Chaebol in the countryside

LG's go-local strategy has helped it capture marketshare in rural India

Anil Arora

Despite a 40-km ride through bumpy stretches and chaotic village market places on a hot afternoon, Ajay Sharma has a broad, satisfied grin.

Pointing to a row of customerless small shops selling lesser known brands of TVs and other electronics appliances, in the small trading town of Hapur, Uttar Pradesh, he gloats, "we've even eaten into the share of these cheaper, local TV manufacturers".

Some participants who attended the World Social Forum (WSF) in Mumbai earlier this year might call it strangulating local businesses but, as an aggressive marketer with a multinational looking to increase penetration in hitherto-untapped areas, Sharma's vocabulary is slightly different.

"We want to sock the rural markets like no one else has," says Sharma, LG India Electronics Limited's (LG) assistant general manager, in charge of sales and marketing in western UP.

Some 30 km away at the Korean consumer durables giant's 47-acre factory/corporate office in Greater Noida, the buzz word these days is micromarketing. "We want to reduce our dependence on the urban markets.

The Indian upcountry market is actually much better developed than most marketers think," says Kwang-Ro Kim, managing director of LG. Kim's daily routine, besides an early morning game of tennis at his sprawling campus, includes at least one market visit. Kim is on track. Nearly Rs 2,500 crore, or 60 per cent of the company's turnover of Rs 4,500 crore for 2003, came from the smaller towns and rural areas.

In the case of LG's nearest competitor Samsung, the contribution of non-urban sales is 25 per cent "" that's also the industry average. "We are hoping to grow at more than 50 per cent in these areas this year," says Anil Arora, director (marketing), LG. Out of the company's projected turnover of Rs 7,000 crore for 2004, it expects Rs 3,800 crore from non-urban sales.

To do that, LG is carrying out a process of de-centralising decision-making and adding another line of managerial force that takes the company one step closer to the rural market. From 18 branch offices in July last year, it has now expanded to 40. Now, there are also 65 remote sales offices (RSOs) in smaller towns and far-flung towns like Silchar and Rourkela. These self-sufficient offices are connected through a V-sat network and the regional office and the corporate office can monitor sales continuously through an enterprise resource planning system.

They also have a full-fledged servicing team at their disposal. Executives manning 40 branch offices and the 65 RSOs have autonomous decision-making powers and are individually allocated budgets to carry out marketing activities in their respective areas. "The branch manager can decide the size and scale of the promotion and is free to advertise in the local media," explains Arora.

The LG's aggressive "go-local" campaign is also making its external partners like its media-buying agency Mindshare walk down the rural path. "We are working out a strategy with Mindshare whereby they will post some of their executives in these smaller towns to guide our managers on optimising our adspend," says Arora.

LG's staple products for rural markets is the "Sampoorna" range of colour TVs (CTVs), semi-automatic washing machines and direct-cool refrigerators "" priced between Rs 6,000 and Rs 8,000. But it is constantly pushing the envelope. In smaller towns like Hapur, LG's marketing team shortlist affluent households that can afford its high-value products. When cricket matches involving India are played, the company's executives offer these families a free 15-day trial of products like the 50" big-screen, flat TV, which costs nearly Rs 90,000.

"We have often seen that by the time we take back the TV, the family is hooked and becomes serious about buying," says Sharma. Then the salesman offers them attractive finance options that are well within the household's means. Three families in Hapur alone have risen to the bait in the past few months.

B Narayanaswamy, executive director of Indica Research, a market research and consultancy firm, calls it the classic way of getting fence-sitters to lose their jhijhak, or apprehension, about an expensive product.

Typically, sales of consumer durables go up significantly in north India during the marriage "season". LG's upcountry showrooms offer a combo marriage package of a TV, refrigerator and washing machine, complete with red ribbon and priced below Rs 20,000. It is referred to as "" like it or not "" the dahej (dowry) offer.

The rural drive and LG's ambitious turnover target of Rs 7,000 crore means an addition of 700 new employees and nearly 300 new channel partners, who need to be trained the company's way of working. Senior Vice President (HR) Yasho V Verma's emphasis over the years at LG has been constant education of the employees. "What we are doing at LG is very similar to what a few other Indian consumer durables companies have tried and failed. We learnt that to succeed, we need to keep talking with our employees," says Verma.

"We are a very open company. We listen to our people, only then can our products talk to the consumers. Otherwise, we couldn't have built this building or the new factories with the just $ 30 million that we brought initially. We put our profits back in India," says Kim, pointing to the massive, newly-built compressor plant.

Kwang-Ro Kim

You certainly can't complain about that, even if you were at the WSF.