refrigerator
TRANSCRIPT
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Flowline
White goods Facts and figures Demand and supply Market segmentation Major players Market share Marketing strategies Industry analysis Critical success factors Environment Future trends
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White Goods
White Goods…Household items that have white enamel or coating on them • Refrigerator• Washing Machines• Microwaves• Dishwashers• Airconditioners etc
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Facts and Figures History
• Refrigerators are being manufactured in India for the last four decades.
• Till early 90’s only direct cool refrigerators were used in India.
• Videocon introduced frost-free refrigerators in 1991.
Past trends• Demand for refrigerators grew from 11,000 units in 1968-69 to
about 2.25 million units in 1996-97
• Demand for refrigerators has grown at a CAGR of around 22% from 1.04 mn units in 1992-93 to 2.18 mn units in 1997-98.
• The total stock went up from 3.3 million units in 1968-69 to 17.2 million units in 1996-97, but still covering only about half of the total households in middle and high-income groups.
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Facts and Figures
Current Scenario The current demand for refrigerators is approx. 2.9
mn units per annum. The 165-200 ltrs of refrigerators comprise of 80%
of the total demand. Frost free refrigerators contribute 15% of the total
demand with 5% coming from the premium range.
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Market DemographicsPenentration (%) per '000 Households
1985-86 1989-90 1992-93 1995-96Urban 88.4 140.4 196.9 252.3Rural 3.3 7.7 11.9 20.4Total 26.2 45 62.1 86.1Source : NCAER Report
Low rural penetration …• Inadequate infrastructure - Lack of electricity/power cuts
• Low disposable income levels
• Price factor
• Different lifestyles
Average price movement1997-98 1998-99 1999-00
Refrigerator 16000 15000 14500Source : Industry Estimates
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Market Demographics
Regional Share of purchases(%)Year North South East West1985-86 31 21 10 381989-90 25 26 13 361993-94 26 28 13 331994-95 28 29 14 301995-96 29 28 15 28Source : NCAER Report
• Major market Share – North and West followed by South
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Demand Determinants
Purchasing Power• Income Level – growth in personal disposable income
• Availability of Finance
• Eg. BPL tie up with ICICI, Standard Chartered, Instabuys,
Transamerica and Bajaj Consumer Finance Price Penetration Levels Replacement Demand – Avg life of refrigerator 15 Yrs Purchase Hierarchy……CTVs, refrigerators, washing
machines and air-conditioners Product Customization
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Customer Perspective
Demand for consumer goods 1990s-change in the socio-economic scene
• Rapid economic growth
• Increase in the number of working women
• Changing lifestyles and
• Higher aspirational levels - exposure to satellite television
• Easy consumer finance
Other factors affecting demand… Growth in urbanization Trend towards smaller families Seasonality in demand – Oct – Dec – 30-35% sales –
Festive season Apr – June 25 % sales – before summer
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Supply
Installed capacity of refrigerators in FY99 was about 5.2mn 165ltr direct cool refrigerators were estimated at 2.7mn As per ASCON, during FY2000, the refrigerator production grew
by 5%
Capacity Utilization and Sales of Major player in 1997-98 were as follows
BRANDS Capacity(Units)
Cap.Utilisation Production(Rs Crore)
Sales(Rs Crore)
Godrej 1100000 75.06% 825.69 673.79
Whirlpool 1000000 65.90% 659.01 455.80
Kelvinator 300000 218.23 204.25
Voltas 550000 470.96
BPL 300000 70.94% 212.81 262.67
Source: Annual Reports
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Product
Inputs and Technology
Press shop Paint shop Final Assembly Testing
Other Components … evaporator, innerbody and liners, polyurethane foam etc.
Manufacturing cost – directly related to degree of backward integration viz. firms manufacturing compressors in-house have a lower cost structure as they account for a major cost element
Technology – depends on type of cooling system
Cost ContentRaw materials Cost content to the total cost(%)Compressors 35Cold rolled steels 14.6Electric motors 17.1Others 43.3Total 100Source: Industry, ETIG
Refrigerator – Manufacturing Process
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Product
Process - Runs on the vapor compression cycle, as does an air-conditioner.
Main components
Sealed compressor, condenser coils, a capillary tube, evaporator and a control thermostat.
Presently almost all refrigerators now are without coils running zigzag at the back.
Refrigerators nowadays are frost-free, i.e. they have a timer mechanism for automatic defrosting.
Also, many refrigerators have several additional features like multi-doors, ice dispensing facilities, a special fan for uniform airflow and so on.
The refrigerant gas used is a CFC (Freon 11 or 12). But with the date for implementing the Montreal Protocol drawing near, some companies like Whirlpool, have started manufacturing CFC free refrigerators or are in the process of setting up new capacities.
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Product
Basis for Differentiation - various price points for same capacity - top and high categories.
No. and type of doors
Crushed ice and water dispenser
Quick chilling zones
Multiple temperature zones
Adjustable racks and shelves
Multiple use compartments
Refrigerant – CFC free Vs CFC
Energy efficient compressor
Freezer space vis-a-vis refrigeration space
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Market Segmentation
Cooling System
Cooling System Mkt Share (%)Direct Cool Manual Defrosting 85%Frost Free Built in system, takes care of ice built up 15%
CapacityConsumer type for various sizes
Capacity (In lts) Market Share(%) Consumers< 100 L 5 Hotels/restuarents, dispensaries
Household with space crunch100 L - 200 L 80 Small households
200 L - 330 L Replacement market and15 huge households
330L & above
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Market SegmentationSegmentation on Buyers
Demand ('000 units) % age Penentration LvlTop 7 metros 707 32 44.5Other 1 mio + Cities 233 10.6 27.60.1 - 1 mio 561 25.4 22.6< 0.1 mio 310 14.1 15Rural 310 14.1 1.1Total Households 2121 96.2 7Institutional Demand 85 3.9Total 2206 100
Price Sensitive
Brand awareness of Indian Brands High
Large % of rural buyers – first time buyers
After sales service - critical
Need for strong distribution network
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Major Players
Godrej
Whirlpool
Electrolux
Videocon Intl
BPL Refrigeration
Koreans viz. LG and Samsung
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Market Share
Estimated Market ShareCompany Name Brand Name Market Share (%) - 1999Whirlpool of India Ltd Whirlpool * 26.5Electrolux Kelvinator,Electrolux, Allwyn, Voltas 30Godrej-GE GE*, Godrej 21Videocon Videocon 10BPL BPL 6Koreans LG, Samsung 6.5* Imports CFC Free Refrigerators
Source: ORG:GFK Survey, Published Reports
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Manufacturing Facilities
Company Manufacturing Facilities Out Sourcing
BPL Bangalore, Palghat(Kerela) Direct Cool from Allywn-Voltas
Godrej-GE Malanpur (M.P)
Videocon Chittegaon, Aurangabad
Whirlpool Faridabad, Pune, Pondicherry
Voltas Warora, Thane, Hyderabad
Samsung Greator Noida(planned) Importing till 1997 from Korea
LG Greator Noida Direct Cool from Voltas
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Competitive Profile Godrej Appliances Ltd
• 21% Market share approx
• 95% of revenue from refrigerator business
Product range
• Penta Cool Series
• World Series
• Ultra
• Cold Gold Deluxe
• Cold Gold
Focus on Cost Competitiveness
Target rural/semi – Urban Market
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Competitive Profile
Samsung• Korean company
Product range• Side-by-side• Bio-fresh range• Super X flow range• Twin cooling system
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Competitive Profile
Promoted by the Videocon Group Videocon Appliances Ltd. was incorporated in 1988 Entered the market in 1992 Videocon pioneered India's first Frost-free refrigerators In technical (design and drawing) collaboration with
Matsushita Refrigeration Co., Japan Conventional refrigerators Frost-free refrigerators
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Competitive Profile
Electrolux AB World leaders in white goods manufacturing Electrolux, Kelvinator, Allwyn, Voltas Brands Focus on building the kelvinator brand Strengthen distribution network Approx mkt share 30%
BPL Refrigeration Niche player - Frost Free Segment High Value strategy Premium pricing Exclusive showrooms
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Competitive Profile
LG Electronics
• Major global player in electronics & telecommunications
• Premium pricing strategy Product Range
• Dios
• Frost Free
• Direct Cool
• Cute N Cool
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Marketing Strategies
LG Electronics’ strategy includes developing non-traditional channels of selling even while it continues to strengthen its retail sales network.
The company has banded together small teams of people to be attached to its branch offices to carry out brand promotions in smaller cities and
towns.
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Marketing Strategies
Electrolux - Multi-pronged strategy Aggressive product launches Focus on quality and increased rural reach Focus on building a strong market for its 35-year old brand –
Kelvinator Introduction of at least four new refrigerator models every year The group has outlined a multi-brand marketing strategy aimed at
customers
• high-end - Electrolux
• upper end and middle income - Kelvinator
• lower segments - Voltas and Allwyn
Voltas brand will soon be phased out.
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Marketing Strategies
Electrolux (Contd.) Different marketing strategies for different customer segments. The focus will also be on the price-sensitive rural markets. To push the products, the dealers are trained such that they are able
to explain the value-addition to prospective customers. At the top-end, the company's products are priced higher than the
competitors. Strategy for growth this year includes Consolidation of its existing operations and Entering new product segments. Electrolux has put the Internet on the forefront of its sales strategy.
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Marketing StrategiesWhirlpool Very aggressive dealer-push strategy to get a foothold in the highly
competitive marketplace Discovered that most customers associated refrigerators with ice and
cooling Realized that the upwardly mobile consumer was sheepish at the
thought of having to borrow ice The company merged the two findings to create its hummable Ice,
Ice campaign
Samsung Samsung – ‘Market based Management’ strategies include:
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Brand Building
Sponsorship of TV programmes on various channels To position its products as an ‘elite’ product Improve brand visibility
• Samsung, LG, IFB and Electrolux sponsored movies on the Star Movies network.
• Samsung and IFB, for instance, sponsor the Saturday and Sunday night premieres.
• LG has sponsored, ‘Kaun Banega Crorepati?’.
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Brand Building
Branding strategies Videocon - Umbrella branding strategy for their products.
• VIL claims to be the first company in India to introduce frost-free refrigerators and fully automatic washing machines.
• Assiduously built images over the years.
• Convey the message of leadership to their customers. Videocon, for example, has changed its logo to convey the message of precision, quality and technical edge in all company activities.
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Brand Building
Kelvinator• A good example of how a well-known and popular brand suffers
due to a lack of adequate marketing support
• Early entrants in the market
• Limited portfolio of models
• Lower brand visibility and indifferent dealers
Electrolux (which has bought over the brand since January 1997) - bolster the brand
• Kelvinator will be the flagship brand straddling most of the market segments
• Kelvinator being present in India for a long time and popular as a brand which is the ‘coolest one’, was chosen ahead of others
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Brand Building Kelvinator (Contd.)
• A new campaign for the brand was launched as part of a mega promotion exercise at a cost of Rs160mn.
• The earlier popularity of "the coolest one" campaigns ensured that it is continued with.
• In one of the recent ads, an old man’s dentures, kept in a bowl of water, are seen chattering every time the door of a Kelvinator refrigerator is opened.
• Some of the print-ads campaigns also highlighted Kelvinator as a refrigerator, which freezes ice within no time and saves power consumption by as much as 33%.
• The product portfolio has been beefed up with the introduction of three new models including one in the 300-litre segment. A new frost-free range was also introduced.
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Pricing
Pricing Refrigerator sectors operating at 65% capacity utilization.
Penetration pricing Entry-level prices lower in order to activate demand.
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Industry Analysis
Industry characteristics Low penetration Rural markets yet to develop due to infrastructure bottlenecks Rising raw material costs Competition from new entrants Stiff competition leading to higher advertisement expenditure Growth, less than foreseen Policy changes
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Industry AnalysisEconomies of scale Godrej, BPL , Whirlpool, Videocon and Voltas have achieved
economies of scale – unit cost low. Godrej has a capacity utilization of 75% and the highest capacity in
the industry. Godrej also possesses economies of vertical integration as it
manufactures its own compressors. BPL and Videocon who are currently outsourcing their
compressors also plan to set up their own manufacturing units for compressors in the long run.
…any new entrant to come in at a large scale and risk strong reactions.
The industry has high exit barriers for the members who have invested in the manufacturing facilities in India in the form of specialized assets.
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Industry Analysis
Product differentiation:• Godrej, BPL and Videocon - very old players in the Indian market,
high brand awareness and consumer loyalties. These brand names are associated with trust and reliability in the Indian market.
• Korean players - LG and Samsung who engaged in heavy advertising and brand promotion, created a niche for them in the premium segment.
• …new entrant to spend heavily to overcome existing consumer loyalties and to build a brand image.
Capital requirements:• Huge Capital requirements - advertising, product development,
production facilities, distribution channel credit, inventories and for covering up the start-up losses.
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Industry Analysis
Access to the distribution channels: Godrej, Videocon, Voltas and Allwyn – cater to mass market, have a strong
distribution and dealer network.• Urban and rural presence
• Established relationship/developed ties with the channel members over the period of time
Whirlpool has also developed a strong network of 4000 dealers in urban and semi-urban areas in a period of few years.
South Korean majors like Samsung and LG have a dealer network of more than 1500, mainly in urban areas and plan to expand it in rural and semi-urban areas also.
… a major barrier as the new entrant has to persuade the channels to accept its product through high margins, promotional allowances, better credit facilities and advertising support, which will reduce the profits.
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Industry Analysis
Cost disadvantage independent of scale
Learning or Experience curve:
Old players viz., Godrej, BPL, Videocon are high on the experience curve, as high local market knowledge.
Government policy:
Duties on the imported Refrigerators and refrigerator parts - advantage to the Indian Players and in a way protect them from price competition in the market with the MNCs.
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Industry Analysis Rivalry – Very High - Intense rivalry in the various segments
• Same dealer network
• Low differentiation, high ad spent
• Have high strategic stakes in the refrigerator business - major fraction of their revenues come from this business
Pressure from the substitutes - No threats As no substitutes• The domestic refrigerators have no substitutes and so it faces no threats in
terms of that.
Bargaining power of the buyers - High• Presence of many competitive products in the market.
• Low differntiation – switching between the different brands based on other criteria such price, service, warranty, promotion and financing schemes.
Bargaining power of the suppliers - Not very High
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Critical Success Factors
Brand Image
Distribution Strengths
After-Sales Service
Product Range
Technology
Financial Strength
Product Quality
Compressor Quality
Features and aesthetics
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Strategic Group Mapping
Strategic group mapping of industry players:
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Competitive Analysis
High price Medium price Low price
Highperceived
quality
1.Premium strategy(1) LG, Samsung,
Daewoo
2. High value strategy(2) Whirlpool, BPL
3. Super value strategy
Moderateperceived
quality
4. Over charge strategy
5. Medium value strategy
(3) Godrej , Kelvinator
6. Good value strategy(4) Videocon
Lowperceived
quality
7. Rip off strategy 8. False economy strategy 9. Economy strategy(5) Voltas, Allwyn
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PositioningPremium Strategy - LG, Samsung, Daewoo Operating only in the frost-free segment Large product length Products only in the above 300 ltrs segment The brands follow premium strategy of high quality at high price They are targeting to the upper income, upper higher middle class of the society
with the products that are associated with status These companies have shown a tremendous growth in few years
High Value Strategy - BPL , Whirlpool: Frost-free models in the below 300 ltrs capacity segments as well as the above
300 ltrs segment The models in above 300 ltrs segment cater to the replacement market and to the
higher middle class Emphasis on providing high quality at a moderate price Below 300 ltrs - targeted at the first time buyers of middle class and are not high
in price
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PositioningMedium Value Strategy - Godrej, Kelvinator Old brands of India, high brand awareness Presence in urban as well as the rural markets Mainly serving to the direct cool segment Have few models in the frost-free segment These brands are catering to the middle class and are not very high in prices
Good Value Strategy – Videocon Introduced frost-free refrigerators in India Value for money products Lowest prices in the market - catering to the middle class of the society
Economy Strategy - Voltas, Allwyn Cater to the middle and lower middle class of buyers with their low
priced ranges
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Distribution
BPL
Kelvinator and Godrej
Deawoo and Samsung
Whirlpool
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Distribution NetworkCompany Distributors in India Dealers in India Service branches
BPL N.A 1500 *
Godrej-GE 6000 (Direct) *
Videocon * * *
Whirlpool * 4000 18
Samsung * 1600 *
LG 40 2000 *
Electrolux-Kelvinator * 2000 *
N.A: Not Applicable*:Data not Available
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Distribution Aimed at reducing inventory holding cost - direct delivery
of the product to customer once the dealer enters the order. Corporates willing to invest in creating inventory - holding
facilities at dealers end and pay for holding charges. Intense competition - higher ad spent and emphasis on
streamlining distribution network and reduce dealers margin
Whirlpool and Electrolux trying to provide quick service to dealers - allowing to stock within 24 hrs
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EnvironmentMontreal Protocol - Environment conciousness - depletion of Ozone layer CFC Free Refrigerators
• Year 2003- deadline by which Indian markets is to be replaced with CFCs free refrigerator -Move towards using HCFC ( Hydro chloro fluoro carbons)
• HCFCs – non-harmful, easily available, no major technology change
• Year 2030 – move into using HFCs (Hydrofluorocarbons)
• HFCs – major technology changes in manufacturing process, cost of HFC-based pilot plant is approx 10 crore.
Whirlpool India has already set up a 0.4mn unit capacity plant near Pune to manufacture CFC-free refrigerators
LG Electronics has converted its entire 300-litre plus range of models as CFC-free Electrolux AB has found a cost-effective alternative way of a hydrocarbon coolant
(R-600)
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Policy
Duty structureExcise duty Custom duty
1999-00 2000-01 2001-02 1999-00 2000-01 2001-02Refrigerator 16 16 16 45.6 44 40.4Compressor 19 16 16 44 44 40.4Rebate 40 40Source : Industry
Till the late 80s - white goods sector was labelled as a luxury goods industry- an oppressive regime of licenses and taxation
1993-94 government removed all investment obstacles
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Future Trends
Replacement market is expected to increase to 25-30% on account of faster replacement (further induced by exchange scheme)
Refrigerator market is expected to grow at a CAGR of 14% in the medium term aided by the rising per capita income and growing consumerism
The demand for refrigerators is expected to be about 3.6 million units in 2000-01 with a penetration rate of about 13%