels to reach a wider audience. Thiagarajan adds, “Investing in vernacular channels is important as tier 2 and tier 3 cities offer tremendous scope for growth.” The company will spend Rs 15-20 crore on the campaign, a significant leap from the Rs 5 crore it spent last year on advertising. It also plans to use the out-of-home medium extensively.
The other big task is to beef up its product delivery pipeline. Avers Pranesh Mishra, chairman & managing director, Brandscapes Worldwide, “Breaking through the B2C distribution network will be a big challenge as retailers are already committed to current brands.” Blue Star plans to expand its network of 700-strong exclusive dealerships. “In the first phase, beginning end February, our room ACs will be available in 170 retail channels in the five metros and towns like Aurangabad, Madurai and Coimbatore,” says Thiagarajan. For now, the company will not target retailers like Croma as this would mean showcasing the product across the country, exposing the company to challenges in delivery, distribution and, most importantly, after sales service. “Once the after-sales network is set up, will we expand our retail footprint more rapidly,” he says.
Thiagarajan is treading a cautious path by setting up service franchisees in the seven cities where its products have reached the shop floor. “We also have a toll free number for our commercial air conditioning business and a similar helpline will be installed for the retail network,” assures Thiagarajan.
Right moves
If things pan out the way Thiagarajan envisions, the company will have exclusive outlets, branded Blue Star Galaxy, where it will display the entire range of products including commercial and residential ACs. “The blueprints of the design and layout are in place but the challenge continues to be finding the right real estate.” For now, the company is targeting five product display showrooms by 2012.
Thiagarajan admits Blue Star has a lot of ground to cover. The biggest challenge will be trying to fathom the nuances of dealing with the individual consumer. “Employees need to realise how to deal with retailers so that they can fulfil the needs of the end consumer. For instance, in the case of a corporate client, we process an order in three days. But with the residential buyer the expectation is to deliver and install the product the same day. The entire team and supply chain have to be well-versed to make the transition smooth,” says Thiagarajan.
A motivation building exercise with the current channel partners is also in the anvil. “Often these exclusive dealers view the prospect of multi-brand retail as a threat and this issue has to be addressed carefully,” he adds. Training in-store company representatives is also a priority. “The demonstrators who are posted at different retail outfits are not employees of the company but sourced from external agencies. However, we will invest in training them adequately as they are the face of our brand and the first point of contact with the consumer,” says Thiagarajan.
While Thiagarajan accepts that the retail push will not unsettle the pecking order in the AC market anytime soon, he hopes Blue Star will be able to capture a sizeable chunk of the market by the year end. “In 2011-12, we aim to sell 2.7 lakh room ACs, of which 1.3 lakh will be to corporate and commercial customers and 1.4 lakh to residential customers. This is in contrast to the 1.9 lakh units we sold last year, of which 1.1 lakh were to corporate and commercial customers and 80,000 to residential.”
To meet the expected spurt in demand, the company plans to invest in “a global scale production facility” to add to the five existing manufacturing facilities. Its room ACs are manufactured in Himachal Pradesh currently. “We wish to set up a world class plant in south India as we do not have a facility in that region. Plans will be finalised by April or May but this will be a significant investment,” says Thiagarajan.
Blue Star’s expertise in commercial air conditioning will definitely lend a hand to get its residential AC business off the ground. But as Parameswaran of Draftfcb+Ulka suggests, “Blue Star will need to consider the (retail) initiative as a separate business unit and provide sufficient manpower and resources to build the business. They should ideally target potential users in companies and offices that are currently using Blue Star products, as they are a low hanging fruit to pluck.”
