How LG Electronics plans to more than double its share in the handsets market.
LG lords over 27 per cent of the Rs 32,000-crore per annum Indian consumer electronics market. Starting from scratch about 12 years ago, it now enjoys almost universal brand recall in the country. Even its bitterest rivals will tell you that the company has an enviable distribution network, is aggressive when it comes to writing the price tag on its products and few can match its record in innovation.
The mobile handsets market, however, is a different story. Mobile service operators use two platforms: GSM and CDMA. GSM accounts for almost three-fourths of the market and is rapidly eating into CDMA’s share. Last year, over 70 million GSM handsets were sold in the country for around Rs 17,000 crore. LG’s share was a tiny 4.6 per cent. It lagged behind all its global rivals — Nokia, Motorola, Samsung and Sony Ericsson. (See table.)
Moon Bum Shin, the managing director of LG Electronics India, says he has a plan to more than double his share to 10 per cent in 2009. Sector analysts say it makes sense.
The market for consumer electronics has turned sluggish, thanks to the economic meltdown. Consumers have deferred purchases because of the liquidity crunch and uncertainty in the job market.
At the same time, the GSM market has recorded robust growth month after month. In the last quarter (October-December 2008), GSM operators added 24.5 million new customers, or over 250,000 per day, up almost 40 per cent from a year ago. Industry veterans and analysts expect the numbers to grow at the same pace at least for two more years. A host of new players are all set to launch their services and existing service providers have aggressive growth plans.
Clearly, the market is too lucrative for LG to ignore for long. It had entered the mobile handsets market with its CDMA phones many years back. But CDMA services did not grow as projected and the segment got stuck at the bottom end of the value chain. Besides, the handset was packaged with the connection by the service provider. Brand pull from customers could not be worked on; the company’s best bet was to cut large deals with service providers.
Five years back, LG launched its GSM phones. Now, it has decided to up the ante. It ended 2007 with a market share of 2 per cent and 2008 with 4.6 per cent. Next on Shin’s crosshairs is 10 per cent share.
Product
Shin plans to launch no fewer than 35 handsets during 2009 or one almost every 10 days. Shin is only too aware that not all models will succeed. “Even if seven to 10 of these models click, we will reach the desired market share,” says he. Industry estimates suggest that for any handset company, 20 per cent of the models fetch almost 80 per cent of the revenue. So, seven hits should do the trick for LG.
The phones will all be imported from South Korea, though some customisation will happen at the LG factory at Ranjangaon in Maharashtra. For instance, the sound box of the phone will be tweaked so as to make it louder. Also, LG has come out with new batteries for its phones, which, claims Shin, last a lot longer. “These batteries will give 10 hours of talk time and can be on standby for one month,” says he.
Some experts say there is nothing new in what LG plans to do. In fact, it is simply following Samsung’s strategy. LG’s arch rival launched 40 phones last year and plans to launch the same number of phones this year.
“The models which we will launch are relevant for the Indian market. The phones will have features such as mobile tracker, Indian calendar, cricket as a game and so on,” says Samsung Telecommunications India Country Head Sunil Dutt.
Price
All the 35 handsets will be priced between Rs 1,400 and Rs 20,000. Shin expects maximum sales to be bunched in the Rs 5,000-10,000 block. The brands Shin plans to target in this band are Motorola and Sony Ericsson. Globally too, the three are locked in a close fight for the third slot after Nokia and Samsung.
Promotion
Much of the promotion will be for the high-end touch-screen handsets. The idea is clear: the marketing campaign should talk about the technology that LG has to offer, though the company will get large volumes from stripped-down cheaper handsets. Shin plans to get pre-launch feedback from select consumers before designing the campaign for the handsets.
At the moment, it is not clear what track LG will take. The company has moved away from celebrities — it discontinued with Abhishek Bachchan some time back. Much of its consumer electronics campaign will revolve round the International Cricket Council rights, which it acquired for an undisclosed sum some time back. It is possible that it may leverage the ICC connections for handsets as well.
Whatever it does, the challenge is tough. Nokia is the market leader with a wide margin. Samsung has run an extremely successful campaign with Aamir Khan with the tagline, next is what. And Sony Ericsson has built its image around music on the handset.
Placement
LG is a newcomer to the GSM handset market. At the moment, its products are available in about 40 per cent of the 79,000 retail outlets in the country. Shin’s plan is to expand the reach to 70 per cent during the year.
The company has a widespread retail network for its consumer electronics. Unfortunately, LG cannot leverage it to sell GSM handsets. Typically, a customer likes to see different brands in his price band before he selects one. As a result, almost all handsets are sold through multi-brand outlets.
LG, thus, faces a late-mover’s disadvantage here. In order to persuade the retailer to stock his handsets and give them better display, it needs to pay a higher margin. Shin admits that the margin offers to retailers is more than double of what others offer.
So, will LG make money on handsets? Not for the next three years, Shin admits. Once the distribution reach expands and sales pick up, the productivity of the sales team will also increase. Till then, Shin knows that he will have to make do without profits.
