strategic lg tv report

MBA 5th Semester 2010

Final Report: Strategic Management of LG and TV Industry.Prepared By: Zahoor Ahmad.

1. BUSINESS SCOPE

LG Electronics, Inc.(LG) is a global leader and technology innovator in consumer electronics, mobile communications and home appliances. LG is one of the world's leading producers of flat panel TVs, audio and video products, mobile handsets, air conditioners and washing machines. LG's efforts continue to enhance the global presence of the LG brand and to maximize profitable growth. In particular, LG Electronics is focusing on achieving profitable and sustainable growth in the mobile communications and home entertainment sectors to strengthen its leadership in the IT industry.

Global, Tomorrow, Energy, Humanity and Technology are the pillars that this corporation is founded on; with the capital letters L and G positioned inside a circle to center their ideals above all else, humanity. The symbol mark stands for their resolve to establish a lasting relationship with, and to achieve the highest satisfaction for their customers. The letters "L" and "G" in a circle symbolize the world, future, youth, humanity, and technology. Their philosophy is based on Humanity. Also, it represents LG's efforts to keep close relationships with their customers around the world. The symbol consists of two elements: the LG logo in LG Grey and the stylized image of a human face in the unique LG Red color. Red, the main color, represents their friendliness, and also gives a strong impression of LG's commitment to deliver the best.

1.1. Regions

LG is targeting in all cities in Pakistan including:

TIER NO: 01

KARACHI LAHORE ISLAMABAD FAISALABAD PESHAWAROTHER BIG CITIES

TIER NO: 02

GUJRANWALA HYDERABAD QUETTA WAHACANTT SIALKOTOTHER SMALL CITIES

1.2. What Customer Wants?



Customer wants new innovative features, styles, wide range of screen sizes, attractive design, good sound quality and outstanding after sales services but at reasonable price.

1.3. Functions / Applications

LG TV provides wide range of televisions along with LCDs that covers screen size ranging from

21 inches to 50 inches. This range is fulfilling the entertainment need of varied customers. The

company provides LCD, Plasma, conventional, Analogue, CRT and Flatron TVs according to the

needs of its various customers that belong to the category of different economic groups.

1.4. Customer & Users

LG has targeted its market on the basis of the product that they are offering to the consumer.

They are targeting:

Upper Upper Class

Upper Middle Class

Middle Class

1.5. Added Value

LG is adding value to its brand to deliver something extra to their customers. Some of the value

addition in television is introduction of Bluetooth technology, and introduced sensors in its LCD

TVs which detects the environment of the room and changes the color preferences automatically.

LG Intelligent Sensor technology evaluates ambient light conditions in the room and

automatically adjusts brightness, contrast, and color balance to optimize picture quality. The LG

TV series are also providing full HD picture quality with an ultra slim design perfect for

customer bedroom, kitchen or office. With Smart Energy Saving Plus technology, USB

connectivity. LG TV will also save customers’ money on their electricity bills.

1.6. Considerations



The consideration of LG involve future scope, in which LG is tailoring their products according

to the future demand of the customers, Innovation focused for taking competitive advantage

using existing competencies and capabilities, bringing product range to new segments. LG

started introducing quality products in the economy range, focusing on innovation led growth.

They are planning to introduce 3D Screens in Pakistan

The competition scenario of LG in the Television industry of Pakistan, facing competition from

different competitors like: Sony, Samsung, Panasonic, Haier, Toshiba, and great competition

from low cost Chinese televisions.

Competitors like Sony define its technology, “Like no other”. Samsung defines as, “Everyone is

invited” the product for every one focusing on every one’s needs. New Year slogan of Samsung

is “Turn on tomorrow” be ahead in innovation.

1.7. Intended Business

LG is currently focused on T.V, Cell Phones, Home Appliances, I.T Products and Air Conditioners segment. In order to expand its business in future LG should expand its target market. LG future consideration is SOLAR SYSTEM segment which gives great opportunities to LG in future.

1.8. Competitors and Their Businesses

LG major competitors in Television industry are:

Sony provides complete range of product i.e. BRAVIA LCD.

Panasonic is another major competitor of LG which also deals in LCD, LED & CRT T.Vs.

Samsung is a major competitor of LG in the television industry. Its major products are LCD, LED and CRT T.V

1.9. The Business In Which LG Is Not In:

In Pakistan LG basically providing electronics related product but in which they are not catering:

o Camera & Camcorder

o Printers & Peripherals

o Play Stations, X-Box



2. EXTERNAL ANALYSIS

2.1. Market Structure

TY companies in Pakistan are offering their products basically to following three segments:

i. Status Conscious Segmentii. Style Conscious Segmentiii. Price Sensitive Segment

Some TV models of major players in TV line are following:

Status Conscious Style Conscious Price Sensitive

LG Extra smart 3DLG PG-61 Plasma TV

42PG61URLG Golden Eye

Samsung LED 9000LG XCanvas Time Machine

42LC2RR LCD TVLG Sound Max Plus

Sony-ready edge-lit LED Samsung LA40A610 LCD TVSony's KV-24FS120 24-inch

WEGA TV

LG 42SL9000 42" LEDSony BRAVIA KLV-46X350A

46-inch Full-HD LCDSamsung CS-29Z50 CRT TV

Smuggled Chinese CRT TV



Implication

LG television being in High-tech industry has three types of end users which are classified as:

Price Sensitive: These are those Consumers which demand for lowest possible price. Their end user application is only mode of entertainment. Mostly CRT TV is preferred by price sensitive customers.

Style Conscious: The customer who belongs to this category has major focus on their personality and they choose brand which best suits their style. Their end user application is home theater representing the style besides mode of entertainment. This is the segment for LCD TV market.

Status Conscious: The Customers which belong to this group are mostly of Upper class which purchases brands that represents their Status and prestige. Their end user application is representing the social status besides the mode of entertainment. This segment is for LED TV market.

2.2. Distribution Channels



The above chart is showing the distribution channels of TV companies. As we know that there only assembling plants are set up in Pakistan therefore TV companies are using distributors in Pakistan for supplying their products in local market. Companies deliver their products to distributors and distributors supply them to retailers, hyper market and other non- exclusive channels. Companies are also using Brand Show Rooms (Makro, Micro, Agas Super Store and others) for targeting their market.

3.3. Change & Effect Analysis

The consumer electronics (TV) companies are facing many difficulties due to changes in environment and their impact on doing business in Pakistan, out of which some changes and their effects are attempted to show in following table:

CHANGE EFFECT

Increasing inflationary rate in Pakistan Decreasing purchasing power of price



sensitive segment.

New technology Increasing competition, product innovation and improved quality

Imposed taxes on importing electronic items in Budget 2010

Increase in cost of doing business

Smuggled cheap Chinese Televisions Decline in sales

Worse law & order situation Distributors are reluctant to cover northern areas of Pakistan

3.4. Market Size

Market growth rate in terms of units (Past)

Market segment 2006-07 2007-08 2008-09

2009-10 Growth Rate

Status Conscious

- - 85 1104%

Style Conscious

78,500 80,000 81,500 82,5003%

Price Sensitive 825,800 875,000 910,000 945,000 6%

Total Growth rate

5%

Market growth rate in terms of Rs. in millions (Past)

Market segment

2006-07 2007-08 2008-09 2009-10 Growth Rate



Status Conscious

- - 17,000,000 22,000,0004%

Style Conscious

3,925,000,000 4,000,000,000 4,075,000,000 4,125,000,0003%

Price Sensitive 16,516,000,000 17,500,000,000 18,200,000,000 18,900,000,000 6%

Total Growth rate

5%

Average Selling Prices for Last Four Years: Status Conscious LED = Rs. 200,000 Style Conscious LCD = Rs. 50,000 Price Sensitive CRT = Rs. 20,000

Assumption for Growth:

Status Conscious :

According to our analysis, LED that is catering Status Conscious segment was launched in the beginning of 2008 in Pakistani market & its market size is showing 4% growth rate. The reasons of growing market of LED are:

o LED’s new technology, product design, quality, innovative features and high life style

symbol therefore those people who belong to upper upper class, are showing interest towards LED buying.

o This segment user has no effect of increasing inflation factor therefore we are observing

positive growth for LED market.

o All big names in TV market like LG, Samsung, Sony are focusing on this segment and

making strong distribution network to cater this segment.

Style Conscious :



Companies are targeting this segment with best cost providing strategies therefore the prices of LCD is going down with the passage of time, that’s why its market is also showing increasing growth rate by 3%. Other reasons behind growing market of LCD are:

o LCD’s slim body, product design, quality and innovative features attracted this segment

user because before entrance of LCD in this segment, users are buying CRT TVs and they had no option for others because style conscious people are price sensitive to some extent.

o LCD market shifted from Status conscious to Style conscious segment therefore those

people who couldn't afford LCD due to high prices, now they can purchase it.

Price Sensitive :

CRT TVs is volume builder product line for TV making companies. In Pakistan, there are a lot of people those want cheap entertainment in form of TV therefore we are observing 6% growth rate here. Other reasons behind growing market of CRT are:

o Smuggled cheap Chinese TVs is the major factor of growing this segment because price

sensitive people are appreciating Chinese TVs in lower prices.o Majority of rural area people are shifting to urban and sub urban areas therefore they can

also access to CRT TVs.o There is developing a market of used TV sets therefore price sensitive people are buying

those used TV sets.

Market growth rate in terms of units (Future)

Market segment

2009-10 2010-11 2011-12 2012-13Growth

Rate

Status Conscious

110 135 155 185 3%

Style Conscious

82,500 84,000 85,500 86,500 2%

Price 945,000 948,000 950,000 952,000 2%



Sensitive

Total growth rate

2%

Market growth rate in term of Rs. in millions (Future)

Market segment

2009-10 2010-11 2011-12 2012-13Growth

Rate

Status Conscious

16,500,000 20,250,000 23,250,000 27,750,000 3%

Style Conscious

3,300,000,000 3,360,000,000 3,420,000,000 3,460,000,000 2%

Price Sensitive

14,175,000,000 14,220,000,000 15,500,000,000 16,545,000,000 2%

Total growth rate

2%

Average Selling Prices for Last Four Years: Status Conscious LED = Rs. 150,000 Style Conscious LCD = Rs. 40,000 Price Sensitive CRT = Rs. 15,000

Assumption for Growth:

Status Conscious :

According to our analysis, The growth rate of LED market is expected to grow by 3% in future, 3D Smart Tv is recently introduced in the market therefore companies are expecting that this segment has potential to grow and focusing on this segment with strong distribution network and effective promotional activities; brand showrooms and hyper market are ensuring this segment growth. Since this segment has no effect of increasing inflationary rate that’s why companies can cater this segment with high prices and increasing innovative features.

Style Conscious :



This segment is also being expected to have positive growth by 2% in future because according to our future analysis companies are trying to reduce their prices in future therefore this segment people have potential to buy LCD in upcoming years but the ratio of buying is relatively decreasing as compare to past growth rate.

Companies are catering this segment with best cost providing strategies; importing cheap electronic parts from china, reducing other operational costs and outsourcing in non-core sectors.

Price Sensitive :

Due to increasing smuggled Chinese TV and buying of used TV sets we are expected positive growth by 2% in future. This growth rate is relatively low before past years but due to decreasing purchasing power of people, it is expecting that decreasing growth rate of CRT TV in Pakistan.

3.5. Competition Matrix

Competition Status Conscious

Style Conscious

Price Sensitive

Overall

1 LG 5% 25% 70% 100%

2 Samsung 3% 32% 65% 100%

3 Sony 5% 95% 0% 100%

4 Panasonic 0% 95% 5% 100%

5 Nobel 0% 0% 100% 100%

6 Philips 0% 90% 10% 100%



7 Haier 0% 0% 100% 100%

8Smuggled Chinese TVs

0% 0% 100% 100%

Historical Growth 4% 3% 6% 5%

Projected Growth 3% 2% 2% 2%

Analysis:

o LG is catering larger share of LCD, LED and CRT market segments, Samsung and Sony

are close competitors in its LCD and LED market.o Smuggled cheap Chinese TV brands are major threat for LG’s CRT TV market therefore

well known companies like LG, Haier, Panasonic and Nobel should have some action plans to compete with smuggled brands because these smuggled Chinese brands will be major threat for their LCD and LED market.

3.6. Product Life Cycle Stage



Introduction: 3D TV is recently introduced in Pakistan by LG and yet it is on testing stage for both LG and industry.

GROWTH: LCD and LED markets are growing for both LG and industry and they are supposed as current bread & butter winners for L.G. LG’s LCD and LED segments are present in the growth phase. LCD has been introduced by the company a couple of years back in Pakistan. Therefore, LCD tends to be one of the main products of LG in TV segment contributing annual sales of around 22,000 units in 2008 whereas LED is also sharing positive growth rate.

MATURITY: LG’s CRT is the one that reached the maturity stage due to rapid entrance of new competitors in the local market offering stylish and economical products to the middle class segment of customers that covers the huge market. The main competitors faced by LG in CRT TVs are Philips, Toshiba, Nobel, and other Chinese brands.

3.7. Distribution Structure



In (%)

Television Market

2009 2013

Whole sellers 8 4

Brand Show Room 4 12

Retailers 85 75

Hyper Market 3 9

Total 100 % 100%

Analysis:

Whole sellers: It is expecting that companies will generate 4% turnover in future as compare to 8% in 2009 because companies are planning to reduce their whole sellers in upcoming years.

Brand Show Room: 12% turnover is expecting form Brand Show Rooms in future.

Retailers: 75% turnover is expecting from retailers in future.

Hyper Market: 9% turnover is expecting from hyper market in future.

Market Coverage (2009)



Analysis: LG has approx. 1300 retailers all over Pakistan those are distributing through its two

distributors. LG is covering only 40% retailer network whereas Samsung is covering 35%, it has a

positive effect on profitability of the company with 80% turnover share. There is still potential to optimum earning through retail outlets.

LG whole sale coverage is 15% whereas Samsung is covering 10%, it has also a positive effect on profitability of the company with 15% turnover share.

Hyper Market (Makro, Metro, Nahid Stores) are new market coverage places in which LG is behind Samsung and there is a gap which should be fulfilled by increasing LG TVs coverage in hyper markets.

LG has no any brand showrooms in Pakistan and facing gap with Samsung. LG should discuss it with its new distributor.

3.8. Driving Forces



Economic Forces

The worsened economic situation in Pakistan that prevailed in between 2008 and 2009 led to the decline in the television sales all over the country. This provided the company a drastic set back in its sales as it experienced the worst ever drop in its Top line in the last four years of more than 55 percent. The main factors behind the drop in TV market sales during last year includes the hike in inflation in 2008, declining rupee value against dollar as the spare parts imports become costlier and mounting electricity tariffs during 2008-09.

Political Forces

The strict import policies by the government and imposition of Excise Duty of around 40 to 60 percent have also affected the imports of electronic parts. Companies import their components from South Korea to assemble them in Pakistan at their factory located at Lahore. However, due



to the recent economic meltdown and increasing competition, Companies have decided to cut their costs by shutting down the plant operations.

Bargaining Power of Customers

The increasing competition from Sony, Samsung, Philips, Panasonic and Chinese TV products have led to the increasing customers bargaining power. Philips, Panasonic and Chinese products are giving LG tough time as they are providing people CRT TV to the huge local market at the attractive and economical price along with the same shape, look, size and design. On top of that the Chinese products are providing customers with more than 80 percent price differential in CRT TVs if compared to other’s CRT. LG, Samsung and other known brands provide the 21 inch CRT TV at the price range of Rs.22000 to Rs.25000, whereas the same featured Chinese CRT is available at around Rs.5000 to Rs. 8000 in the local market.

Industry Trends

PORTER’S FIVE FORCES

1. COMPETITORS

There are many competitors of LG in the market which includes Sony, Samsung from the same country Korea, Philips Panasonic, Electrolux and low cost Chinese competitors.

The major player in the LED and LCD segment are Samsung at first, LG at second and Sony at Third.

The Philips and Panasonic are major players in CRT TV but not in LCD and LED. LG, Samsung and Sony compete in LED and LCD segments with almost similar

offering to their customers. There are high exit barriers because this is high-tech industry which needs heavy

investments it is not easy to exit. Cross company rivalry increases the chances for decreased profitability for one

company and increases for other one; because companies want to grab higher market share.



2. BARRIERS TO ENTRY

High Capital investment is a barrier to entry in such a high tech industry. Government Regulations, policies and economic down turn are also proved to be the

barriers to entry.

3. SUBSTITUTE PRODUCTS

There is no such Substitute of TV for the purpose of entertainment via picture display.

4. CUSTOMER POWER

Customer demand and preferences push pressure on the company for price down, new features and durability and a high level of service.

Due to many competitors providing similar sort of product customer may switch to competitor’s product.

5. SUPPLIER POWER

Good relations with the suppliers can create cost advantage while poor supplier relation may increase the cost of production.

Few suppliers are also a threat they may become a threat in increasing the cost of components.

LG and other brands have shifted to import components from china rather than Korea due to costly components.

3.9. Top External Trends and Their Impact



3. INTERNAL ANALYSIS



3.1. SWOT Analysis

STRENGTHS WEAKNESSES

Strong Global Marketing Strong Brand image LG has the wide distribution

system in Pakistan Strong R&D Focus on innovation and new

product development Catering localized needs

Cost/Price Don not have own sales force. High dependency on distributors

OPPORTUNITIES THREATS

Shifting to the rural market Manufacturing units in China Grasping more elite customers

through 3D T.V

Incremental duties Entrance of cheep Chinese brands

in Pakistani Market

Threats and Weaknesses Which Could Be Converted Into Opportunities and Strength



Analysis:

• Rural Markets : L.G has been emphasizing on urban areas mostly but if it also focus on rural areas demand by making customized products (low cost and price) for rural markets; it can lead to enhanced market share.

• EFFECTIVE LOCAL TV’s: Currently there is no TV commercial that promotes LG TV; it should be emphasized to attract more number of customers.

• Growing LCD Market: LCD market is growing rapidly which is a great opportunity for LG to cash its LCD technology.

• Innovation: The introduction of blue-tooth technology in Televisions is a great opportunity for LG and the company is endeavoring hard to grasp this opportunity. In addition to this the 3D technology is also expected to become LG’s strength.



• Low Cost Provider China: Most parts are imported from china due to cheap cost and it is required that it should be revised to import all or most of the parts and CBUs from china. As it takes high cost to import a complete CBU or parts from Korea.

• Cheap Brands from China: Unbranded TVs from china is a threat for LG but the quality and features of LG is its strength through which it is fighting against competitors. The CRT and LCD segment are being affected most by these Chinese brands.

3.2. The Customer: Basis of Business

The Relative Importance Factors



Analysis

The most important factors considered by the consumers are Innovative Features, High Resolution Screen, Durability, Sound and Affordable Price.

The top priority of LG is Innovative features and High Screen Resolution because these are the two most important factors which a customer wants in a T.V, which reflects the fact that LG is customer focused.

Rating Against Customer Buying Criteria (Evaluation Table)



Implication

During the purchase decision a television customer look for product related features as Style, size ease of portability, sound and other features while service related only after sale service factor is taken into consideration. The three competitors have been assigned different percentages on these features according to our evaluation which a customer considers during purchase of one of these brands. When we measure quality LG, Sony and Samsung have improved.

When we talk about relative price today of these three competitors LG is at moderate level, Samsung’s prices are high and Sony’s Prices are much higher than these two.

The Relative price four years back LG and Samsung was both at high prices and Sony was again at very high prices at that time. This is because Sony remained focusing to upper class only while



Samsung and LG focused on upper and upper middle class. But now LG is focusing on lower and middle class as well that’s why LG is focusing on low cost strategy.

Customers Buying Criteria: Price..%, Quality Attributes..%

Analysis Of Consumer Buying Criteria (LCD Segment)

L.G is focusing on innovative feature, attractive designs, high screen resolution and sound which are considered as most important factors by the customers and it is needed that L.G should continue to emphasize on these factors.

Size is also considered as important factors by the customers and it is required that L.G should improve more in these factors.

Customer complaint service is considered as another important factor by the customers but not at top priority of customer in LCD segment but L.G has scored good marks than its competitors.



Price is least important factor in LCD segment and LG has scored the same as competitors.

3.3. Impact of Issues on Strategic Profile

Analysis

ISSUE NO: 01



Due to innovative features in its products like Bluetooth and 3D etc the manufacturing cost of the products goes high and customers have to pay high prices for new products which is against the criteria of value + Cost, which customer wants.

In addition to this, high manufacturing cost may lead towards the elimination of CRT as Sony has already withdrawn from CRT segment due to low margin in CRT segment.

ISSUE NO: 02

Another issue is that L.G does not have its own sales force in Pakistan. They have only 23 employees in all over Pakistan. L.G’s sales totally depend upon the distributor’s sales force. These two distributors are including Mega and Allied distributors are also delivering same services to Samsung and Sony. So it’s pretty difficult to make significant difference in market share under such situation.

ISSUE NO: 03

The influx of cheap Chinese brands in Pakistani market is another major issue because it is exploiting the market of CRT segment which is the volume builder for L.G. In addition to this Chinese brands have also entered into the LCD segment. LCD segment is a growing segment and LG is expecting more profits out of this segment but entrance of Chinese brands is a serious issue for them.

ISSUE NO: 04

Although L.G has very strong global marketing but they are lacking in Local Marketing. Local marketing is also a kind of support for local dealers to boost their sales.

ISSUE NO: 05

The increase in duties by the government on parts and CBUs is another major issue for L.G because it has forced the TV industry to raise its prices due to high import duties.

4. VISION AND MISSION STATEMENTVision Statement



LG strives to be the top three rank consumer electronic company in the world by 2010. With the concept of “Great Company, Great People”, enhancing customer value with innovation & design.

Mission Statement

LG mission is to focus on the premium segment of the market that fetches greater margin opposed to volumes, and to utilize their core capabilities of product leadership, market leadership and people leadership and enhance their corporate culture of team work and fun workplace to become top three brands in electronic industry.

Strategic Direction

LG Electronics set its mid- and long-term vision a new to rank among the top 3 electronics, information, and telecommunication firms in the world. By embracing the philosophy of "Great Company, Great People," whereby only great people can create a great company, and pursue two growth strategies involving "fast innovation" and "fast growth." Likewise, LG seeks to secure three core capabilities: product leadership, market leadership, and people-centered leadership

Objectives:

• To expand the LED/LCD/Plasma TV business in Pakistan and to achieve at least 30%

market share in LCD TV and 50% market share in Plasma TV by the end of 2011

• To support the sales by launching attractive TVC by the end of September 2010

• To make LG a premium brand by focusing on innovation and customizing their products

according to the needs of customers

• Reinforce premium strategy market centering on customer value, promote alliances and

outsourcing in non-core sectors, strengthen ‘soft’ capabilities (brand, design, key technology)

and pursue top tier level operations

• To minimize the cost of products by 2% to 3% by importing parts from china instead of

Korea

• To strengthen the relationship with distributers by offering more incentives so, that they can

focus more on LG brands



5. KEY ISSUES

According to our analysis, we have found some key issues with LG which have major impact on their business.

• Increase in cost and prices • Higher dependency on distributor • Smuggling of cheap Chinese CRT television

6. ACTION PLAN

strategic lg tv report

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