LG Refrigerators

FORE SCHOOL OF MANAGEMENT GROUP 6 – REFRIGERATOR_FINAL

Kritika Mehra 221066

Nehal Khetan 221076

Prabhat Taneja 221090

Mahesh Painuly

Consumer Durable LG – Refrigerator_FINAL

MARKETINGMANAGEMENT 2 Prof . Bhalender Singh Nayyar


ACKNOWLEDGEMENT

We take this opportunity to express our profound gratitude and deepregards to Professor Bhalender Singh Nayyar for his exemplaryguidance, monitoring and constant encouragement throughout the courseof this project.

We would also like to thank the Almighty, our parents and friends fortheir constant support without which this assignment would not bepossible.

Regards,

Team 6


INDUSTRY: CONSUMER DURABLES

MISSION“LG is all about making life better, easier, richer and more fun. Ourbrand communicates this aim immediately, with a human smile that says‘Life’s Good’. We put people first by bringing them more than theyexpect, building our brand on the foundation of LG’s breakthroughinnovations. That goes for the way we do business as much as for theway we develop the world’s most insightful products. Enriching people’slives drives our approach to innovation”.

VISION“LG’s vision is to deliver innovative digital products and servicesthat make our customers’ lives better, easier and happier throughincreased functionality and fun”.LG continues to pursue its 21st century vision of becoming a worldwideleader in digital that ensures customer satisfaction throughinnovative products and superior service.

CORE VALUES Global

Consumer Durables

White Goods

Airconditioners

Refrigerators

Washing MachinesSewing

Machines

Brown Goods

Microwave Ovens

Cooking Range

ChimneysMixers

Electronic fans

Consumer Electronics

TVs/audio-video

Electronic accessories

PCsMobile Phones

Digital cameras


Tomorrow Energy Humanity Technology and Sustainability

are the pillars that this corporation is founded on; with the capitalletters L and G positioned inside a circle to center our ideals aboveall else, humanity. The symbol mark stands for our resolve toestablish a lasting relationship with and to achieve the highestsatisfaction for our customers”.The letters "L" and "G" in a circle symbolize the world, future,youth, humanity, and technology. Its philosophy is based on Humanity.Also, it represents LG's efforts to keep close relationships with itscustomers around the world.

STRATEGIES Innovation is the main driving force at LG. It has come up with a

plethora of innovative products over the years, especially inconsumer electronics.

LG continues to roll out an array of market-leading smartdevices, raising the bar for consumer satisfaction.

LG’s four core strategies are: To become the leader in Execution,Business Portfolio Restructuring, Speed of Innovation, andGlobalization.

LG Electronics is striving to become number one in the world bycollaborating in various business and technology fields and bystrategic alliances with world famous companies.

LG Electronics and SIEMENS signed an MOU on joint development tobuild a technological and marketing partnership, and arecollaborating to develop standard control solutions forcommercial air conditioners.

LG Electronics and GE agreed on technological cross licensing toshare patents on kitchenware and refrigerators. LG is alsoproducing washing machines and driers as an OEM through apartnership on sales and supply of home appliances.

Through the strategic alliance for platforms and softwareapplications used in their mobile phones, laptops and digital


TVs, LG Electronics and Intel are looking to gain an early edgein the TV/Internet convergence and broadband markets.

LG Electronics has a Corporate Social Responsibility (CSR)Framework system in place to ensure a cleaner environment andhappier people. LGE has established and implemented fourstrategic directions: CSR Change Management, CSR Risk Management,Stakeholder Engagement, and Strategic Social Contribution.

As a caring corporate citizen, LG Electronics supports the UnitedNations Millennium Development Goals, which broadly target theeradication of hunger, disease and inequality while promotingenvironmental awareness.

“Greenovation.” - All innovation at LG includes sustainability asa core value. LG has been a green innovation leader since firstannouncing its environmental vision in 1994, and has worked toreduce the environmental impact of its products by practicinglife-cycle management from raw material sourcing through to finaldisposal.

The above strategies are in line with LG’s mission of enriching liveswith technology and its vision of constant innovation, all encompassedwithin its core values of humanity and sustainability.


PESTEL ANALYSISPolitical:

Government’s capital intensive electrification projects such asMadhya Pradesh Power Transmission and Distribution improvementproject among other rural projects will enable growth of durablesin the rural market

100% FDI in single brand retail and 51% in multi-brand retail forelectronics hardware-manufacturing under the will also induce newfirms to enter into the market

Increase in Excise duty and service tax from 10-12% in 2012budget increase the cost of durables thus decreasing demand

If the government allows sales tax reduction in energy efficiencyproducts, it would promote manufacturing of energy conservingproducts.

Economic: Inflation and Rupee depreciation leads to a hike in the price of durables due to cost increase of input. Inflation further reduces the purchasing power thus reducing demand for consumer goodsSocial:

Rising Income of individuals pushing demand for white goods Changing lifestyle is further promoting demand for white goods Urbanization of untapped rural market widened the market are for

consumer durablesTechnological: Technological advancement in consumer durables is the need of the hour. With high competition, technological advancement gives an added edge to durables. Intensive research and development has led to innovative products in the market with effective costEnvironmental: India and its extreme climate has led to an increase in the demand fordurables such as air conditioners, microwaves, refrigerators among others. Legal: Consumer Laws becoming stringent has educated the consumers of their rights compelling companies to focus on quality and safety of the durables. This leads to added cost for maintaining quality and fighting law suits for deemed faulty durables.


INDUSTRY’S FIVE COMPETITIVE FORCES:Bargaining power of buyer: HIGH Bulk purchases Price sensitivity

Threat of Competitors: HIGH Continuous innovation Buyer switching cost is

lessBargaining power of supplier: LOW Switching cost is low Low product differentiation Supplier concentration to firm

concentration is high

Threat of new entrants: LOW Large capital requirements High economies of sale Existing patents

Threat of Substitutes: HIGH Possibility of a Technology substitute Relative price performance is high

INDUSTRY/COMPETITIVE ANALYSISConsumer durable/appliance is one of the growing industries in India with a market of USD 7.3 billion (in FY2012) according to the August 2013 report of IBEF. A CAGR of 10.8% since 2003 to 2012 signifies a consistent growth behavior in the industry. However, the industry has been stagnant for the last three years since government policies were introduced.

INDUSTRY PERFORMANCE FOR LAST FIVE YEARS AND PROJECTIONS FOR NEXT THREE YEARS – 12% growth annually

2008

2010

2012

2014E

20.523

25.7628.85

32.4636.8

41.346.5

Market Size of Consumer Durables in India (in INR '000 crore)

Market Size of Consumer Durables in India (in INR '000 crore)


Source: http://i1367.photobucket.com/albums/r789/prabhat30787/Capture_zps6618ba85.png

PRODUCT PERFORMANCE FOR LAST FIVE YEARS AND PROJECTIONS FOR NEXT THREE YEARS - ~ 14% growthRefrigerator Share in India 2007 to 2015

Market Size of Refrigerators in India (in INR '000 crore)0

2

4

6

8

10

2.833.394.13

4.865.71

6.747.42

8.19.1

2007 2008 2009 2010 20112012 2013 2014 E 2015 E 2016E

Source: Euromonitor India consumer appliance report, 2013, http://i1367.photobucket.com/albums/r789/prabhat30787/Capture_zps1a6b2aaf.png

Refrigerator has the highest penetration in India of 31% with marketsegment for direct cool and frost free segment is 76.3% and 23.7%respectively. The Indian consumer durable market was majorly dominatedby Videocon with a 25% share in the market in FY10.

Source: Consumer_appliances_report

LG in consumer durables segment is the market leader in refrigeration in India with a 37.2 per cent market share for the year 2013.

Refrigerator category contributes more than 25% to LGEIL’s total turnover

Projects Refrigerator 2013 turnover of Rs. 5300 crore at a growthof 20%; aims at 38% market share in the category by year end

http://www.adlittle.com/downloads/tx_adlreports/Consumer_appliances_report.pdf

http://i1367.photobucket.com/albums/r789/prabhat30787/Capture_zps1a6b2aaf.png

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http://i1367.photobucket.com/albums/r789/prabhat30787/Capture_zps6618ba85.png

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Introduced 10 year warranty on major range of Frost Free Refrigerators

Source: LG INDIA official website: http://lgcelebrations.com

IBEF India - consumer-durable-august-2013

“Refrigerator Market Forecast to 2015”, a recent report by RNCOS, the refrigerator market is estimated to grow at a CAGR of 25.7% during 2012-2015, but looking at the economy, we have projected at a conservative 12 to 14%.

Primary reasons attributed to: affordable and eco-friendly variants strategies to penetrate into smaller towns rising per capita income increasing role of the government to support FDI in India and

policy aiding growth in sector easy availability of financing and reduced excise growing nuclear families and requirements

35%

65%

Consumer Appliance Share % (2011)

RuralUrban

EXPECTED SHARE of Consumer appliance consumption 2015 - 49% rural and 51% urban

Expected 2014 and 2015 growth between 12-20% Rural Penetration: 5% (2010) Expected Rural Penetration 2015: 15% Urban Penetration: 34% Expected Urban Penetration 2015: 40%

http://www.slideshare.net/IBEFIndia/consumer-durable-august-2013

http://lgcelebrations.com/


Organized sector had 94 percent share in 2012 and will increase to almost 96 during 2012-2015 whereas unorganized sector will have only 4.33 percent market share in 2015

2012 2013 2014 2015

95.67 95.17 94.62 94

4.33 4.83 5.38 6

Organized and Unorganized % share

Unorganised Organised

Market Share of Top 5 Players in the last two years: The top 5 best refrigerator brands available in the Indian market

are LG, Whirlpool, Samsung, Godrej and Kelvinator Market share of these brands for the last two years are given

below

Company 2011 2012LG 34 38

Samsung 22 24Whirlpool 17 13Godrej 13 11

Kelvinator 8 6

LG is the marketleader and it hasbeen launchingtheirrefrigerator withlatest innovativetechniques andbasic healthguards. One of

the latest has sided by side refrigerator with Wonder door. Ithas become the world’s first green ion door cooling technologythat can preserve freshness up to 2.5 times longer.

LG Samsung Whirlpool Godrej Kelvinator0

20

40

TOP 5

2011 2012


SOURCE: http://www.crazypundit.com/top/top-5-best-refrigerator-brands-in-india/

http://brandalyzer.wordpress.com/2012/06/

4PS FOR TOP FIVE BRANDS1. GODREJ:

ProductIn home appliances more than 70% of its revenue comes fromRefrigerators. The company scores high in durability which bringsimmense ratings to its name. Godrej lags behind in innovation, and hasvery few or no higher end refrigerators. PriceThe refrigerators offered by Godrej are moderately priced and aremainly targeted to the middle class consumers. The consumers see theGodrej refrigerator as value for money. PlaceThe company presence even in rural India is impeccable. The intenseconcentration on Tier-II and Tier-III cities is a clear reflection ofcompany’s reasonable ranged product. Company’s store location andnetwork is very strong and it is difficult for any competitor totarget that, especially in Tier III cities.PromotionSince 1990s, Godrej tried exploiting the most famous and loved facesof Indian cinema. They advertise their home appliances product throughoutlets, big banners, and television and internet advertisement.

2. SAMSUNG:ProductSamsung is truly a technologically rich brand. Each year Samsunginvests at least 9% of sales revenue into R&D activities. Samsungrefrigerators can stock more whilst using less energy. PricePricing has played a significant role in Samsung’s success. Itbelieves in cost-cutting measures to keep the price low. It deliversthe best technology and gives you value for money; the market shareultimately goes up.PlaceOnly 30% of the revenue comes from rural and semi-urban areas. They

http://brandalyzer.wordpress.com/2012/06/

http://www.crazypundit.com/top/top-5-best-refrigerator-brands-in-india/

http://www.crazypundit.com/top/top-5-best-refrigerator-brands-in-india/


have always been known for their hi-end and elite technology productsand the company wanted to keep that equity. Samsung has established ageographically-dispersed base of direct dealers and indirect channelpartners that result in tight-knit national coverage. PromotionOnly an image of a brand launching cutting edge technology product isnot enough to sell the products. To raise brand awareness and tocreate strong, favorable and unique brand association Samsung adoptedvarious marketing strategies such as celebrity endorsement, corporateadvertisement, and other promotional schemes. Sales promotion: Alongwith advertisement, Samsung focuses on promotional and festive schemesto boost its sales.It also actively promotes its products through social media campaigns.

3. WHIRLPOOL:ProductElite functions: The much lauded sixth sense frosting controltechnology comes standard to all whirlpool refrigerator variants. Aunique health guard door with an anti-fungal gasket makes the fridgegerm free. The e-light facility keep the kitchen illuminated up to 2hours when there is no power. Whirlpool’s products stand out forinnovative approaches to specific Indian contexts, and for a focus oncustomer relevant technology. PriceWhirlpool India Ltd. has changed its strategy from being a premium-player to a mass-player, introduced its products in all pricecategories. Different versions of their products are priceddifferentlyPlaceWhirlpool aims at globalization to obtain more market share in homeappliance industry by expanding globally. Whirlpool India is one ofthe largest exporters of home appliances from India but less retailpresence as LG, Samsung and Godrej have.PromotionWhirlpool’s promotions broke new ground with reference to each ofthese longstanding premises in the Indian consumer market. Whirlpoolcreated its marketing position around the tagline, You and Whirlpool -


the world’s best homemakers. Whirlpool was the first home appliancesbrand to orient its promotions towards television advertising.

4. KELVINATORProductIt sells two ranges of refrigerators i.e. Direct and Frost Free (Ozonerange). The Company launched a new series, which is an absolute marvelwhen it comes to design, with its pixelated and premium metal finishwith giving it a stylish edge. The digital, elegant look blendsperfectly into decor only to enhance the beauty of the home.Kelvinator, known for its cooling efficiency, gives a toughcompetition to other global players.PriceKelvinator products, although technologically rich are competitivelypriced. The company makes sure to price the product keeping both Tier-II and Tier-III customers in mind. PlaceKelvinator has been in Indian market for long, but its presence andvisibility are comparatively low in the market. The company lacks theelite dealer’s network. This gives the competitors an edge.PromotionIn 1990s, Kelvinator used to advertise heavily. But lately they havebeen lagging. The promotion is mainly done through events at locallevel. Promotion is the main demerit of the company and it needs towork hard on this aspect to give a competition to its competitors.SWOT AnalysisStrength:

A trusted “Korean” name, easyto use products.

Strong hold in developingeconomies.

Good after sales service andwide distribution network

Innovation and R&D.

Opportunity: Innovate and leverage RFID

technology. Can aim to target every

segment with a wide range ofproducts.

Can improve marketing andbring enticingadvertisements.

Weakness: Brand lacks influence in the

opinionated segment of earlyadopters especially in the

Threat: Very strong competitors. Needs to effectively manage

its supply chain, like


social media environment. Overdependence on retailers for

sales.

Samsung and Whirlpool do.

PAST PERFORMANCE OF REFRIGERATORS: In terms of Revenue:

Year Total Revenue OfLG

Revenue FromRefrigerator

(In Rs Billion) (In Rs Billion)

2011 200 29.37 (26% CAGR during 2006-2010)

2012 230 37.00 (Growth of 27% )2013 264.5 47 (Exactly known)

(Revenue of LG Electronics is increasing at a CAGR of 15%)http://s29.postimg.org/i2mx5rqxj/Capture1.png

SOURCE: http://www.moneycontrol.com/news/business/lg-india-unit-sees-revenue252011-2012_535394.html In terms of Sales (Units):

Year Total IndianMarket LG Sales Volume

(In Million Units) (In Million Units)

2010 7.3 1.59 (Considering growthof 26%)

2011 8.39 2.00 (exactly known)2012 9.65 2.55 (Growth of 27%)

http://s10.postimg.org/a3muf870p/Capture2.pngSOURCE:http://www.adi-media.com/PDF/TVJ/annual_issue/009-Refrigerators.pdfELEMENTS OF MARKETING MIX:PRODUCT: LG's focuses to provide world class product to upper class and upper

middle class to enjoy real luxury in their life. LG insures that their product should be durable enough which last

for quite many years and give trouble free service to theircustomers. It provides its refrigerators, five years compressorguarantee and one year free service in spare parts under normal use.

There are two categories of LG refrigerators-o Frost Free o Direct Cool

http://www.adi-media.com/PDF/TVJ/annual_issue/009-Refrigerators.pdf

http://s10.postimg.org/a3muf870p/Capture2.png

http://www.moneycontrol.com/news/business/lg-india-unit-sees-revenue252011-2012_535394.html

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While Direct Cool is only available in single door facility, FrostFree is available in all the three sub categories i.e. single door,double door and side by side door.

LG Electronics India recently launched the world’s firstrefrigerator with ‘Power Cut Evercool Technology’ that retainscooling for up to seven hours during power cuts.

Energy Star Ratings-LG produces highly energy efficientrefrigerators; most of its products are 4and 5 star rated.

PRICING: The main focus of LG has always been the middle class and upper

class segment. It has always positioned itself as a premium productand thereby the pricing that the do for its refrigerator’s isgenerally moderate to high.

But recently, as the market was heading towards saturation itstarted targeting lower income group as well. It has launched a fewproducts at very low price to cater to that segment. A few modelsare priced at as low as Rs 12,000.

Direct Cool Refrigerators are in the price range of 12000-20000 i.e.it is mainly targeted for lower middle class.

In the Frost Free Refrigerators category:o Double door refrigerators are available in the price

bracket of Rs. 20000-50000 i.e. mainly for the middle classand upper middle class segment.

o Side doors are mainly targeted for the upper class segmentwith price as high as Rs. 1,60,000.

PROMOTION: As far as Advertising strategy of LG is concerned, it is being

planned and executed by LG, Korea through their Indian Officekeeping in view their global approach and theme line.

They always try to portray their brand as a luxury brand withlifestyle product. The breakup of advertisement- spend is indecreasing order of :

o Print mediao Electronic mediao Outdoor media.

They do heavy spending on advertisements. LG advertises all-roundthe year which has resulted in high brand recall and successfulpositioning.


PLACE: The consumers in North India being more price-conscious contributed

higher sales in direct-cool segment, followed by the southernstates. In the frost-free segment, South India commands a 35% marketshare, followed by North and West India with about 25% each.

The company is targeting to get high sales turnover from itsEvercool refrigerators from those areas which faces more Power Cuts.

38%

27%14%

21%

Region-wise Sales Direct Cool (2010-11)

NORTHSOUTH EAST

26%

35%14%

25%

Region-wise Sales Frost Free (2010-11)

NORTHSOUTH EAST

SEGMENTATIONFor the introduction of a new refrigerator in the durables category,we will be segmenting our market. We have identified two bases ofsegmentation for our products which are as follows:

Geographic Segmentation and Descriptive Segmentation (income in that).

TARGETINGUsing the segmentation identified above, we will be targeting Tier 1and Tier 2 cities. A description of the Tier cities is presented asfollows:

Tier 1 City - More than 5 million Tier 2 City - Between 1 and 5 million Tier 3 City - Less than 1 million

Tier 1 cities: Kolkata, Chennai, Delhi, Hyderabad, Bangalore, Mumbai,Pune and Ahmedabad.Tier 2 cities: Jaipur, Kochi, Lucknow, Patna, Surat, Nasik, etc.POSITIONINGPositioning is all about perception. Perceptual mapping is done tobetter determine how we want to be perceived by the consumers. A perceptual map for our product is developed as follows:

.LG5High Power Saving


From the above map it is clear that we will be positioning our newrefrigerator in the first quadrant. It will be high on features aswell as power saving. This positioning is clearly more favorable thanits competitors.

Objectives: Market Share (In terms of Revenue):

Company 2011 2012LG 34% 38%

Samsung 22% 24%Whirlpool 17% 13%Godrej 13% 11%

LG’s growth in market share was 40-41% in 2013 and expected togrow with 43-44% approx. with the launch of new ‘Power-CutEvercool Technology’.

LG Refrigerators (In terms of Units and In terms of Revenue):The company experienced CAGR of 26% in refrigerators sales units in2010 and 27% approx. in 2012.The projected CAGR for refrigerators sales units i.e. objective is 29%in 2014 and 30% approx. in next year, whereas the total number ofsales of LG Electronics is increasing at a CAGR of 15%.

.SAMSUNGGODREJ

..WHIRLPOOL

.KELVINATO

1Basic Features

5 Smart Features

1Low Power Saving

2.5


MARKETING STRATEGYProduct is the primary differentiator and LG is leader in introducingflagship products within consumer durable sector as well aselectronics sector. The success of the brand can be attributed to thefollowing factors:

A great, state of the art product Backed up by widespread distribution and successful marketing

strategiesEach product from the stable of LG is a mark of success and made toenhance the consumer lifestyle to another level. Continuing the sametrend LG has launched their POWERCUT EVERCOOL range of Refrigerators.

POSITIONING STATEMENTThe positioning statement projects the direction in which the companyis moving and states how it is better than its competitors. LG isknown for their innovativeness and technologically advanced productsand thus new products are an extension of concepts of the future.

Broad positioning statement for its products: “LG is focused onproducing innovative products with objective of strengtheningcustomers’ lifestyle with pride of ownership and extraordinaryperformance.”

Narrow positioning statement - “The new LG range of refrigeratorsoffers the finest cooling solutions for your family with lowestpower consumption and eco-friendly features for supremeperformance and complete peace of mind.”

OVERALL MARKETING STRATEGYLG has the maximum market share in Refrigerator sector of India andthus needs to maintain as well as increase their market share. LGprojects the growth of 20%on year to year basis for the refrigeratormarket captured by this Korean giant. The marketing strategy coincideswith the company’s inclination towards innovation.

Differentiate the product with smart features and focus onPowercutevercool technology as their USP. Strategically price theproducts at par with competitors giving consumers a better value


for their money. Targeting the middle and upper middle classconsumers

Create awareness by strong IMC strategy and promotional campaignswith focus on TV, print, mass media and online stores. Aggressivemarketing with great products will definitely helpincrease/retain the market share.

Supplementing the retail operations with strong direct marketingplans as well as direct selling plans.

Focus on distributors, dealers and retailers with a bettermanagement of supply chain and negligible delays in delivery.

LG plans on increasing the visibility by in-store branding andpilot projects e.g. Service on wheels and Lifestyle stores. Thesestores and mobile service centers (LG Bus) are pioneer stepstowards customer service.

Ground-breaking campaigns like carnivals, road shows, nationaland regional exhibitions are a part of the market strategy thatprovides the users with first-hand experience of LG productrange.

Digital marketing has become an integral part of marketingstrategy. Though LG has dedicated website which has all productrelated information available, it has also built a strongholdover social media websites with highly active platform havingover 2 million people.

PRODUCT STRATEGY PRODUCT FEATURES:

Feature Specification

Smart InverterCompressor

LG Inverter Compressor adjusts cooling power inresponse to the amount of food you load in therefrigerator which provides efficient energyconsumption.Cooling power is controlled automatically according tothe internal and external temperature conditions ofthe refrigerator.

4-Way Cooling 4 way cooling ensure uniform cooling throughout therefrigerator.


Internal MicomThis intelligent digital LED display control panel onthe inside of refrigerator allows easy access totemperature control and other features like SuperChill.

Superchill At the press of a button you get faster cooling withinminutes.

Convertible BoxA separate compartment in which you can store andcontrol the temperature of veg or non-veg items byadjusting the lever to the left side for fresh fruitsand vegetables and right side for non-veg items. Italso stores 70% more vegetables.

Powercut Evercool The temperature of the refrigerator is maintainedduring long power cuts and the freshness of the foodis preserved up to 7 hours.

Tower LEDBrighter, durable, cooler and energy efficient light.And you contribute to a greener planet for years.

Everfresh Zone A special large fresh zone with Moist Balance Crisperand Humidity Controller that keeps vegetables fresh.

Beauty and CareNow your refrigerator gives you a separate corner tostore your entire medical and beauty products.Preserve their goodness and give them a touch offreshness with this unique feature.

Eco-friendlyRefrigerator

The LG Eco-friendly initiative focuses onenvironmentally sustainable solutions through Eco-Design and Eco-Products, reduction of hazardousmaterials and addressing global climate change likeGlobal Warming. Our product emits less carbon anddon't harm the Ozone layer, so that we've a greenertomorrow!

TARGET MARKET: LG's focuses to provide world class product to middle class and

upper middle class to enjoy real luxury in their life. Main target audience is Tier-2 and Tier-3 cities where the

problem of Power-cuts during summers is prevalent. Hotels and Restaurant chains Office and college canteens Grocery Store


ANSOFF MATRIX:

Our product lies in thesecond quadrant i.e.Market Penetration i.e.the product exists andmarket also exists butwe are coming with newfeatures in theproduct.

PRICING STRATEGY:

Capacity Sizes

EnergyStarRating

Features Price Target Audience

190L 4

Works without stabilizer

Anti-bacterial gasket

Moist Balance Crisper

Single - Door

18090/-

Bachelors Students Hotel Rooms Small Middle Class

Families

258L 4

4 Way Cooling Superchill Double – Door Works without

Stabilizer

30950/-

Middle Class Families

Big Families


Internal Micom

258L 5

Smart Inverter Compressor

Double - Door 4-Way Cooling Ecofriendly

Refrigerator Convertible Box 100V-290V LVS

Stabilizer Internal Micom Tower LED

33790/-

Upper Middle Class College and School

Canteens

360L 4

Green Ion Door Cooling

Double - Door Convertible Box Internal Micom Works without

Stabilizer Tower LED

44750/-

Grocery Stores Upper Middle Class Office Canteens College Canteens

360L 5

Smart Inverter Compressor

4-Way Cooling Double - Door Powercut Evercool Ecofriendly

Refrigerator 100V-290V LVS

Stabilizer Internal Micom Tower LED Everfresh Zone Anti – Bacteria

Gasket

47990/-

4 and 5 star Hotels Upper Middle Class

Big Families

LG uses Price Cues for the customers to make their product to be perceived as less expensive.

LG should also focus on discounts on the product at the time of launch of the product and at festival times to capture more market.

LG has used Value-Based Pricing for this product as it has done athorough need analysis of the customers. In India the problem of


powercut is still big and that was one of the reasons therefrigerator demand was lesser than the potential in Tier-1 andTier-2 cities.

Based on this need analysis it provided this solution with propervalue proposition of an Powercut Evercool Concept.

Moreover the saving of 36% of electrical energy consumption willcause cut in the power bill and this is perceived to be of highestimportance in middle class families.

Though prices offered from the competitors are relatively lower butdue to higher perceived quality and added features and benefits ofPower efficiency and Evercool Technology gives LG the power to quoteit price higher without any reduction in its market share.

As the Indian consumers specially the middle class are highly pricesensitive that’s why LG has not created huge price differential withincrease in star rating (2500-4000) only.

DISTRIBUTION STRATEGYLG Electronics has manufacturing plants in Pune and Noida. LG will beinvesting Rs 350 to 400 crore in our manufacturing plants at Pune andNoida this year. The investment would help ramp up the infrastructureand capacity of the two units, which would help in meeting the risingdemand.Until recently majority of sales in consumer durables were originatingfrom urban centers but with change in demographics and increasingexposure, the growth in sales volume from rural areas are projected tobe higher than urban areas. Also with increase in awareness, Indiancustomers are increasingly demanding more value for money both interms of quality of durables and convenience of buyingLG’s Distribution Network:LG’s distribution network consists of Distributors, Authorizeddealers, Independent retailers, Multi-brand outlets, and Consumers. LGshould adopt the regional distribution model in India where all thedistributors work directly with the company’s manufacturing units.This would result in quicker rotation of stocks.


The distribution flow for LG:

Here manufacturers supply the products to C & F Agent (Carryingand Forwarding Agent) which acts as warehouse for storage. C & FAgent then supply the products to distributors who supply itfurther to authorized dealers, independent retailers and multi-brand outlets who are responsible for direct sales to consumers.There will be 6 distributors in each metro to cater the needs of8100 dealers and 2 distributors in tier 2 and tier 3 cities for2045 dealers.

In each metro there will be 520 authorized dealers, 20 Multi-Brand Outlets and 160 Independent Retailers and in tier 2 andnearby tier 3 cities there will be 125 authorized dealers, 5Multi-Brand Outlets and 325 Independent Retailers. Tier 3 willhave all independent retailers.

Proper balance of power should be maintained between differentdistribution channels to avoid any mismanagement. There shouldnot be any price war between different retailers. Proper divisionof territories should be done so as to avoid conflicts.

LG’s margin is affected by the dealer’s pricing practices becausethe dealer’s prices determine the volume of final sales.Therefore LG should fix a net landing cost for all dealers sothat no product is sold at a price lower than this. This giveshigher satisfaction to multi brand dealers selling LG as they donot fall completely in competition with bigger dealers.

But when it comes to online e-commerce portals, they have becomea great headache for most of the brands in India, as a lot ofproducts are being sold under net landing cost. Big companies are

Dealers( 80 in every metro, 20 in tier 2 cities and nearby tier 3 cities)

Distributors (6 in each metros, 2 in tier 2 and nearby tier 3 cities)

Manufacturing Plants (Pune and Noida)

Authorized Dealers Independent Retailers Multi-Brand Outlets


really concerned on this and along with this, their tradechannels are also putting a lot of strain on them as they arelosing their sales because customers prefer products availableonline at lower prices. LG should also concentrate on this whilesetting the net landing cost.

Online sellers buy products from dealers/distributor. Sinceonline retailers save on cost because of lesser investment ininfrastructure, they tend to pass their margin to customers, thusproviding them with lower prices. Generally, price of product inshowrooms is 5-7% higher than that offered by online retailers.Customers going for high end product want and look for a betterbuying experience and want to have the feel of product so theyprefer more of traditional buying.

“Customers do not judge on price much but they see what they willget in return for money. So the experience does matters a lot.”

LG should also concentrate on selling its products to biginstitutes, maintain contacts with them so that they buy fromtheir company in future and also on new emerging institutes whichare being constructed and providing them with the initialinfrastructure.

PROMOTIONAL STRATEGY

AdvertisingLG is already the market leader, but to maintain the position andfurther increase the market share, it can advertise more aggressively.This will make the products acknowledged by that section of the public

Promotions Budget

In 2012, total comprehensive income was 494488 Billion South Korean Won, of whichIndia’s contribution was 112081 Billion SK won (22.5%). Advertising expense was1226306 million SK Won.

Assuming an increase of 5% in advertising expense, advertising expense forcurrent year would be 1287621 million SK won. We can allot the same proportion of(22%) advertising budget to advertisement in India. The budgeted advertisementbudget is Rs. 1628 Crore). Of the advertising budget 35% can be used for


that is most likely to purchase them. It should connect with people’sminds and hearts. For this it can hire “Ogilvy & Mather”.The advertisement should have the following features:

Detailed product specifications. Differentiating factors (USP). Attractive offers.

Television (Entertainment Channels): Advertising Agency: Rs. 50 Crore Prime Slot (7PM to 11 PM): Rs. 5L for a 30 seconds for 365 days

with 10 ads on an average would cost Rs.182.5 Crore. Non- Prime Slot: Rs. 2L for 30 seconds for 365 days with 15 ads

on an average would cost Rs. 109.5 Crore.Radio Advertising on radio for Tier II cities would be effective duringsummer, therefore on an average 10 ads for 180 days would cost Rs.1.44 Crore at Rs. 8,000 per ad.NewspaperLG can advertise on the cover (last page) of TOI (or HT) during 5weekends, giving full specifications of the refrigerators (offers, ifany): Assuming 1Cr. for 1 weekend, the total cost would be Rs. 5Crore.Therefore, total advertising cost will be Rs. 348.544 CroresSales Promotion

Competition: LG can launch a promotional contest on Facebook.To participate, consumers must “like” the company's Facebookpage and enter their name, email ID. This will expose thecustomers to various other existing products. The contest canbe carried out in an interesting and fun way. For example, arefrigerator of 400 L of capacity, people can be asked aboutthe number of cherries that it can fit. Weekly/ monthly awardscan be given to the consumers to bind them and attract morepeople. This can be carried out for 4 weeks and Rs. 1L can begiven away. Hence cost incurred would be Rs. 4L.

Event Sponsorship: Company can sponsor any sports or music orfilm release events. The presence of celebrities would ensureattention of enough target consumers. 5 events in a year wouldcost Rs.30 Cr.

Events in shopping malls & street market: Events & competitioncan be held in malls and in market near residential market formoderately priced refrigerators. This will provide thecustomers with a hands-on experience, which can boost sales.


This strategy is effective as well as less expensive. Expectedcost incurred would be Rs. 1 Cr.

Sales force promotion: Sales competition with prizes andawards can be held for the sales force. This will be amotivating factor, which can catalyst sales growth. The costincurred would depend on the order fulfillment.

The expected cost would be Rs. 31.04 CroresPublic RelationsIt will help building good relations with the stakeholders of thebusiness by obtaining favorable publicity and a good corporate image.

Press Release: Company can make separate press release for highlyand moderately priced products, giving details and elaboratingbenefits and differentiating factors. The cost incurred will benegligible.

Product Launch: The new range can be launched by a populartelevision couple and the launch can be aired in news channels.Assuming the actress charges Rs. 10, 00,000 and a news channelslot costs Rs. 20, 50, 00,000.

Speech & Presentations: Company can release videos of expertsspeaking about the products. The presentations can be uploaded. Agood video which can connect as well as give precise informationcan become viral and prove to be extremely beneficial. This willnot cost more than Rs. 1 Cr

Slots in news channel: Slots in popular news channel programs canbe taken for explaining about the products. The consumers cantake experts opinion. This will help in building trust & loyalty.5 shows in a year would suffice and assuming each show will costRs. 1.5 Cr, the total cost incurred would be Rs. 7.5 Crore

Therefore total PR cost would be Rs. 8.8 crores.Hence total cost in promotion: Rs.388.684 Crore. From this 60% can beallotted for the promotion of new line of refrigerators. Therefore thetotal promotional cost would be Rs. 233 Crore (approx.)The company will still have Rs. 180 Crore in hand to spend on otherendorsements or for contingency, if required.

SALES FORCE STRATEGY Since the product is complex and the consumer needs are different,therefore “Product or market driven strategy” can be adopted.LG products are mainly targeted to tier 1 and tier 2 customers. Asmentioned earlier,


Tier 1: Kolkata, Chennai, Delhi, Hyderabad, Bangalore,Mumbai, Pune and Ahmedabad. Tier 2: Jaipur,Kochi, Lucknow, Patna, Surat, Nasik, etc.

The above segmentation is based on infrastructure development. Theprice of refrigerators ranges from Rs. 18,000 to Rs. 48,000. Thisshows that the company caters to all the segments.The dealers can further be categorized on the basis of ownership:The dealers can further be categorized on the basis of ownership:

1. Class A: Authorized dealers + independent retailers in Tier Icities

2. Class B: Authorized dealers + independent retailers in Tier II +Tier III cities

3. Class C : Multi-brand Outlets in Tier I and II cities (Next,Croma)

As per HRA calculations, number of cities classified as: 1. Tier I: 8 2. Tier II: 57 3. Tier

III: All other cities.Assumptions:LG already has a well-established network of sales force, however company can employee an additional sales force to accelerate the salesof new line of refrigerators.The additional sales force can be employed by using the workload method, wherein the area can be divided into different categories. Thecategorization can be done in the following way:Taking the example of Delhi, the city can be divided into 5 parts(Namely North, East, West, South, and Central). Assuming there are 10authorized dealers in each part. Total no. of dealers/retailers in Delhi: 50. Taking the similar numberfor other 7 Tier I cities, total no. of accounts for Class Acustomers: 400Assuming 12 authorized dealers in tier II cities also catering tonearby Tier III cities, total number of class B accounts: 684Now 5% sales would account for MBOs, total number of accounts: 57Total number of unorganized sector dealers: 1084 (95% of 1141approx.)Let us assume that 1 sales manager works for 6 hours a day, in a weekof 6 days for 50 weeks in a year. Therefore, total time available:6*6*50 = 1800 Hours.


Customer Class Number ofaccounts

Calls per year Total Calls

Class A 400 48 19200Class B 684 36 24624Class C 57 24 1368

1141 Total Calls 45192No. of sales force 25.10

Total Sales force: Total Calls/ Time available = 45192/1800 = 25.10 ~26 people. Hence LG can employee additional 26 Sales managers, managing thedealers/retailers under him or her. To enhance the reach, LG can employ 4 additional junior sales force inall the 8 metros. The sales managers can be given a salary of Rs. 50,000 pm andincentive based on their performance. Hence the total cost Rs. 1.56Cr. Adding Rs. 50L as an incentive. The total cost for sales forcewould be Rs. 2 Crore approx. The junior sales managers can be paid Rs.25,000 pm. Hence total salary paid would be Rs.90 Lakh. Monthly TA/DA paid to sales managers can range from Rs. 3,000 to Rs.7,000 (Taking it Rs. 6,000 on an average), ; and for junior salesperson it can cost Rs. 2,000 approx.Hence amount paid as TA/DA: Rs. 6000*26*12 + Rs 2000* 32*12 = Rs. 26.6L ~ Rs. 2.530L LRs. 30 L as an Incentive can be given if the sales exceed theexpectation. Hence total amount paid to additional sales force is Rs.3.225 Crore per annum.

POST PURCHASE SERVICESLG already has well trained technicians; however it can add a few moretechnicians especially trained to service the “Evercool” range ofrefrigerators. Monthly salary of Rs. 10,000 can be paid to the newhires.Company can give trainings in 5 phases, by calling the people to theirrespective zonal headquarters. The training would not take more than aday; therefore average cost of training per technician would be Rs.


3,000. Training cost for technicians of tier I cities will almost benegligible, hence it is not been taken into account. Tier I: Assuming the company hires 5 technicians in each tier I

cities. Tier II & Tier III: Again assuming the company hires 5 technicians

for each tier II & nearby tier III customers. Training Cost for the first year: Rs. 3000*(57*5) = Rs. 8.55

L ~ Salary of tier I technicians for the first year: Rs,

10,000*12*5*8 = Rs. 48 L Salary of tier II & III technicians for the first year: Rs,

10,000*12*57*5 = Rs.34.2 L. Therefore total annual cost of set up of post purchase servicing team:Rs. 90.75L ~ Rs, 91 L.

CONTROLSMarketing control involves setting a desired standard, measuringdeviations from the standard and taking the appropriate action.Following steps may be undertaken in this regard:Sales analysisActual sales can be compared to sales targets and budgets and ananalysis of any variance between the two would be carefully examined.According to “Refrigerator Market Forecast to 2015”, the Indianrefrigerator market is expected to witness CAGR of 25.7% during 2012-2015. CAGR for refrigerators experienced a growth of 11% in 2012-13from 2007-08. 1 INR = 17 KRW

LGEIL 2012 2011Sales KRW 2,418,867 million

(INR 13993.9 crore)KRW 2,784,894 million(INR 16111.54 crore)

Net Income KRW 114,458 million(INR 662.1 crore)

KRW 81,116 million(INR 469.2 crore)

Source: LG Consolidated interim financial statement 2012 and 2011Market share analysisMarket share analysis shows how well the organization is doing vis-a-vis competitors. Market share can be determined either throughabsolute measures (overall market share) or relative to maincompetition (relative share), or to leading competitor (relative tomarket leader share).


The 2012 revenue from the refrigerator segment was INR4700 crores and a market share of 37%.We are targeting a market share growth of 40% along with a target revenue of INR5300 crore with the launch of the new ‘Power-Cut Evercool Technology’ as compared to LG’s prior expectation of 38%. A continuous monitoring of our market share shallbe undertaken.Market expense to sales ratioThe marketing expense to sales ratio is used to ascertain whether theorganization is spending too much or too little on marketing in orderto achieve its sales goals. The marketing expense to sales ratio canbe made up of a number of components such as sales force size tosales, advertising to sales, sales promotion to sales, and marketingresearch to sales and sales administration to sales. Out total promotion budget is roughly 580 crores. Steps will be takento track actual expenditures and deviations of up to only 1% from thebudgeted shall be accepted.Customer attitude trackingCustomer attitude tracking studies give qualitative information. Themain customer attitude tracking measures are complaint or suggestionschemes, customer panels or customer surveys. These can be very usefulin revealing what customers feel about our organization, products,services and behavior towards society as a whole.Profitability controlThis would involve measuring the profitability of our products,territories, customer groups, trade channels and order sizes. Thisinformation will help the management determine whether any marketingactivity should be expanded, reduced or eliminated. Any action taken here would base on dealer feedback. If dealers in aparticular territory feel the need for greater discounts to boostsales, the results of such an activity will have to be examined firstin terms of its impact on profitability.Sales force efficiencyFollowing are some of the key indicators of sales force efficiency:

average number of calls per salesperson per day average sales call time per contact average revenue per sales call average cost per sales call


percentage of orders per 100 sales calls number of new customers per period number of lost customers per period Sales force cost as a percentage of total sales.

Financial Figures 1 INR = 17KRW

LGEIL 2012 2011Sales KRW 2,418,867 million

(INR 13993.9 crore)KRW 2,784,894 million(INR 16111.54 crore)

Net Income KRW 114,458 million(INR 662.1 crore)

KRW 81,116 million(INR 469.2 crore)

Source: LG Consolidated interim financial statement 2012 and 2011

PROJECTED SALES AND PROFIT AND LOSS (INR crore)


Particulars 2012 Projected 2013

Projected 2014 Projected 2015

Toat revenue from modelsof refrigerator

4700 5300 5300*1.15=6095

Units sold of new product

- 30000000/33000 = 90000 units

900000*1.1 = 99000 units

99000*1.06 = ~105000

Sales fromnew product

- 300 330

Less: CostsManufacturing cost

1500 1650 1815

Cost of distribution channel

1645 1855 2133

Administrative cost

100 110 121

Cost of Sales Force

3.5 3.85 4.235

Cost of Promotion

232 255.2 280.72

Research and DevelopmentExpenses

195 195 195

Depreciation and Financial Interest

140 140 140

NET PROFIT 884.5 1090.95 1406.045

Assuming


The revenue is expected to grow at 15% in 2014 and has targetedINR 5300 for refrigerator

Manufacturing cost reported to increase by 10% due to hike in rawmaterial prices

Units sold calculated by dicing average per unit cost ofrefrigerators and steady increase in price

Raw material cost will increase between 8-10% as other brands areincreasing prices of refrigerators by 10%

Margin of 30-40% to dealers provided (35 max). Administrative expenses are office expenses which are expected to

increase at a rate of 10%. These expenses are new premises etc. Sales force increases marginally assuming a few more added as

dealers to be catered to increase. Annual cost taken Promotional costs for refrigerator are 35% of the total

promotional budget. The entire budget is spent on promotion. Research and Development cost for consolidated LG was KRW1,

831,211million (and on India was5% (based on revenuecontribution). Similarly, R&D for refrigerators is 37% accordingto “IBEF Consumer Durables report”

Depreciation for consolidated LG was KRW 1,311,794 million (INR7589.1 crore). Depreciation apportioned according to the salescontribution, i.e, 5% of depreciation to India and 37%apportioned to refrigerator segment.

Conclusion: The project is financially viable and is in tandem with thechanging trends and scenario.CONTINGENCY PLANIn the event our sales and revenue targets fall short of ourprojections, we will have to revisit our marketing plan. We willessentially be revising our pricing strategy wherein there is scopefor making improvements.Following steps maybe taken in this regard:

Price elasticity of demand being high for durables, we canexperiment with a small reduction in mark-up. A small cut inprices of up to 10% might just significantly boost sales.


However, any such price cuts should not compromise with theperception of quality.

Opt for discount and allowance pricing, giving promotional orseasonal discounts. We can have seasonal discounts for side doorrefrigerators and cash discounts on double door refrigerators.However, any such measures should not compromise majorly with ourprofitability.

LG Refrigerators

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