K. Giriprakash

LG rules the roost in consumer electronics but has to run faster to stay ahead of the pack.

One criticism of the South Koreans is that they are extremely difficult to work with, and one keeps hearing about how Indian managers don't last long while working with South Korean companies.

But ask the Indian consumers. They love their products. According to ORG consumer research figures, the combined share of South Korean consumer electronics giants Samsung and LG in almost all the categories is over 50 per cent.

It is also a fact that the consumer electronics industry in India defies every marketing norm. Early starters have an advantage but late entrants are not necessarily poorly placed either. This is a story about South Korean giant LG Electronics which rose from nowhere to become a market leader in consumer electronics in India within a decade of its existence — but today finds itself in the unenviable situation of having to fight harder to retain its position.

"LGEIL (LG Electronics India Ltd) did face obstacles initially, but from the very start we were determined to succeed," says the company's Vice-President for Sales and Marketing, Girish Rao.

"There were various bottlenecks. Before 1994, the perception of Korean companies was the biggest challenge. Our first task, therefore, was to bring about a 360-degree change in perception and instil faith and respect among Indians for Korean products," says Rao.

Says D. K. Sabharwal of Abacus, a consultancy firm whose clients include Whirlpool, Airtel, and Pepsi: "LG had a very good entry strategy. Its trading model was sound and was backed up by a very innovative product line." While some of the other companies gave credit to win over the trade, LG did the opposite. It asked the trade to pay up first, which forced the dealers to push LG products rather than those of others. "To back up such a strategy, they came up with innovative products, packaged them well and created an aura around them," says Sabharwal.

However, as Rao himself points out, LG had to work hard to gain respect for South Korean brands and one of the companies which benefited from it was a compatriot, Samsung.

COMPETITION FROM HOME

When Samsung entered India, according to an industry source, it got its focus wrong as it targeted a few products which included printers but later spread itself too thin. Perhaps LG's efforts to prepare the foundation for the success of South Korean brands also helped Samsung when it got its focus right.

And now the battle to win the race is entering a crucial stage. Having to compete with another brand from the same country isn't helping matters either. Says an official with another consumer electronics brand: "Even if LG does not like it, customers always compare LG and Samsung products and not another foreign brand."

But ORG figures indicate that in most categories, LG still leads by a good margin. The groundwork for this was laid with some carefully thought out plans. When LG started its foray, it realised that India was not just one market. It was an agglomeration of numerous sub-markets, defined by the various regions of India. "So there was a great need for demographic customisation, which fortunately, we learned and put into action at the initial stages itself," says Girish Rao.

Customising pays

Rao says the first task LG undertook was to undertake intensive market research and not consider India as one market, but consider each State as a separate one. LG also had to define its position in the market so that it stood out. "We were the first consumer durable company to understand the growing importance of health among Indian consumer. We used this knowledge to communicate effectively to our target audience the health benefits they can derive from LG products," he explains. The company's Managing Director, K.R. Kim, who drove much of LG's growth, also took pains to understand the Indian market and consumers thoroughly.

LG also decided to customise its marketing effort to individual regions. "We have also successfully adopted the `different model, different channel' marketing policy and have customised our products according to the region in which they are to be sold, keeping in mind the climate, needs and preferences of the consumers," Rao said. For example, the refrigerators to be sold in South India have brighter shades compared with North Indian markets where pastel shades are preferred more.

Rao says LG worked on a simple yet very complex formula — that of not only creating the demand, but also meeting it by ensuring that the products are available in every nook and corner of the country through a flawless distribution network. "It works both ways for us. We not only achieve higher sales, but economies of scale also in the bargain, helping us to keep affordable price tags on our products. It is not a price warrior strategy as the industry likes to put it; it is a well thought out plan based on age-old principles which has helped us to control price as well as offer quality," says Rao.

The strategy has helped. LG, according to Rao, leads in each and every category it is present in and has been there since the last three years.

LG also launched region-specific product research and development, which was something of a novelty those days. "At LG, we devise marketing and distribution strategies for each product category after a careful SWOT analysis of each State's market. This data is then used to determine the existing customer's preferences, areas of improvement, strong and weak points of various products and so on. Based on this information, strategic R&D and marketing initiatives are planned out," explains Rao.

The South Korean company is also charting out its growth plan for the rural markets. It has set up remote area offices and central area offices. To penetrate deep into the hinterland, LG plans to use mobile vans and have road shows to reach out to the customers there. Some of its colour television sets like Cine Plus and Sampoorna have multi-language options for display.

Sustaining pace

But the tough part, according to Abacus' Sabharwal, is how well LG manages to sustain its growth or arrests the slide of its market share of some of its products. "LG may still lead for some more quarters. But the company could be in real trouble later," says Sabharwal. LG is sitting pretty with sales for 2006 expected to touch Rs 9,000 crore and as Rao claims, has the widest distribution network in the industry consisting of 43 branches, over 150 area offices and more than 10,000 trade partners, apart from two factories. Cumulatively, LG has notched up Rs 21,100 crore as revenues during the last eight years. LG is also aiming at becoming an export hub for LG worldwide catering to West Asia and African markets. By 2010, it expects to become a $10-billion company with export turnover contributing $3 billion or 30 per cent of LGEIL's turnover.

Samsung, too, has prepared itself well to counter its competitor's strategy. It recently revamped its entire product line of audiovisual and home appliances' businesses and has already launched 100 new models in these categories during the year. The South Korean giant wants to become a $5-billion company by 2010. For the current year, it expects to post a turnover of around Rs 7,500 crore. "Our strategy to focus on providing innovative leading technology products in the markets, accompanied by a differentiated marketing approach, has given us encouraging results this year," says Samsung India's deputy managing director, Ravinder Zutshi. He said that the company has started performing well in other categories as well. "We have already gained leadership position in the flat panel market in the country and have made significant gains in home appliances as well," says Zutshi.

On how South Korean brands have managed to stay at the top, L. H. Bhatia, an adviser with Sanyo-BPL and one closely associated with the BPL Group for several decades, says South Korean consumer durable companies have become extremely successful primarily by providing cost benefits to the consumers and later demonstrating the will to be global players with strong investments in R & D, innovations, manufacturing and marketing including brand building.

He, however, believes that there is enough space for newer players. "In this ever changing flux in the market place there is sufficient elbow space and window of opportunity for every newcompany which understands consumer needs, wants and aspirations better and can put its act together to deliver the same through its products/services," says Bhatia.

For its part, LG has already started work on the next phase of growth. Worldwide, LG is adopting the `Blue Ocean' strategy through which it plans to launch some pathbreaking products and technologies. "Under this strategy, we will be entering new segments and markets, and will aim to create uncontested market space. Our aim is to double our revenues, profit and shareholder value and be among the global top three by 2010," says Rao.

In the offing is also a brand new marketing initiative for LG's entire home appliances' range, breaking away from its health platform on which the company rode itself to success earlier. "We have now adopted the `Health Plus' objective for the new campaign under the home appliances range, Intello, signifying intelligent and futuristic technology that the brand offers," says Rao.

But critics point out that cracks have already started appearing. They talk of how senior managers leave in droves and how the company has not been able to nurture talent. But Rao counters this. According to him, 80 per cent of LG's top management personnel have been associated with the company for more than five years. "Since we are the industry leaders and give all our employees global and varied exposure, we are the favourite poaching ground for not only consumer durable companies but other industries also," says Rao.

But as an industry veteran says, if LG slips up now, next year could see an entirely new pecking order and Samsung could be the favourite horse to win the race.

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