Will LG Be Lucky Enough To Strike Gold?

MARKETING
Will LG Be Lucky Enough To strike Gold?

A late starter, the aggressive South Korean must redefine its 3Ps--Pace, Penetration, and Pricing--to stay ahead.

By George Skaria

K.R. Kim, Managing Director, LG It may prove to be the fourth lucky star for L(ucky) G(oldstar) Electronics. In 1982, after being appointed one of the official suppliers of Colour Television (CTV) kits for the Asian Games in Delhi, LG Electronics disappeared for the next 12 years, losing its headstart in the domestic consumer durables market. Then, in 1995, the South Korean giant cobbled together a technical collaboration with the unknown Delhi-based Bestavision Group and, subsequently, in 1996, even set up a joint venture with the hi-profile Rs 3,300-crore C.K. Birla Group. But both these attempts failed to take off too.

Finally, after receiving a nod from the Foreign Investment Promotion Board to set up a wholly-owned subsidiary in 1997, LG Electronics (formerly Lucky Goldstar) seems to have struck gold in a fiercely competitive market. Consider:

In less than 2 years, LG Electronics has notched up substantial marketshares: 6.50 per cent of the Rs 4,500-crore CTVs market, and 8 per cent of the washing-machines, 9 per cent of the microwave-ovens, and 37 per cent of the high-end refrigerators markets.

Along with other global players like Samsung (South Korea) and Sony (Japan), LG Electronics has turned the corner. In 1998, the company recorded sales of Rs 480 crore, reporting net profits of Rs 4 crore.

After pumping in $55 million (Rs 231 crore) to build a state-of-the-art plant and market development, LG Electronics plans to invest an additional $100 million (Rs 420 crore) over the next 3 years to make more inroads into the 6 product- segments it operates in: CTVs, washing-machines, refrigerators, air-conditioners, microwave ovens, and VCD-players.

In the last 20 months, LG Electronics--which has an 8 per cent share of the $24-billion (Rs 1,008 crore) global CTVs market--has aggressively pursued a distinct strategy to carve out a niche for itself in a crowded segment, where, at last count, there were 20 manufacturers. Says K.R. Kim, 43, Managing Director, LG Electronics India (LG Electronics), who has managed the company's operations with the sense of discipline inculcated in him during his 3-year stint with the South Korean Army: "By creating our own strategies and, thereby, instilling fresh ideas, we have been able to drive the market." Adds Rajiv Karwal, 37, Vice-President (Marketing), LG: "We realised that the only way to gain ground was to combine aggression with differentiation."

R. Karwal, V-P (Mktg), LG Now, Kim wants to consolidate his gains--quickly. While LG Electronics expects to increase its turnover to Rs 800 crore in 1999--a jump of 66.66 per cent over the previous year--the target for 2005 is Rs 2,500 crore. More important, the company aims to corner a 25 per cent share each of the CTVs and washing-machines markets over the next 5 years. Still, the future isn't as picture-perfect as Kim would like it to be. Fierce discount wars, and the rapidly-falling margins in most of its segments will prove to be obstacles in LG's marketing strategy, which is based on 3 `P's: premium Pricing to maintain margins, breathtaking Pace to create niches, and deep Penetration to increase volumes. Will it work?

PREMIUM PRICING. Since LG Electronics was one of the late entrants--the 18th player to enter the CTVs segment, actually--it decided to avoid the herd. While others were jostling to play the low-price, high-volumes game, Kim decided to concentrate on the high end of all the product-segments he entered.

That was partly forced on LG--after it lost precious time due to its abortive tie-ups with Bestavision and the Birlas--and, fortunately, coincided with the global strategy too. The result: its CTVs' prices--at a maximum of Rs 21,000 for a 21-inch model--were at least 10 per cent higher than even Sony's. Says Karwal: "Our analysis showed that most of our competitors were catering to the lower and middle segments. Thus, we decided to concentrate on the premium segments."

To cultivate the image that LG was a leader in both technology and quality, innovative products were launched: Golden Eye CTVs, whose picture adjusts automatically according to external light conditions, and refrigerators with Preserve Nutrition systems that keep perishable foods nutritious. Further, a premium image precluded the company from offering discounts or resorting to exchange offers. Instead, LG Electronics bundled Rs 2 lakh of personal insurance along with basic purchases last Diwali.

Explains Preet Bedi, 42, Director, Ammirati Puris Lintas, which handles the LG Electronics account: "The strategy to offer value propositions to the customer through honest pricing is that of a long-term player. In hindsight, it has paid rich dividends." Agrees Ghanshyam Das, 70, Advisor, Electronic Component Industries Association: "LG's quality products and competitive prices have been accepted in the marketplace."

In the long run, however, a premium pricing strategy will force LG Electronics to remain a low-volumes player. In fact, even Sony, which believes in selling premium products globally, has decided to introduce cheaper TV models to increase its volumes in small towns. The reason: future demand will come from the small towns and the rural areas, where consumers are extremely price-sensitive.

Therefore, according to Abraham Koshy, 44, Professor (Marketing), Indian Institute of Management, Ahmedabad: "LG is straddling other price-segments too by capitalising on the brand image and positioning built around reliability and quality." While that could dilute its premium perch in the short term, it will enable LG Electronics to gain marketshare in the long run.

PACE. It was obvious that LG could not waste any time, being among the last to enter the market. So, the 20-month schedule to commission its manufacturing plant was compressed to 10 months. And it also decided to go in for a nationwide launch, and appointed 1,000 dealers in just 5 months in 1997. Finally, the company entered 3 product categories (which later rose to 6) simultaneously, ensuring adequate retail-space. Explains Karwal: "This definitely ensured that we were able to build up the market for our products faster than we would have done if we had launched one product at a time, and marketed them region-wise."

But LG Electronics must now quickly move on to the next stage. Since the key to survival in a competitive marketplace is the ability to launch models, with innovative features, at regular intervals, LG Electronics' range includes 24 models of CTVs, 6 washing-machine models, and 11 refrigerator models. But it needs to aggressively introduce more models--like the proposed launch of a digital TV by 2000--to effectively combat its competitors, whose multi-branding strategy is a notch above LG Electronics'.

PENETRATION. Pace was followed by aggressive penetration. Having established 18 branch-offices, and 6 C&F agents in Goa and Pondicherry to take advantage of the sales-tax benefits in these areas, and towns like Ranchi (Bihar), Raipur (Madhya Pradesh), and Nagpur (Madhya Pradesh), the company has expanded its dealer-network to 2,500. By the end of this year, this will rise to 3,500 dealers. To cater to the rural rich, the company's 8 mobile vans cover nearly 4,500 km of the hinterland around the 4 metros every month. All this is backed by an estimated annual adspend and market-support expenses of Rs 28 crore in 1999. However, none of this will succeed unless it is backed by both product- and pricing-flexibility.

Clearly, LG Electronics has a long way to go before it becomes a major in the consumer durables market. But its technological superiority will provide the cutting-edge to its marketing strategy. Couple that with the support it is getting from its parent--which is willing to pump in more money--and the company's growth is assured. The only thing LG Electronics needs to do is to develop a Golden Eye to adjust to the changing demands of the customer--automatically.

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