Profiling Air Conditioner Brands in the Indian Market: A Study of LG and Videocon

This work is the reflection of his thought, ideas, concept and above all his modest effort. PREFACE This is the project about profiling the brand personality of air conditioner brands. The project involves the study of the whole Air Conditioner market. In this study we have studied the two of the major players in AC that is LG, Videocon.

The report included the survey of the customer’s of these particular brands and then analyzing what kind of their customers are, the brand targets which segment of the customers, the customer’s age group, income group, their education level. Indian Consumer durables market used to be dominated by few domestic players like Godrej, Samsung, Hitachi Voltas and Kalvinator. But post liberalization much foreign company have entered into Indian market dethroning the Indian player and dominating Indian market the major categories in the market.

When Willis Carrier invented the first system for “manufactured weather” in 1902, he sparked an industry that revolutionized the way in which we live, work and play. From that defining moment – and through to the present day – Carrier has been a company built on a legacy of innovation. For more than a century, our research, expertise and forethought have resulted in market-leading innovations and “firsts” that have shaped and defined the heating, air conditioning and refrigeration industry.

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Through our history of product excellence and committed customer service, we have evolved into a global company serving millions of people and businesses in 172 countries on six continents around the world.

Establishing a performance culture that respects human values & team work remain embedded in our core values of EH&S and ethics Thereby growing profitably and ahead of the market every year, making Carrier a destination of choice for all within HVAC&R industry. LG Electronics Is one of the leading companies in the field of electronics with a global presence in many countries. .Before briefing, I have divided the introduction part into three main sub parts.

• LG Global

• LG India

• LG Pune History of company

The company was originally established in 1958 as Gold Star, producing radios, TVs, refrigerators, washing machines, and air conditioners. The LG Group was a merger of two Korean companies, Lucky and Gold Star, from which the abbreviation of LG was derived. The current "Life's good" slogan is a backronym. Before the corporate Name change to LG, household products were sold under the Brand name of Lucky, while electronic products were sold under the brand name of Gold Star.

The Gold Star brand is still perceived as a discount brand. In 1995, Gold Star was renamed LG Electronics, and acquired Zenith Electronics of the United States. pic] Global Operation LG Electronics is playing an active role in the world market with its assertive global business policy. As a result, LG Electronics controls 110 local subsidiaries in the world with around 82,000 executive and employees.

Corporate culture

No excuse, “we” not “I”, Fun workplace TAG LINE "Life's Good" represents LG's determination to provide delightfully smart products that will make your life good. The LG Electronics Life's Good signature consists of the LG logo, seal, and the slogan, "Life's Good" set in Charlotte sans typeface curved around the LG symbol. The curving of the slogan reinforces LG's personality and uniqueness. The consistent usage of this signature clearly establishes the unique identity of the company and unifies every division and product from LG Electronics across the globe.

The Symbol The symbol of LG is the face of future. The letter “L” and “G” in a circle symbolizes world, future, youth, humanity & technology . LG philosophy is based on humanity. [pic] It also represents LG’s efforts to keep close relationship with our customers around the world. The symbol consists of two elements.

1. The logo in LG gray

2. The stylized image of human face in the unique LG red color.

Red color represents our friendliness and gives a strong impression of LG’s commitment to deliver the best. The circle symbolizes The Globe.

The stylized image of a smiling face in the symbol conveys “Friendliness and Approachability”. The one eye on the symbol represents “Goal-oriented, Focused & Confident”. The slogan of LG is “Life’s Good”. It expresses “Brand’s Value, Promises, Benefits, Personality. The Partnership LG Electronics chooses to promote harmony and build constructively on a labor-management relationship rather than an employee-employer relationship. This illustrates that management and workers are not in a vertical relationship, but in a horizontal one.

This culture is necessary for LG Electronics as it strives to become one of the world's top companies. Such a relationship is transformed into a value-creation relationship whereby both parties endeavor to address mutual problems and create new values together. Strategic alliance LG Electronics is making technical advances and identifying business opportunities through various associative relationships with some of the world's leading companies.

LG Electronics is striving to become number one in the world by mingling in various business and technological fields and making strategic alliances with world famous companies. Strategic association between corporations," In which companies with different infrastructures cooperate in the fast-developing 21st century business field, Is of key significance in terms of strengthening the existing industry and creating a new one.

LG Electronics will do its best to create new products and services with an open mind, while developing new technologies and business fields through various associations with some of the world's most successful companies.

1. 3M
2. SUN
3. YAHOO
4. PHILLIPS
5. TOYOTA
6. MICROSOFT
7. HP
8. GOOGLE
9. GE
10. INTEL
11. NORTEL
12. HITACHI
13. PRADA
14. RENESAS
15. TOSHIBA
16. BESTBUY

In Feb. 2007 LG Electronics and Yahoo formed a strategic alliance. Yahoo mobile services will be available from LG mobile. This service is targeting 10 million LG mobile phones in over 70 countries. In Mar. 2007 LG Electronics and Google formed a strategic alliance. Both companies will work together to release, market, and offer LG mobile phones with Google services (search engine, map, email, and blogs. )

LG BRAND IDENTITY

The brand of LG is delightfully smart.

LG strives to enhance the customer’s life and lifestyle with intelligent features, institutive functionality and exceptional performance. The brand platform:

The LG brand is composed of four basic elements

1. Value
2. Promise
3. Benefits
4. Personality

The Brands core Value that never changes.

Extraordinary Experience Personality describes the human characteristic that are expressed to the customer through Trustworthy, Considerate Practical, Friendly. LG practices four cultures:

1. Learning Culture
2. Boundary less Environment
3. A Carrier
4. Growth

According to LG, the Learning Culture continuously helps the employee to learn more and more to develop the habit of continuous learning.

There is transparency between the work and mutual understanding between all the employees. A carrier is highly growing in LG and one who is the employee can develop their carrier largely. A new comer will feel fully comfortable in the company and for a new comer the company is very helpful in the overall growth of personality.

Growth in LG is very high for those who are in the company and for those who want to join in LG. The company is growing with fast innovation and the BLUE Ocean strategy is one of the examples of growth. Mission The mission of LG is to provide the customers with utmost satisfaction through leadership.

The fundamental policy of development is to secure product leadership that the Customers may have the utmost satisfaction.

Product Leadership

We are focusing on six development areas to become the product leader.

1. New Machine
2. Reliability
3. Conventional Installation
4. Environment Friendly Product
5. Low Noise & Vibration
6. Energy Saving Quality Innovation

The policy of quality assurance is to provide customers with utmost satisfaction by supplying zero defects. [pic] LG proceeds in a hierarchal manner. It is named as “LG WAY”.

LG Electronics India Pvt. Ltd. , a wholly owned subsidiary of LG Electronics, South Korea was established in January 1997 after clearance from the Foreign Investment Promotion Board (FIPB). LG set up a state-of-the art manufacturing facility at Greater Noida, near Delhi, in 1998, with an investment of Rs 500 Crores. LG corporate office is located at Plot no. 51, Udyog Vihar, Kasna Road, Greater Noida, India. This facility manufactured Color Televisions, Washing Machines, Air-Conditioners and Microwave Ovens. ''Company is setting up a chain of exclusive premium showrooms.

LG plans to launch 60 premium Brand Shoppes by the end of the first quarter of this year. At present, LG has a total of 83 LG stores across the country, of which 45 are shoppes and 38 are exclusive stores. Brand shoppes will be placed in the premium segment and the target audience will comprise buyers interested in premium and high end products. LG Brand Shoppe goes beyond the concept of a normal exclusive store by having a more interactive environment and additional lifestyle orientation on display so that the customer can actually experience the LG products in his or her own home settings.

LG Electronics India Ltd (LGEIL), consumer durables leader with 27% market share, is planning a brand new image. To attract inspirational and young consumers across India, company will roll out a new marketing strategy. The exercise will cost the company Rs 360 crore. LG Electronics India is the fastest growing company in the consumer electronics, home appliances, and computer peripherals industry today. LG Electronics is continually providing, superior technology products & value for money to more than 50 lakh households in India. LGEIL is celebrating the 11th anniversary this year.

LG Soft India the innovation wing of LG Electronics in Bangalore is LG Electronics' largest R centre outside Korea. We at LGSI focus on niche technology areas such as mobile application development, digital video broadcast and biometrics software and support LG Electronics with our expertise. Motivated by a passion for technology, a strong work culture and loyalty to the organization, we are determined to see LG become one of the top three brands globally. Prominent consumer electronic company, LG Electronics Inc. has said that it expects the sale of its products in India to up by 15 per cent in 2008.

Moon Bum Shin, managing director of LG Electronics India has said that the company has earmarked 4. 8 billion rupees for investment purpose in India this year. The said money will be used to market as well as manufacture new products. LG Electronics, which is originally a South Korean Company with branch in India, informed that its sales of GSM mobile phones, color televisions, air conditioners and other household goods in the Indian market was to the tune of 95 billion rupees ($2. 4 billion) in 2007. As per Shin's estimate, the sales in 2008 would be around 110 billion rupees.

In order to achieve its target, Shin said LG Electronics will concentrate on catering to the high-end consumer market which will help boost sales this year. India churns out six (6) per cent of LG Electronics global revenues of $42 billion. The Indian branch of LG exports to 40 countries.

India challenges

The challenges faced by LG when entered in Indian market 1. Low brand awareness about LG in India. 2. One of the last MNCs entered in India (Samsung, Panasonic entered in 1995 in India). 3. High import duty 4. Compitition from local market players and other MNCs in consumer durable segment. 5. Price sensitiveness of the Indian consumer

LGEI over comes these challenges to emerge as innovative marketing strategy:

1. Launch new technologies in consumer electronic and home appliances.
2. LG was the first brand to enter in cricket in big way a way, by sponsoring the 1999 world cup followed it up in 2003 as well.
3. LG brought in four captains of the Indian cricket team to endorse its products. LG invested more then US$ 8 million on advertising and marketing in this sport.
4. LG has differentiated its product using technology and health benefits.
5. CTV has “Golden eye technology” Air conditioner has “Health air system” and microwave ovens have the “Health wave system”.

Local and efficient manufacturing to reduce the cost. To overcome high import duties LG manufactures TV refrigerator in India at manufacturing facility at Noida and Pune. LGEI had already commissioned contract manufacturing at Mohali Kolkata and Bhopal for CTVs. This has helped LGEI to reduce cost. LGEI implementing the “Digital manufacturing system” (DMS) as the cost cutting innovation this system is follow-up to the six sigma exercise LGEI had initiate earlier. R&D potential LG has the research and development facilities in Bangalore and Pune.

Both the unit carry out R&D department for the domestic as well as the parent company it also dose customize R&D for the specific countries to which it export product. Regional channel and wide distribution network.

LG has adopted the regional distribution channel in India. All the distributers work directly with the company. This has resulted in quicker rotation of the stock and better penetration into B, C, D, class market.

LG also follows the stock rotation policy rather then dumping stock on channel partners.

Product localization is the key strategy used by the LG 2. LG came out with Hindi and regional language menus on its TVs. Introduced the low-priced “Cineplus” and “sampooma” for the rural market. LG was the first brand to introduce gaming in TVs in continuations of its association with cricket LG introduce cricket game in CTVs MAJOR KEY SUCCESS FACTORS

Innovative marketing

LG was the first brand to enter cricket in a big way, by sponsoring the 1999 World Cup and followed it up in 2003 as well. Local and efficient manufacturing to reduce cost - To overcome high import duties, LG manufactures PC monitors and refrigerators in India at its manufacturing facility at Noida, Delhi. Commissioned contract manufacturing at Mohali, Kolkata and Bhopal for CTVs.

Product localization - Product localization is a key strategy used by LG. It came out with Hindi and regional language menus on its TV.

Regional distribution model - This has resulted in quicker rotation of stocks and better penetration into the B, C and D class markets.

Leveraging India’s IT advantage - LG Electronics has awarded a contract to develop IT solutions to LG Soft India (LGSI). The project involves development and support for ERP, SCM, CRM and IT-enabled services for LG.

Strategies adopted by the organization LG follows 10 commandments which are as follows.

Foster working environment-5S Environment

Fast execution is key to success

Transparent and fast communication-open communication

Update market -knowledge –Demographics

Win –Win relationship with the trade partners

Customer is the king

Even Billing –Road to ach supplier A

Be in touch with the market (70% Market, 30% Office).

Plan and Execute annual marketing Calendar-Time to market

Display share of 50% -to get 50% consumer share.

COMPANY PROFILE OF VIDEOCON

Videocon is an industrial conglomerate with interests all over the world and based in India. The group has 17 manufacturing sites in India and plants in China, Poland, Italy and Mexico. It is also the third largest picture tube manufacturer in the world. Corporate profile The Videocon group has an annual turnover of US$ 4. 1 billion, making it one of the largest consumer electronic and home appliance companies in India.

Since 1998, it has expanded its operations globally, especially in the Middle East. Today the group operates through three key sectors: Consumer electronics In India the group sells consumer products like Colour Televisions, Washing Machines, Air Conditioners, Refrigerators, Microwave ovens and many other home appliances, selling them through a Multi-Brand strategy with the largest sales and service network in India. Videocon Group brands include Sansui, Toshiba, Electrolux, Kenstar, Next etc. Colour picture tube glass Videocon is one of the largest CPT Glass manufacturers in the world, operating in Mexico, Italy, Poland and China. Oil and Gas

An important asset for the group is its Ravva oil field with one of the lowest operating costs in the world producing 50,000 barrels of oil per day. Acquisition of Thomson SA Videocon through its Wholly Owned Offshore Subsidiary acquired the Color Picture Tube (CPT) businesses from Thomson S. A having manufacturing facilities in Poland, Italy, Mexico and China along with support research and development facilities. Videocon in its pursuit of mission to become a global major in consumer electronics and home appliances with large scale and low cost base for critical components, made its first footprint in acquiring global sized color picture tube manufacturing facilities across the world from Thomson SA.

It had already formulated a "2010 road map" which outlines the group's strategy of being one among the top five in both branded consumer electronics and contract manufacturing in the world by 2010. Acquisition Rationale The acquisition came at a time when Thomson was facing a fall in demand in developed markets for television with CPTs and was moving more towards Flat-screen and Plasma Television. However, Videocon saw an opportunity in the emerging countries for CPTs and hence pursued with the acquisition. Besides, the acquisition gave Videocon, the access to advanced technology giving the company control over an R facility in Agnani, Italy. The major reasons behind this acquisition were.

Videocon was better positioned to shift the activities to low-cost locations and also it could integrate the operations with the glass panel facility in India with the CPT manufacturing facilities acquired from Thomson S. A Videocon wanted to leverage its position in the existing parts of the business and this acquisition would give it a strong negotiation position and could reduce impact of glass pricing volatility. Videocon could also reduce the costs by upgrading and improving the existing production lines. Vertical Integration The acquisition helped Videocon in vertically integrating its existing glass-shell business where it had been enjoying substantially high margins. Videocon’s glass division had the largest glass shell plant in a single location.

This gave the company an unrivalled advantage in terms of economies of scale and a leadership position in the glass shell industry. The acquisition also gave Videocon a ready-market for its glass business and it was part of Videocon’s long-term strategy to have a global vertically-integrated manufacturing facility. Rationalization of Product Profile Videocon modified its product profile to cater to the changing market needs like moving away from very large size picture tubes to smaller ones. Apart from the overall strategy Videocon also had a plan on the technological front. It wanted to improve the setup for the production line and line speed post-merger.

Its focus was to increase sales while reducing the costs and thereby improving the productivity of the existing line. The company also wanted to foray in a big way into LCD panels back-end assembly On the sales front the company wanted to leverage on the existing clients of Thomson and build relation as a preferred supplier to maximise sales. Also, Videocon could benefit from OEM CTV business with the help of Videocon’s CTV division, invest for new models and introduction of new technologies. Thomson’s perspective In 2004 Thomson planned entry into the high-growth digital media and technology business. Also, Thomson wanted to exit consumer and electronics businesses as they were incurring significant losses.

After sale of its TV business to Chinese group TCL, and Tubes to Videocon, Thomson divested from the audio/video accessories business which was the last unit of its consumer electronics business. The need to divest are quite evident from the losses that it incurred in these businesses particularly that the unit that it sold off to Videocon, the Optical Modules activity, and the Audio/Video & Accessories businesses which totalled around €749 million for 2005. Moreover Thomson had done some acquisitions that were in line with boosting their revenues in the following years. Other Competitors for the Acquisition When Videocon entered the race for the colour picture tubes manufacturing capacity of Thomson SA in November 2004, there were 16 other bidders.

Videocon stood slim chances given the fact that it had to battle it out with players like LG,Philips, Samsung and Matsushita, Daewoo and several Chinese manufacturers but finally managed to close the deal. The deal catapulted Videocon into the No. 3 slot in the global pecking order for CPTs. An official of Videocon said on the deal " The word is out in the world that India and Indian companies are not just a good bet by themselves, but also a hedge against China. “ Pre-merger negotiations The price that Thomson wanted for the deal was euro 240 million (Rs 1,248 Crore) and Videocon agreed to the same without much negotiations (Under the deal the debt continued to be of Thomson’s).

A special purpose vehicle, Eagle Electronics was used to complete the acquisition. As a part of the acquisition, Thomson also agreed to acquire 13.  % stake in Videocon for 1250 Crore in which 10% was locked for the first three years. Thomson SA has divested the 3. 5% stake that was outside the lock-in clause to overseas institutional investors. For the remaining 10% Dhoots retained a right of first refusal(recently this 10% has been sold to the Dhoots).

During the process of negotiations Videocon was less affected by the capital cost component. Dhoot believed that Thomson CPT’s losses arising out from high capital cost of its Mexican Plant could be reduced once the television market in India moved to bigger screen sizes and slims .Videocon could import those from its global factories and hence cut on the losses of Thomson. Pre-merger scenario analysis

CPT industry is affected by many competitive factors such as change in the consumer preferences ,the product offer strategy of retailers, the progress made by alternative technology manufacturers ,capacity adjustment facility of competitors etc. Based on all of these factors there were two scenarios that emerged from the 2005 budget of Videocon. The first scenario is a conservative one. It mainly assumes Price pressures similar to those in the past(-8 to -12%),capacity reduction over a period of two years, a gradual shift to newer technologies like True Flat and good amount of growth for LCD makers.

The second scenario is a more aggressive one in term of trends predicted.

It assumes that the switch to TrueFlat would be faster, more overcapacity, more competition from LCD manufacturers and rising price strategy pressures in general. The second scenario obviously requires an industrial strategy which is more adapted to the environment. However even if the second scenario arises,Videocon believes there is an opportunity in the CRT business. Though it is very obvious that in the developed markets of the western world the demand is shifting towards the flat panel side(FPD it is expected to contribute 70% of TV market in these regions),in the emerging markets like BRIC CRT still holds fort. CRT holds a dominant 70% share in these markets.

When translated into number of units the demand is more than 100 million units. As Videocon is primarily based in these countries, it hopes to harness the value of the Thomson acquisition in the coming years. Post merger situation (2010) Videocon has not been able to turn the plant around in Italy still. However it is getting support from the local government(which want to prevent job cuts) in form of grants. The government is in fact trying to set up a Greenfield venture in form of a LCD manufacturing facility in partnership with Videocon. The banks are also supporting Videocon and with help from all these quarters Videocon expects to turn around the plant in Italy.

The Thomson plant has not turned around in Mexixo as well and in fact production has been reduced over there. In Poland,the situation is more promising and Videocon hopes that plant over there will get in black in the very near future. However the surprise has been in the Chinese market . Despite of facing a highly competitive market Videocon has managed to turn a plant around while the other is on its way. In China Videocon is adopting a different strategy for manufacturing CTVs as the local players dominate the market . It plans to supply these players by taking advantage of low-cost nature of mainland(the number targeted by it about 6 million CPTs).

Role of local government in the acquired units The LCD television segment is one of the fastest in terms of growth rate in Italy. The compounded growth rate is projected to be around 70% in the next few years. Videocon in partnership with the local government is going for a Greenfield venture in this segment. The Italian central government is giving a euro 180 million grant whereas the regional authorities are giving a 40 million grant. Videocon would itself pitch in with about euro 300 million whereas bank loans would provide a further 700 million. In the Thomson plant located in China the local Chinese Government is the minority shareholder.

When Videocon acquired Thomson’s CPT business, it also gained control of Thomson’s Mexican plants. However Videocon Industries has a view that it would expand in the country only if the government gives it enough incentives. Videocon is demanding a 25-30% cash benefits from the authorities who are currently ready to give only about 20%. Thomson’s exit from Videocon Thomson is looking to sell out its stake in Videocon (a 10 percent stake via GDRs) and in most likelihood it would be bought by Videocon itself. Thomson would be exiting at a loss as it had acquired the stake at around Rs 400 per share (approximately equal to $10 per share). The deal is expected to happen at current market prices.

Videocon’s GDR is currently traded at around $5. 06 on the Luxembourg Stock Exchange. On the Bombay stock exchange its trading around Rs 150 against the 52 week high of Rs 868 in Jan 2008. Another point to be noted is that this won’t attract the market regulator’s “creeping acquisition” norm which comes into force once they acquire more than 5% stake,as the deal would be an overseas one. Possible purchase of General Electric's Appliance division On May 23, 2008, Videocon announced that it is studying an invitation from General Electric (GE) to bid for its century-old appliances division, which it has put up for sale.

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