Leveraging iPerformance

Business plan for Whirlpools innovative water purifier product

2012

WHIRLPOOL OF INDIA LTD

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Whirlpool, a 100 year old global leader in home appliances has also been a leader in this industry (Rs. 30000 Cr market for white goods) in India since many years. It is a leading player in India in Refrigerators and Washing Machines which are also the top 2 categories in the home appliances industry. It entered the fast growing but intensely competitive water purifier segment in 2008 with a view to leveraging some of its key assets a well-known brand, a wide service network of more than 700 service centres, a strong product organization that can design, source/engineer, test and manufacture electrical appliances within a 1-2 year time span and a strong distribution network that enabled Whirlpool products to reach more than 30000 home appliance sellers across India. What made water purifiers lucrative was that they ensured a significant trail of revenues through filter replacement required for each product as high as 20-30% of initial value of the product could be gained every year from each installation. This strategy banked on introducing a line of RO purifiers, with low technology differentiation but targeted at the higher end of the market and high on aesthetics, usage and convenience features that leveraged its brand, distribution and service network. It hoped to gain advantage as the transactions shift to buying from retail as a natural move from the more expensive and tedious door to door selling. After 4 years of using this strategy, Whirlpool has a market share of 3% in household purifiers by value - far below its initial estimation. Continued prevalence of the door to door and direct to home models of selling; intensifying competition and low differentiation in its products were some of the key drivers. As the Category Manager heard the MDs address to the executives urging them to focus on core performance in each of its appliances (this was called iperformance in Whirlpoolspeak) - he started thinking about how this would be relevant to his category. The product that gave the best performance vis-a-vis competition was the Platinum RO purifier a product that the company had struggled with because of low sales but this was a product that was most suited for commercial applications, he wondered what go-to-market would be needed to market this product to Commercial establishments as the sales system in Whirlpool was used to selling to Retail outlets that were visited by individual consumers. He also wondered if adding another product, the UTS RO purifier would strengthen this line-up and give a low cost option to the sales force. Another issue worth considering was whether leasing this product to restaurants for an initial installation cost and charging them a usage fee per month, a model that was successful in Whirlpool-Brazil, would be a right approach to use in India.

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Background Water Business in India The domestic water purification appliances business in India started with the introduction of electrical UV purifiers by Eureka Forbes in 90s, who sold it through a door to door sales network. Between 2000-2005 other players like Kent, Zero B, HUL launched household purifiers with different technologies and price points and around 2008 when Whirlpool entered it had become a 1500 Cr. Market growing at 20-25% p.a. (Refer Exhibit 1) All major players were banking on selling a proprietary technology and so had to still use direct to home approach to seed their technologies. Whirlpool entered the household purifiers market with a line of purifiers based on RO technology and chose to take the retail route for distribution. (Refer Exhibit 6)

Features of Whirlpool Platinum RO and Whirlpool UTS RO Features Filtration Capacity Certification Mounting Purification Whirlpool Platinum RO 72litres/hr WQA gold seal Counter top and Wall mount Removal up to 2500 TDS Whirlpool UTS RO 14litres/hr Best in class Under the sink Removal up to 2500 TDS

Advantages of Whirlpool Platinum RO and Whirlpool UTS RO Whirlpool, the global leader in Home Appliances markets the most innovative water purifier in India- the Platinum RO Water Purifier. It is the only online RO Water Purifier in India, with an electronic system that automatically cleans the filters and also informs the consumer when to change the filter. With an unprecedented recovery rate of 40% and a purification rate of 72 litres per hour, it is the most powerful and environment friendly RO Water Purifier in India. Through its 1000 installations in high volume applications, it drives saving of 1 million litres of fresh water every day. The Platinum RO purifier can work directly with coolers and with water dispensing refrigerators. Whirlpool UTS RO has best in class certifications and high aesthetic appeal with its chrome and gold styled faucet and is ideal for pairing with modern kitchens and works as a direct attachment with coolers and water dispensing refrigerators.

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Business Case Based on the facts attached in the case study suggest: 1) Three year business plan for Whirlpool commercial purifier category highlighting: Market size estimation Proforma P&L

2) Marketing plan for Platinum & UTS RO purifiers targeting out of home consumption addressing Segmentation/Targeting/Positioning Pricing (Outright sale/Leasing/Hire purchase) Distribution channels (Own/Franchisee/Third Party)

3) Innovative Ideas to increase adoption

Please state clearly the assumptions considered while responding to above questions.

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Exhibit 1: Water purifier technologies Type Gravity fill Price range Rs. 499-3500 Description Basic type of water purifier which is NonElectric water purifier (Non EWP). They rely on chemicals (chlorine) and activated carbon to kill germs. Electric water purifiers are perceived to be more effective than gravity fill drip methods. They rely on UV radiation to kill bacteria/microbes. Reverse osmosis (RO) based water purifiers is the largest segment and used in areas with higher water salinity it is perceived as the best water purification technology due to its performance it can remove germs/pesticides and salts. For commercial usage, usually higher capacity RO and UV plants are used; the choice depends on salinity in water. In areas like Delhi NCR, TN, Gujarat, Punjab RO filtration is preferred while Mumbai Region, Kerala where water salinity is low UV plants are preferred.

UV Residential

Rs. 4000-8000

RO

Rs. 9000-20000

Commercial

RO/UV

Rs. 22000+

Exhibit 2: Whirlpool Sales and service organogram

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Exhibit 3: Steps in decision making process in large organizations (staff strength > 300) 1) Felt need During new office construction/renovation/expansion/increase in facilities provided. Key decision makers and influencers likely to be Top Management and Administration unit head. 2) Defining performance and cost Executed by Administration executives with decision from Administration Head and Top Management. 3) Sending out RFQ (Request for Proposals) in a formal organization or direct contact with vendors in an informal organization Short listing of candidate products/offerings by Administration executive. 4) Finalization of product by Administration executive 5) Installation by Vendor/Service Provider 6) Post installation feedback from staff gets channelled through to Administration executives 7) Servicing by Vendor/ Service Provider 8) Decision for replacement during renovation/expansion/increase in facilities

Exhibit 4: Commercial segments

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Commercial outlets

Commercial (15%)

Residential(85%)

Food chain , Gyms , Restaurants, Hospitals (70%)

Airports , Railways , Malls , educational inst (30%)

Commercial Type(84%)

Residential type (16%)

Counter Top/Wall Mount (98%)

Under the Sink (2%)

Division by outlet

Division by type

Division by method of installation

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Exhibit 5: Whirlpool RO vs. Competitor RO and Bottled water Whirlpool PURAFRESH PLATINUM RO Whirlpool PURAFRESH UTS RO KENT ELITE II

Specifications

ZERO B INTELLO

Image

Purification Capacity Dimensions (WDH) Purification Capacity TDS removal Certifications Mounting Warranty

72 litres/ hour 240*410*420 (mm) 5 stage Upto 2500 WQA Gold seal Counter top/Wall mounted 1 year

14 litres/ hour 400*200*260 (mm) 4 stage Upto 2500 NSF, USA Versatile 1 year

50 litres/ hour 260*450*870 (mm) 4 stage Upto 750 Wall mount 1 year

25 litres/ hour 445*275*410 (mm) 5 stage Upto 750 Counter Top 1 year

Premium jar cost 5 In-House Consumption No. of 20 L No. of jars years @ Rs. 70/20L jar Manpower Litre/day jars annual# 5 years 25 32 480 2400 168000 50 64 960 4800 336000 100 130 1950 9750 682500 300 400 6000 30000 2100000 Water consumption per Person per day in controlled environment of 20 -24 deg C is 1250 ml in 8 hours. #assuming 300 working days in a year. Jars are 20 litre packs of water sold in plastic containers.

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Platinum filter cost Filter Neo sense Membrane Post carbon Recovery rate: 50% UTS filter cost Filter PRE-FILTER PLUS SEDIMENT PRE-CARBON MEMBRANE POST-CARBON Recovery rate: 25% *Recovery rate is a measure of purified water a RO water purifier provide Cost(Rs.) 410 400 400 2100 750 Usable upto(litres) Flow amount (average value) in litres/day 14400 60 10800 60 14400 60 5400 15 5400 15 Cost(Rs.) 1200 8000 1200 Usable upto(litres) 7200 8100 8100 Flow amount in litres/day 30 15 15

Exhibit 6: Initial line of products and proportion of unit sales from 2008-2010 Whirlpool Purafresh Deluxe RO Whirlpool Purafresh Elite RO Whirlpool Purafresh Platinum RO 80% 19% 1%

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Exhibit 7: Report on Water purifier market in India by Adi media-Veopar journal

The water purification business in India is undergoing major changes, not just in terms of technology, but also in terms of pricing and competition. Innovation and product differentiation seem to be the key mantras in the business. The drivers include scarcity of clean drinking water, low penetration of water purifiers, increasing urbanization, and waterborne diseases, while challenges faced are the lack of standards and low awareness levels. There would be tie-ups for enhancing distribution, increasing product portfolio, and rural expansion. Competitive landscape identifies major players in the market. The market has also started evolving in the offline category for consumers who do not have access to running water and electricity and at a lower price point. With the market opening up, it is only helping a larger base of India get water purifiers. As per World Bank, 80% of communicable diseases in India are water related. With the population size of 1.17 billion, only less than 15% people have access to safe drinking water. It is estimated that about 10 million illnesses and 700,000 deaths in India could be attributed to diarrhoea of which 400,000 are children under the age of five. Moreover, due to over exploitation of ground water, the levels of mineral contaminants such as arsenic and fluoride in water drawn from wells have increased dramatically. About 50 million people in West Bengal are presently affected by arsenic poisoning while an additional 70 million people are affected in neighbouring Bangladesh, which according to the

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World Health Organization (WHO) is the largest mass poisoning in human history. In addition, about 60 million people across India, mainly in Rajasthan, Gujarat, and Andhra Pradesh, consume water with high fluoride content. Given the gravity of the situation, there is an urgent need for deploying technologies for removing microbiological, arsenic, and fluoride contamination from drinking water before it is consumed. Nearly 30% of rural India has no access to safe drinking water. Awareness of health risks linked to unsafe water is still low among the rural population. But the rising prosperity in rural India means people may be willing to pay more for safe water. One clear indicator is the thrust that conventional packaged water companies such as Parle, Bisleri and Coca-Cola are giving to rural distribution.

Governments too are now willing to work with private parties. For instance, California-based Water Health International is in the process of setting up 225 water treatment plants for panchayat blocks in Andhra Pradesh on a build-own-operate-transfer (BOOT) basis. Water Health will make its money from user fees. There certainly exists an opportunity. But it is a long haul. A number of things from the business model to community acceptance of safe water for a price have to fall into place for these ventures to turn into stable, sustainable operations. The period and amount of returns are

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uncertain and most companies are still nascent. As more households switch to water purifiers, there is an urgent need for stringent standards for the equipment. In India, unlike producers of natural mineral water and packaged drinking water, who are required to meet Bureau of Indian Standards (BIS) norms, there is no such mechanism for ensuring safety of potable water purification devices. Some leading consumer organizations in India observed the World Water Day in Delhi to attract the attention of the government, policy makers, and media to ensure access to safe potable drinking water to the citizens and take immediate steps to bring reforms in its distribution in an equitable manner. They believe the domestic water purifier market is aggressively marketing the chemical-based technology to purify water, which is a serious public health issue. There is also a huge unorganized market in India, which is misleading the consumers. There are no regulatory mechanisms mandated to check the standard of water consumed by the ignorant and helpless consumers. The use of chemicals including chlorine in these purifiers should be carefully governed and regularly monitored to ensure that the dosage is administered under safe level. Also some other chemicals used in the cleaning process by these purifiers decompose themselves during filtration and treatment of water and produce products which when combined with other routinely used material can be harmful to health. There is also a growing fear that water will be cornered by the highest bidder to be sold to those who can afford to pay, leaving large parts of India outside the net. Does this mean that people who cannot afford are destined not to get safe water?

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Market Dynamics The Indian water purifier market is on a high growth trajectory. It is estimated at Rs.2000 crore with total sales of about 5 million units. TV Veopar for the sake of total accuracy has considered top 5 brands, which together constitute 3,627,759 numbers, estimated at Rs. 1142.44 crore. The five brands are Aquaguard, Hindustan Unilever Limited, Kent, Zero B, and Whirlpool. Eureka Forbes has the highest turnover in the segment, estimated at over Rs. 510 crore. It is present in all the three categories RO based, inline/UV based, and offline purifiers through its brand AquaSure. Hindustan Unilever Limited dominates the offline water purifiers market and has some presence in the inline category with Marvella OGT and Auto fill purifiers. Its turnover from water purifiers division is estimated at Rs. 300 crore. Kent with its focus primarily on the premium RO-based purifiers had a sales turnover of Rs. 240 crore in 2010-11. Kent moves ahead with its vision toward making the world a healthy and happy family. Ion Exchange had sales of Rs. 54.57 crore in 2010-11 from its direct sales and retail counters for Zero B water purifiers for domestic use. The company is present in all the categories, with inline being solar-based purifiers. Ion Exchange is a specialist and offers total water solutions for industry, homes, and communities. Integrating process technology, design engineering, and project management capability, Ion Exchange takes end-to-end responsibility planning, integrating and managing water supply, quantity, quality, discharge, and environmental fronts. The company has provided installations for diverse industries in India and abroad, from nuclear and thermal power plants, fertilizer, refinery, automobile, electronics, and textile industries. Whirlpool, Tata Chemicals, Usha Brita, Bajaj, and Philips are the other aggressive brands. Many other brands are making a foray into this segment. Some regional ones have a stronghold in their respective areas. These include LG, IFB, Godrej, and Kelvin catering to the Delhi market; and Gilma, Moniba, Morf, and Nasaka from the Okaya Power group, and many more in the southern parts of India. The Indian market has tremendous potential, which is evident from the fact that global majors in the water purifiers segment have stepped in and are looking to increase their share of the market. The principal players today are Hindustan Unilever, Kent RO, Eureka Forbes, Ion Exchange (Zero B), Whirlpool, Philips, Tata Chemicals, and Usha Brita. Many regional brands are successful in their respective geographical areas. In the years to come, many others may enter the fray.

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The low-cost offering of high-end durables targeted at households in small towns and rural India are the water purifiers from the house of Eureka Forbes and Hindustan Unilever. Both are becoming increasingly popular because they are effective and affordable. Also, they do not run on electricity or require continuous water supply and, therefore, are ideal for locations where water and power supply is unpredictable. Other aggressive brands available in the offline category are Kent, Zero B, Bajaj, and Tata. The Global Scenario The market for water purification was USD 85 billion in 2010 (only equipment and products) and is growing on an average over 610 percent per year depending on the country. The highest growth is to be expected in China with an annual growth rate of over 15 percent followed by Brazil, South-East Asian countries, and the Middle East. The European market is generally on a high level and is dominated by membrane technologies, accounting for approximately 50 percent of the total market in Europe. Breakthrough in Technology Researchers at the North Carolina State University have developed a new material that can remove radioactive contaminants from drinking water, a discovery that could help Japan deal with its unfolding water crisis. The new material is made of forest by-products and crustacean shells. The material works like foam. It absorbs water and can soak up contaminants in water and salt from seawater. In future, the new material could be packaged in a small bag or it can be used as a filter to clean up large areas. As we are currently seeing in Japan, one of the major health risks posed by nuclear accidents is radioactive iodide that dissolves in drinking water. Because it is chemically identical to nonradioactive iodide, the human body cannot distinguish it which is what allows it to accumulate in thyroid and eventually lead to cancer. The newly developed material binds iodide in water and traps it, which can then be properly disposed of without risk to humans or the environment. Not only can the new material remove radioactive iodine, but can also strip heavy metals like arsenic from drinking water. If the material is eventually used in disaster situations, it could help clean water when there is no electricity source to tap. The current situation in Japan is a good example of how this material might help clean up the water supply. Water availability is a major issue in many parts of the world; not only drinking water demands are increasing but also water is invaluable for the industry and community uses. Currently in India, every company is striving to make its products available at different price brackets, thus making it possible to provide safe drinking water to every Indian. Based on Research conducted by TVJ in July 2011.

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