LG’s INITIATIVES IN RURAL INDIA

JISHNU MOHAN
FK-1823
 SYSTEMS AND OPERATIONS
CORPORATE OVERVIEW

Established in 1997, LG Electronics India Pvt. Ltd is a wholly owned subsidiary of LG

Electronics, South Korea. In India for a decade now, LG is the market leader in consumer
durables and recognized as a leading technology innovator in the information technology
and mobile communications business. LG is the acknowledged trendsetter for the
consumer durable industry in India with the fastest ever nationwide reach, latest global
technology and product innovation.

One of the most formidable brands, LGEIL has an impressive portfolio of Consumer
Electronics, Home Appliances, GSM mobile phones and IT products. LG Electronics
India Pvt. Ltd 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. This facility
manufactured Color Televisions, Washing Machines, Air-Conditioners and Microwave
Ovens. In 2004, LGEIL also up its second Greenfield manufacturing unit in Pune,
Maharashtra that commences operations in October 2004. Covering over 50 acres, the
facility manufactures LCD TV, GSM Phones, Color Televisions, Air Conditioners,
Refrigerators, Microwave Ovens Color Monitors.

LG has been able to craft out in ten years, a premium brand positioning in the Indian
market and is today the most preferred brand in the segment.

LG’s PUSH INTO RURAL MARKETS

LG has increased its branch numbers to 23 in the year 2002 from 18 in the previous year.
To further penetrate the rural market, it has posted 93 area managers across the country.
The spreading of the networks also helped in taking quick decisions. LG has improved
the interaction with the dealers. In its bid to enter the rural market in a big way, LG
launched a massive campaign in rural areas. These included road shows, society
demonstrations, and localized shows in rural India. The countryside campaign was
supported by a huge advertisement and promotion budget. The multinational company
had increased its annual advertisement and promotion budget for consumer electronics by
60 per cent from Rs.25 crores in 2001 to Rs.40 crores in 2002.

For the World Cup Football 2002, LG kicked off a media promotional campaign of Rs.15
crores. Knowing that there is an opportunity to sell CTVs during the two months as the
world would be gripped by the World Cup Football fever, LG had launched a new CTV
model, looking like a football, which according to it is the world’s first soccer TV in
India.

RURAL MARKET PENETRATION

LG's twin-pronged strategy has worked out brilliantly. At one level, the company figured
it needed new cheaper products to lure the rural buyer. At another level, it figured that
more offices in smaller towns and cities were the need of the hour. LG moved quickly on
both fronts. At one level, it has introduced cheaper products like its Sampoorna television
range. At another it has gone on an office-opening spree in India's smaller towns.
Currently, it has more than 150 branch offices.

The urban consumer durable market for products like color TVs, washing machines,
refrigerators and air-conditioners was growing annually at between 7 per cent and 10 per
cent. The rural market was growing faster than urban India. The urban market became a
replacement and up-gradation market. LG lead the way in this regard. In 2002, 60 per
cent of its turnover came from the urban market. Today, that's down to 40 per cent. The
majority of LG's revenues are now coming from smaller towns like Hapur, Trichy, Jorhat
and Asansol.

The company has also taken other initiatives like 65 Remote Area Offices under the
branch offices that are empowered to directly link to the central billing system for orders,
230 service centres and 2,600 mobile authorized service personnel for villages having
below 10,000 residents. All these moves are part of LG's efforts to push turnover to a
whopping Rs 7,000 crores (Rs 70 billion) by year-end which they succeeded.

MARKETING STRATEGY

The 4A approach

The rural market may be appealing but it is not without its problems: Low per capita
disposable incomes that is half the urban disposable income; large number of daily wage
earners, acute dependence on the vagaries of the monsoon; seasonal consumption linked
to harvests and festivals and special occasions; poor roads; power problems; and
inaccessibility to conventional advertising media.

However, the rural consumer is not unlike his urban counterpart in many ways.

A). Availability - Place

The first challenge is to ensure availability of the product or service. India's 627,000
villages are spread over 3.2 million sq. km; 700 million Indians may live in rural areas,
finding them is not easy. However, given the poor state of roads, it is an even greater
challenge to regularly reach products to the far-flung villages. Any serious marketer must
strive to reach at least 13,113 villages with a population of more than 5,000. Marketers
must trade off the distribution cost with incremental market saturation. Over the years,
India's largest MNC, Hindustan Lever, a subsidiary of Unilever, has built a strong
distribution system which helps its brands reach the interiors of the rural market. LG
Electronics defines all cities and towns other than the seven metros cities as rural and
semi-urban market.

In order to tap these markets the company has also taken initiatives like
 A) 65 Remote Area Offices under the branch offices that are empowered to directly
link to the central billing system for orders.
B) 230 service centres.
C) 2,600 mobile authorized service personnel for villages having below 10,000
residents.

All these moves are part of LG's efforts to push turnover to a whopping Rs 7,000
crores (Rs 70 billion) by year-end.

B). Affordability- Price

The second challenge is to ensure affordability. With low disposable incomes, products
need to be affordable to the rural consumers, most of who are on daily wages. Some
companies have addressed the affordability problem by introducing small unit packs.
Godrej recently introduced three brands of Cinthol, Fair Glow and Godrej in 50 gm.
packs, priced at Rs.5 meant for specifically for Madhya Pradesh, Bihar and Uttar Pradesh.

LG India has taken full advantage of a booming demand for colour TVs in rural India by
launching Sampoorna, a colour TV whose operations booklet was in the Devnagari script.
For this model, LG also introduced technology that provided better a reception in low
signal locations—which is a common problem in rural areas. Today, LG claims that
Sampoorna series accounts for about 30 per cent of its colour TV volumes.

.In 1998, LG launched its first low priced TV for rural consumers

 Sampoorna- Rs.3000

 Cineplus- RS 4900

C). Acceptability - Product

The third challenge is to gain acceptability for the product or service. Therefore, there is a
need to offer products that suit the rural market. One company which has reaped rich
dividends by doing so is LG Electronics. In 1998, it developed a customized TV for the
rural market and christened it Sampoorna. It was a runway hit selling 100,000 sets in the
very first year.

1. Product localization is the key strategy used by the LG

2. LG came out with Hindi and regional language menus on its TVs.
3. Introduced the low-priced “Cineplus” and “sampooma” for the rural market.
4. LG was the first brands to introduce gaming in TVs in continuations of its association
with cricket LG introduce cricket game in CTVs.

D).Awareness- promotion

Promotion of brands in rural markets requires the special measures. Due to the social
and backward condition the personal selling efforts have a challenging role to play in
this regard. The word of mouth is an important message carrier in rural areas. In fact
the opinion leaders are the most influencing part of promotion strategy of rural
promotion efforts. The experience of agricultural input industry can act as a guideline
for the marketing efforts of consumer durable and non-durable companies. Relevance
of Mass Media is also a very important factor.

SUCCESS STORY

THE `Go rural' mantra seems to have worked for the consumer electronics and durables
major LG Electronics India Private Ltd. The company, which recorded a turnover of Rs
2,310 crores — a 55 per cent growth — during the first half of this year, when compared
to the same period last year, has been able to register this growth thanks to a little help
from the semi-rural and rural markets.
LG has succeeded in acquiring this growth more so because it moved its focus to the
interior of India after establishing itself in the urban market. The contribution from the
semi-rural and rural sector has been close to 48 per cent in the overall turnover of the
company. The focus is to penetrate deeper into rural India which is an emerging market.

LG has recorded a growth of 40 per cent in air conditioners selling almost 2 lakh units
against 1.42 lakh units sold during the same period last year. In colour televisions
(CTVs), it has registered a growth of 22 per cent selling 8.60 lakh units. According to the
company, it has recorded a growth of 66 per cent in the direct cool refrigerator category
and 48 per cent in the frost-free category during the first half of the fiscal.

According to industry analysts, LG has been able to strengthen its stronghold in the
country due to innovation and understanding of the Indian consumer.

CHALLENGES

 Electricity Shortage – Sporadic Power Supply

 Acute Water Shortage.
 Poor Transportation availability.
 Consumer Finance Options
 Question of making energy saving products.
 Question of accessibility to the different products.

SOLUTIONS

 Set up of a Life style Research Team that would analyze the needs and preferences

of the consumer.
 Understand at length his comfort levels in terms of what he wants and what he
would spend for what he wants..
 Make products and service available for him to suit his needs & Preferences.
 Have a deep pocket network to make products available for him at a close
proximity from where they can access product easily.

FINDINGS

1) The rural market accounts for 60 per cent of new CTV buyers for LG.

2) The rural market for LG grew at 25 per cent over the last year, against a 15 per
cent growth in urban areas.
3) Sampoorna TVs sold in the Indian heartland and the semi urban belts, enforced a

strong connection with India for LG.

4) It connected very well with down the pop strata.

5) 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.

6) LG was the first brands to introduce gaming in TVs in continuations of its

association with cricket LG introduce cricket game in CTVs.

7) 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.