Case 30 LG Targets Rurals – Cases in Rural Marketing

CASE 30

LG Targets Rurals

LG Electronics India Pvt. Ltd. is all set to be a market leader in technologically superior electronic products, with focus on the high end products and impetus on quality, service and value for products. Managing Director of the company, Kwang-Ro-Kim, said that the company is consciously targeting the quality market and the value market with specific products. The targets, are etched on the wall—usurping the throne among consumer electronics and home appliances in 2003, and topping the Rs. 5,000-crore turnover mark by 2005.

Mr. Kim said the turnover of the company in the country the previous year was Rs. 1,000 crore, which has been doubled this current year at Rs. 2,000 crore. The company has already made a mark in the television segment and is all set to capture the home appliances market with refrigerators, washing machines, air conditioners and other appliances. It is deftly moving ahead of its competitors, Mr. Kim said.

TARGET MARKET

“The Indian market, especially the rural market is growing at a very fast pace and LG will target it with high technology products at a reasonable price, “said Mr. Kim, adding that the stress is on “reasonably” priced products and not cheap products. LG is also training its sights on the institutional and Governmental segment anew. The idea is to grow sales from the institutional segment from five per cent now to 10 per cent in the next one year. As part of its strategy to tap the rural markets, LG has initiated steps in Andhra Pradesh, Tamil Nadu, Punjab and Haryana, mainly targeting the rich and middle class of agricultural segment. “We plan to extrapolate our experience in these four states to the rest of the country over a period of time as we are confident of emerging a strong player even in the rural market,” said LG’s Product Group Head, Air-Conditioners, Mr. Salil Kapoor. A budget of Rs.10 crore has been allocated for rural marketing in the next one year. The target, outlines Kim, is to increase off take from the rural market by 20 per cent the following year, currently accounting for Rs. 900 crore.

COMPETITION

Apart from the technology edge, LG is banking on its grassroots-level marketing to edge out competing heavyweights such as BPL, Samsung, Videocon and Whirlpool, which are all breathing down its neck. Meanwhile, industry dynamics have already claimed their first victim. The Chinese invasion that had threatened to turn the industry upside down with rock-bottom pricing has all but fizzled out.

According to Brand Scan 2001, a comprehensive study of consumer durable conducted by the Chennai-based Francis Kanoi Marketing Research earlier this year, what’s worked in LGs favour is its positive image on the technology platform. Among refrigerators, LG has outperformed other brands on the status parameter since 1999 although on a small base, acquiring the status of the fourth most favoured refrigerator brand in the country. According to the study, LG has become the fourth most favoured brand among intending buyers, overtaking Videocon, BPL and Allwyn. On top-of-mind awareness, Kelvinator and LG were the only two brands that showed an upward movement on top-of-mind awareness with the category.

In the case of washing machines, while Videocon leads the pack, the one brand dominating growth is LG—from 46 per cent in 1999, to 67 per cent in 2000, to 78 per cent in 2001. The study adds that LGs penetration and perception is not restricted to just high-income segments, but villages and lower-income households too. But, on the advertising front, it is Whirlpool that outperforms LG.

And, while the study reveals that LG has been the fastest growing CTV brand since 1999, it’s cracking the stronghold of the Bangalore-based BPL—the most preferred brand of CTVs among intending buyers, a title that LG is gunning for now.

PRODUCT

The Managing director said “human touch” is high on the company’s agenda and the product image is based on human aspects and health. “We have the wrinkle free TV, The Golden Eye, which has colours changing according to ambience, we have the ‘Preserve Nutrition System’ or the PNS in our refrigerators with a moisture controller and the plasma conditioners with special features such as bacterial” filters in our AC’s, he said. Keeping in view the high electricity tariff rates, the focus will be to introduce energy saving and eco-friendly products.

To retain tight grip on the volume segment, the low-priced Sampooma TV has been relaunched as Cine Plus at a Rs. 5000–7000 tag and sub-300 litre refrigerators have just started rolling out.

In a move to design its products more congenial to the Indian taste and also for further customisation, LG has earmarked around Rs. 18 crore towards research and development, to be taken up in conjunction with the Indian Institute of Technology, New Delhi. While the company has made inroads into the rural markets with its colour televisions and refrigerators, it is now pushing its air-conditioners and microwaves, where it finds a phenomenal growth, according to Mr. Salil Kapoor and Assistant General manager, Sales and Marketing, Refrigerators and Microwaves, Mr Amitabh Tiwari.

PRICE

The newly defined mantra is ost-innovation—from implementing higher technology efficiencies, to reducing design-related frills, to purchasing cheaper components, to more effective HR policies. It requires a lot of skill to cut costs. “Without denting profits significantly, LG managed to cut consumer prices of airconditioners by 20 per cent, and of colour televisions (CTVs) by 15 per cent”, says Kim triumphantly. Pitches in Pradeep Tognatta, Head, Sales and Marketing, LGEIL, “We are preparing ourselves for another 7–8 per cent reduction in prices across all categories. On the immediate agenda now is the commencement of its digital management system (DMS), a cost-cutting technique that would lead to shorter assembly lines, higher productivity, and reduced manufacturing costs by 30 per cent”. The implementation of DMS is expected to result in an additional five per cent reduction in prices across CTVs, refrigerators and washing machines at the least. The DMS exercise is a follow-up of the Six Sigma exercise LGEIL had initiated late last year, with the objective of cutting costs across processes other than manufacturing.

PROMOTION

LGs health-centered communication, too, may be taken forward to be given an eco-friendly tack. Also, LGs Sales Head, Tognatta, does not rule out reducing advertising and promotion budgets in the forthcoming months, currently hovering around Rs. 100 crore. Even if we do cut advertising expenditure, our sheer presence in the market would see us through. We have crossed the minimum threshold required for advertising pull, says Ganesh Mahalingam, General Manager, Marketing, LGEIL.

The company will launch a series of 40 road shows in the four Southern states targeting small towns. The road shows will showcase the entire LG range of products and will cost Rs. 3.5 lakh per town. These marketing initiatives will span a period of 45 days.

DISTRIBUTION

Another recent move towards broadbasing penetration has been setting up area offices in 50-plus regions across 83 territories. Also, the next one year will see another 15 LG Shoppes (exclusive outlets), up from the current 35. Mr. Kim said their products are successful also because of quality marketing and swift after sales services offered by the company. “We have quality dealers and quality services and therefore we have quality consumers. This is our dealers’ and consumers’ perception and not our own. We respond to our customer’s complaints within 24 hours in 95 per cent of the cases, “Mr. Kim said. The company already has about 100 service centres in the country to cater to the consumers and it intends to open two more service centres in Gujarat apart from the four centres that already exist in the state.

QUESTIONS
  1. Is LG over ambitious in its targets?
  2. Is there market for LG products in rural areas?
  3. Develop a clear-cut strategy for rural penetration.