TABLE OF CONTENTS

THE AUDIO INDUSTRY-BACKGROUND.............................................................................................3

THE DYNAMICS OF PRICE-PERFORMANCE LINE OF AUDIO INDUSTRY..........................4

SEGMENTATION OF THE AUDIO INDUSTRY ...............................................................................6

MAJOR PLAYERS IN THE MARKET...................................................................................................7

PHILIPS INDIA LTD....................................................................................................................................7

BRITISH PHYSICAL LABORATARIES .................................................................................................8

VIDEOCON..................................................................................................................................................10

SONY.............................................................................................................................................................10

ONIDA...........................................................................................................................................................11

ONKYO.........................................................................................................................................................11

LIKELY TRENDS...................................................................................................................................12

CRITICAL SUCCESS FACTORS.........................................................................................................12

Price ......................................................................................................................................................13
Sustaining power ...................................................................................................................................13
Technology ............................................................................................................................................13
Reach......................................................................................................................................................13
HISTORICAL PERSPECTIVE OF THE RIVALRY BETWEEN BPL AND PHILIPS....................13
BACKGROUND INFORMATION ......................................................................................................................13
First Move by BPL: Launches Superior Quality Products and not Range..........................................14
Philips responds by creating Midi-Stereo Segment : Launches Powerhouse......................................14
BPL’s reply to Powerhouse and advent of CD players in Indian market............................................14
BPL gains due to its agility to launch new models faster.....................................................................15
BPL offers an assortment of White goods along with consumer electronic goods..............................15
Integration of audio-video.....................................................................................................................15
BPL: STRATEGY........................................................................................................................................15
CORPORATE STRATEGY: TO BE PRESENT IN EVERY CORNER OF HOUSEHOLD.........................................................16
EVALUATION OF STRATEGY.......................................................................................................................16
OPERATIONALISING THE STRATEGY (FUNCTIONAL STRATEGIES ):......................................................................16
Production strategy: .............................................................................................................................16
Marketing strategy:................................................................................................................................17
Financial strategy:.................................................................................................................................18
COMPETENCIES................................................................................................................................18
BUSINESS STRATEGY...............................................................................................................................18
PHILIPS INDIA LTD: STRATEGY..........................................................................................................18
CORPORATE STRATEGY............................................................................................................................18
EVALUATION OF THE STRATEGY.................................................................................................................18
FUNCTIONAL STRATEGIES.........................................................................................................................19
Production Strategy...............................................................................................................................19

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 Marketing Strategy................................................................................................................................19
COMPETENCIES.......................................................................................................................................20
BUSINESS STRATEGY...............................................................................................................................20
INDUSTRY SCENARIO IN FUTURE......................................................................................................20
TIME FRAME..........................................................................................................................................20
FACTORS THAT WILL AFFECT THE INDUSTRY .............................................................................................21
Factors affecting size.............................................................................................................................21
Factors affecting composition of market...............................................................................................21
Factors affecting characteristics of market..........................................................................................21
MOST LIKELY SCENARIO..................................................................................................................21
COMPETENCIES REQUIRED TO COMPETE IN FUTURE..............................................................22

CONSIDERATIONS IN STRATEGY MAKING FOR NEXT FIVE YEARS FOR ANY PLAYER.22

CHALLENGES FACED BY BPL IN NEXT FIVE YEARS...................................................................22

CHANGES IN OPERATIONAL STRATEGIES TO FACE CHALLENGES.....................................23

NEW OPPORTUNITIES......................................................................................................................24

PHILIPS POSSIBLE ACTION/REACTION............................................................................................24

CERTAIN CHECK POINTS:.....................................................................................................................25

2
The audio industry-background
Globalization is not knocking on our doors anymore. It is here to stay. The Indian
Audio industry provides the tell-tale signs to support the fact. Almost every global
corporation of the like of Sony, Akai, Samsung, Thomson, LG Electronics are
already here.

Ever since the fifties, the Indian audio industry was primarily an industry dominated
by radios manufactured by the unorganised sector, supplemented by a radio range
for national brands like Philips and Bush. The mid ‘60s and ‘70s saw the entry of
mono cassette players, mono radio recorders followed by the stereo recorders and
music systems. Radio sets, mono cassette recorder and mono radio recorders
continue to be dominated by the unorganised sector, which offers low price products
to the sensitive upcountry markets. However, there was a distinct shift in the pattern
at the high end, where the organised sector has been dominating, side by side with
baggage imports. In the year 1992-93 the market was made up of four main
segments of radios, recorders, midi systems and hi-fi systems. The maximum variety
was available in the recorder segment, with different combination like radio-cum-
recorder, mono recorders, stereo recorders, and double decks, etc. The midi
systems catered to the lower end of the upper segment, while hi-fi comprised the
small and select slot at the uppermost end. From a market level of 1.9 million pieces

Sales Trend for Audios (000s)

(Source: A&M June 93, ORG Report March 97, Brand
Equity Jan 97)
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
85-86 86-87 87-88 88-89 89-90 90-91 91-92 92-93 93-94 94-95 95-96

in 1985-86, the audio industry steadily grew to about 5 million pieces in 1992-93. In
the year 1995-96 the figures rose steadily to 8.5 million pieces in both branded and
unbranded segments.

Until a few years back the Indian Audio industry was dormant with not much action
taking place and meager market expansion rates. Till late 80’s Philips dominated the
audio market with overpriced systems based on antiquated technology.

However with the entry of world majors in consumer electronics industry, action has
erupted in the audio industry in recent years. For most consumer electronics
companies, television business was and still is more important than the audio

3
 business since that is where the action is. However during the recession of 1991-92
consumer electronics business was badly hit and most companies for the first time
realized the importance of audio business which offers margins upto 25% more than
the television business. Since then the audio market has been on the continuous
growth path. Philips consolidated its position by introducing a range of contemporary
models covering practically the complete range in terms of price points as well as
segments.

The market for audio products valued at Rs. 1000 cr. has grown by 15-17% last
year. This growth is commendable given the fact that the rest of consumer
electronics goods industry managed to touch only 10% growth after lot of struggle
An interesting fact about the industry which we noticed is that there is a difference
between ORG-MARG’s retail audit figures and the secondary data sources. The
former put the value at Rs.764 cr., whereas the latter put the value of the
companies’ sale at Rs. 1000 cr. This means that there is an inventory build up of
about Rs 236 cr. at the dealer level. Its implication is observed in terms of the heavy
discounts being offered by most of the dealers on the audio systems.

The dynamics of Price-Performance line of Audio industry

Until 1990, there was no price-performance line. Products were offered only at high
and old end of market, leaving a huge gap in middle. In early nineties Philips
completed the price-performance line by offering products for middle end. But then
also the line was not continuous in any sense. In mid-nineties, focus of players was
on removing small discontinuities here and there.
At present, players are focussing on expanding the price-performance line by
offering newer and newer products. Players are also trying to shift the line
downward with some success at middle part of line. These developments have
following implications for the existing and new players:
• Competition is shifting slowly and slowly from audio industry in general to
specific segments of audio industry.
• Besides the opportunity of moving line, there are possibilities to extend
and fill the discontinuities in line.

Structural Analysis of the Audio Industry

 Threat of Entry
With the opening up of Indian market, most of the foreign majors are looking to
cash on the expanding upper-middle class. This may lead to a squeeze on margins
in the low & middle segment.

 Barriers to entry
• Product Differentiation:
Brands like Philips, BPL and Sony have brand identification and
customer loyalties - Philips (power), Sony, BPL (fidelity). Thus, new
entrants will have to either look for new positioning or deliver superior
benefits.
• Capital requirements:
Not significant enough to deter entry of the MNCs.

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 • Distribution Channel:
In the top-end of exclusive showrooms, the trend has just picked up &
existing players don’t have a significant advantage. However, in the
segment of multi-brand showrooms & small retailers, companies like
Philips, Videocon & BPL have a head start. Shelf space is limited and
can act as a barrier in the lower & middle segment.
• Expected retaliation:
The Hi Fi segment has just evolved with companies focussing on
developing the market. In the price- sensitive, family-segment leaders
like Videocon, Philips & BPL are expected to resort to price cuts.
The overall entry barrier (to foreign competition) is moderate.

 Intensity of rivalry among existing competitors

Competitors are numerous or are roughly equal in size e.g. Videocon, Philips &
BPL. Thus, the competition is intense.

 Industry growth is high.

Switching costs for the consumers are low. The competitors don’t need to offer
major improvements.
Capacity is normally augmented in large increments. Thus, phases of over-capacity
can increase competition.

 Pressure from Substitute Products

Audio systems compete with other consumer durables for the disposable income.
They lie below TVs & Refrigerators on the purchasing list of consumers.

 Bargaining Power of Buyers

Switching costs for consumers as stated above are low. They have a wide choice in
terms of number of brands. Thus, bargaining power of the ultimate consumer is
high.
Similarly, switching costs for their multi-brand retailers are low but it is high for
exclusive dealers & franchises. However, the market has just started moving
towards exclusive showrooms.

 Bargaining Power of Suppliers

Many of the companies have sub-contractors (OEMs) – Calcom for Philips. Thus,
they have got captive suppliers. Moreover, they pose to their suppliers a threat of
backward integration while the threat of forward integration of suppliers is low.
Thus, the bargaining power of suppliers is low.

Entry Barriers Existing Pressure from Buyer Power Supplier

Competition Substitutes Power
Moderate High Moderate High Low

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 Segmentation of the Audio industry

Over the years the audio industry has observed shifts in the existing segments with
new segments being created with the introduction of new technology in the market.
Till 1991 there were only three segments present in the market. These were Radios,
Mono Cassette recorders and Stereo cassette recorders. In the later years with the
introduction of Powerhouse by Philips a new segment was created in the form of
Midi systems. These systems were later upgraded to Mini systems with the
introduction CD based systems in the Indian market. Towards 1995, due to the entry
of likes of Sony, Panasonic etc, latest technology in the form of multiple CD
changers with fidelity sound were introduced towards the high end system and thus
a new segment called hi-fi was created. A new segment likely to emerge in the
premium segment in the future is that towards modularization. As the customers
become more and more discerning, they are likely to buy the best available
amplifiers, speakers, decks and assemble the systems for themselves. Philips has
already introduced the 900 series of deck and amplifiers.

Segmentation variables

The segmentation variables that have been used to segment the audio industry are:
• Buyer characteristic- The three major buyer characteristics that have been
observed are price sensitivity, technology sensitivity and a third segment which
seeks both the benefits, namely, affordable price as well as advanced features in
the audio system.
• Usage criterion - According to this segmentation variable, the industry has been
segmented on the basis of whether an individual buys the audio system for one’s
own use, for family use or to be installed in cars.

The advantage that this segmentation strategy offers is that it ultimately provides,
as shown below, the requirements for incumbents, as well as, for new entrants to
compete successfully in that particular segment.

USAGE CRITERION
Buyer characteristic Family` Automobile

Price sensitive Radio, Stereo

Cassette
Player,
Walkman
Technology + price Walkman, Car Stereo
sensitive Midi/Mini
Technology sensitive Hi-Fi Car Stereo

The above segments can be collated on the basis of value chain requirements.
Walkman & family audio systems can be grouped in segments catering to low,
middle & high end segments.

The market segments can be identified as follows.

Segment Price sensitive Technology Technology Car-audio

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 and Price Sensitive
sensitive
Main Radio, Mono, Mini & midi hi-fi System, Car Stereos
Products Stereo system Audiophile
Price Range below Rs 5000 8000 - 15000 Above 20,000 Rs. 5000 &
above
Attractivenes As high Entry of MNC This segment, Unbranded
s volumes are players being the latest products
required to suggests the in the Indian snatching away
sustain this very high market is yet to most of the
segment, only attractiveness pick up volumes sales, Branded
an established of this but does show players will
name can segment, also future potential require OEM
compete witnessing contract and
successfully very high better
here growth rates distribution.

Growth Rate Low High High High

CSF Low cost High sound Extremely high OEM contracts

productio quality, high fidelity, superior with auto makers
n, volume features like
extensive capacity, sleek remote control,
distributio looks CD etc
n
Major Players Philips Philips Philips, BPL, Kenwood
BPL-Sanyo BPL-Sanyo Sony, Akai, Blaupunkt
Videocon Sony Panasonic
Onida Samsung Bose
Onkyo

Major players in the market

PHILIPS INDIA LTD.

Philips is a clear market leader in the audio market. The company dominates
practically every segment as of today. While Philips had always been a major player,
the real thrust came only in 1990. The company had been offering low quality
products based on antiquated technology in the 80's. The company introduced a
number of products covering the complete range, including the Powerhouse, which
was a run away success. The company was suffering from the image of being an
Indian company and not having access to international technology. The company
tackled this image problem by introducing a host of products in the higher end to
demonstrate its technological capabilities. The "Let's make things better" campaign
helped in creating the international image. In fact Philips has been the only company
with large budgets allocated for television campaigns. Most other players advertise
only through magazines and newspaper.

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 Till about 1995 BPL seemed to be the only player having capability to challenge
Philips across segments, while Videocon challenging the lower end. However now
the company will have to compete with many players who have access to equally
good technology. Further the company may have to compete with different
companies in different segments - for instance in the high end with the likes of Sony,
and in the lower end with BPL, Panasonic etc.

In the high end the company has introduced a number of products which are
technologically amongst the best in the world. The FW series introduced in the price
range of Rs.10,000 to Rs.23,500 includes models with advanced features like 7 CD
changers etc. The latest introduction - Marantz audio systems priced at Rs. 95,000
and Rs. 1,45,000 – has marked the entry of Philips in the premium audiophile
segment.

The brand is so well entrenched in the market that it is the only brand expected to
give the MNCs competition in all the segments.

BRITISH PHYSICAL LABORATARIES

BPL entered the audio market after its success in the television market. Other than
Philips, BPL is the only player with a very comprehensive range covering practically
all price points from monos to high-end systems.

The brand was able to make inroads into a market dominated by Philips due to a
very well planned strategy. One of the most important success factors was the range
of about 40 models covering all the segments of the market. Range is important to a
customer, as it not only offers a choice but more importantly credibility to the brand.
The company priced all the models very competitively. In fact in the lower end
recognizing the price sensitivity of customers, the company priced most of the
models 10% below Philips. More importantly, although prices were lower, the
company paid special attention to quality. This strategy paid off - the company
today has a overall market share of 19% in value terms.

The company realized the need to differentiate the products from Philips, which was
then dominating the market. So while Philips was shouting about Power i.e. PMPO
being the single most important feature, BPL attempted to educate the customer
about fidelity being more important than power. However now that all the new MNCs
are fighting out on the fidelity plank, BPL may find it increasingly difficult to maintain
the differentiated position.
The major advantages which may see it through the competition successfully are :

• BPL today enjoys considerable equity

• The company has established an extensive distribution network of over 3500

dealers

• The company has integrated vertically to a great extent with almost all
components except a few chips being manufactured locally. This not only gives
the company a cost advantage but also for any new company it will take some
time to make such capital investments. Moreover even if investments are made,

8
 the break-even period is rather long making sustaining power extremely
important. In fact most of the MNCs are today importing CKD kits and carrying
out only assembly operations here.

• The company offers a very wide range of about 40 models, second only to that
of Philips.

• The company plans to develop a competitive advantage by revamping its

distribution system to a considerable extent. It is believed that major cost
savings can be achieved if the distribution is handled right. The company plans
to use techniques such as JIT to achieve this.

One of the glitches, which BPL may face in the future, is that the company’s
technical collaborator – Sanyo – is hardly known for its capabilities in audio systems
when it comes to competing with giants likes Philips and Sony. In fact as most of the
new entrants are concentrating on the higher end it is very likely that while Philips
will be able to face the brunt, it will be BPL which will suffer the most. Although the
company has about 20.7% (value) market share in the hi-fi systems segment, but
going by the fact that some dealers seem to be replacing the hi end systems of BPL
with the likes of Sony, the future for BPL in this segment seems to be not so rosy.
However, the company may continue to maintain a strong position in the lower ends,
where it is the price and distribution capabilities that matter more.

9
VIDEOCON

Just as in all other product lines in the consumer electronics, in audio systems too
Videocon has followed the strategy of value for money, at times, at the cost of
quality. While this strategy helped the company gain some footage in the lower
ends, the company has suffered in the remaining segments. The company has more
than 10 models in the lower end and the Sansui range in the upper end. While the
value for money proposition worked initially, almost all products started suffering
from quality problems. To top it all after sales service has been extremely poor. All
this has affected Videocon's business in all segments adversely. The main source of
sale remains the interiors where awareness levels are much lower.

The company has recently tied up with Kenwood. Kenwood enjoys considerable
awareness in the Indian market however it remains to be seen how the company is
able to tackle the image problem which led to poor response to Sansui. According to
a press report, Videocon has decided to restrict its own brand for the mass segment
at the lower end and might gradually withdraw the brand completely from the audio
segment at a later date.

The Sansui range consisting of three models was not very well received because of
the Videocon’s image of “cheap” products. The company had foreseen the image
problem and decided to promote the range under the Sansui name, but the
advertisements mentioned “Sansui from Videocon”, which did not help much. The
products per se are of reasonably good quality but are not perceived so and take
some convincing from the dealers. The lukewarm response to the products and the
competition in this segment led to Videocon slashing the prices of all the three
models. Although the brochure claims that Sansui has won numerous awards for
product designs the name is just not known for audio systems in India. We feel that
the Sansui range will eventually suffer the same fate as the rest of the range.

SONY

Sony set up its shop in India in 1995 and in just 2 years time has cornered 5%
(value) of the market share. This figure would have been much higher but for the
gray market. Today in India Sony's toughest competitor is the gray market where for
certain models the price difference is upto Rs. 10,000.

Sony charges a premium of about 15-20% on its entire models world over. It is able
to pull way with this premium because of the image of premium technology. However
in India a typical customer in the lower segments is much more price sensitive and is
happy to settle for a Philips or a BPL rather than paying high price for superior
product. This has resulted in very poor performance of Sony in the lower segment
(0.5% market share in stereo cassette recorders). Also the variety offered in the
lower segments is not sufficient - just 3 portable stereos. In the hi-fi segment the
performance has been satisfactory. The company has a market share of 22%
(value) in this segment. According to company officials main reason for success in
this segment is the high brand awareness. The customers in this segment are less
price sensitive, technology conscious and are willing to pay the premium for Sony.

10
 The company seems to have already started working on prices which is evident from
the latest advertisement of MHC-G330 which says - "The biggest surprise (about
the system) is its price". One would not have expected a company like Sony to play
much on the price platform, but probably this seems to be only way to beat the gray
market which sells more than Sony India. The process of reducing prices may take
time because most of the components are imported, level of indigenisation being
just about 30%. The company is wary to increase the local manufacturing at a fast
pace, as very few vendors have been able to match the company's expectations in
terms of quality. But as the company gradually manages to increase the level of
indigenisation and as prices start coming down, it is definitely expected to give other
players in this segment a run for their money.

ONIDA

Onida has been more known for its success with televisions in early 90’s than for the
audio systems. Onida has a technical tie-up with JVC for its audio systems as well
as televisions. The range of audio systems offered by the company was – 1 model in
low end, 2 models in the portable CD segment and one model in the high end
segment. While the low end systems were outsourced from vendors in Hong Kong
the hi end systems were sourced from JVC with only the cabinet and the Onida
monogram being added in India. As of today the audio range has been more or less
withdrawn from the market. The company has plans to correct the shortcomings,
which its previous range had with the introduction of the new range to be introduced
in ’98. The range will cover practically every segment and price point. The models
introduced will be the latest models introduced by JVC worldwide.

ONKYO

This player falls into the premium audiophile segment. Although there are few
players in this market and very little information is available, we have studied it , as
this segment is very different from the other segments in terms of the marketing
strategies.

Onkyo entered India only two years ago. The company sells hi-end music systems
which fall in the price range of Rs.29,300 up to a few lacs. The total product range
consists of about 175 models. The company has practically no competitors in this
segment in India as of date. The only competitors to Onkyo worldwide are
Nakamichi, Pioneer (Hi-end), Marantz, Yamaha, Denon etc. none of which seem to
have entered India yet.

The music systems are of extremely high quality and are usually bought only by
audiophiles. In U.S., Onkyo commands 30% of the high-end audio/video segment.

The products offer lesser features than what an average model offers in the
premium range but the stress is purely on quality of sound. In India Onkyo sells
through only three company owned showrooms – one in Madras and Delhi each and
one recently opened in Bangalore. The average monthly sale is about Rs.30 lacs.
The company sold systems worth Rs. 1.5 crores in first year and Rs. 3 crores in the
second year of operations. The systems are imported from all over the world and
there is no manufacturing base in India although there is a small assembly plant in
Pondicherry. The products are promoted purely through word-of-mouth except for
couple of hoardings. Interestingly while BPL was able to sell only twelve pieces of its

11
Rs. 1.5 lacs home theater in Bangalore with heavy advertising on television, Onkyo
has managed to sell about five home theater systems each worth 3.5 lacs in three
months in Bangalore city alone. The company does not expect to break even at
least in the first five years of its operations in India.

Likely trends

The first trend set in the industry was that of Power (PMPO) by Philips. Then came
BPL which to a considerable extent was able to drive home the concept of fidelity.
What is likely to be tomorrow’s trend ? If the advertisements of all the players are
any indicators then fidelity / clarity of sound / quality of sound are expected to
continue to be the major plank on which the companies will fight the war.

In the midi segment customers will increasingly desire CD systems. This has
considerable implications for products like Powerhouse. In fact as CD prices move
down CD player may be desired as a standard feature in most segments. In the
premium segment already a trend seems to be emerging towards multi CD
changers.

The strongest trend that is likely to emerge in the premium segment is that towards
modularisation which has been explained earlier. BPL attempted to sell modular
systems, which would give the customer the flexibility to choose components of his
liking, but the concept failed due to marketing problems. Marketing such products
will require special outlets where the retailers are competent enough to help the
customer make choices. Assembling such systems usually requires setting up an
service arm which will help the customer install the system. Most importantly the
concept will need to be sold to the customers first.

Critical success factors

As pointed out earlier the Indian audio industry is coming into being only now. This
makes establishing success theory not only very important but also a bit difficult.
Nevertheless in our opinion the key success factors for any player to do well in the
audio market are:

Range

It is very important to have a wide range of offerings covering all the segments. The
reason for having a wide range is that the products in the upper end help in creating
a brand image. Given the nature of consumer electronics products it is always the
higher end, technologically superior products, which help in building an image. This
is the reason for most of the leading players focussing the advertising on the higher
end. But lower range is equally important as it generates volumes for the company.

12
 Price

According to a Sony official there is no segment in India with a very low price
sensitivity. The price sensitivity is relative i.e. it is lower in the upper segments than
in the lower segments. Moreover in high value items like music systems which are
not yet considered a necessity like televisions, price has much greater role to play.
As mentioned earlier a clear example of success which used this price sensitivity is
that of BPL which has been pricing its models about 10 % below that of Philips. In
fact even a player like Sony which charges a premium on its products all over the
world talks about its low prices in the new ad campaign to primarily counter the grey
market.

Sustaining power

This follows from the first point of that of offering a wide range of products. If a
company has to succeed it has to offer a range comparable with that of say Philips
or BPL i.e. about 40 to 45 models spread over the complete range. For a new
entrant it takes about 4 to 5 years to start reaping profits. Until such time to support
such a wide range takes a good sustaining power. In fact the Indian companies
seem to be banking on this factor for protection from the MNCs as it will still take
some time for them to make large investments

Technology

Technology will play a very important role in success of brands in the future. Till
now the customers were willing to accept sub-optimal technology simply because
most of them were not exposed to good technology. However now it seems like the
technology and ability to churn out new technologically superior products will
become a key factor in the upper end. The multinationals and Philips are expected
to have a clear edge on this front.

Reach

A good distribution system is almost a generic need for success in Indian markets,
audios being no exception. While for higher end systems the distribution may be
restricted only to the urban areas, for lower end systems an elaborate coverage of
interiors is a must and the rural coverage is inevitably important if these companies
wish to generate volumes.

Historical perspective of the rivalry between BPL and Philips

Background information
About two years before the opening up of Indian Economy, BPL had launched its
CTV with the collaboration of Sanyo, Japan. However the competition in the
industry was not very fierce with the regional presence of homegrown brands such
as Uptron, Weston etc. The other brands with national presence were Videocon
with the collaboration of Toshiba of Japan and Onida, which enjoyed a quality
image in the market. BPL decided to launch an audio product with the image of high
quality in the market. Further the launch of BPL-Sanyo TV with a high quality image

13
 could be linked to the corporate philosophy of the company. The company was
lesser known in the consumer durable market because of its presence in the
Laboratories equipment market (largely precision equipment such as oscilloscopes,
and other measuring equipments) where it was a major supplier to the defense and
research establishments under the name of British Physical Laboratories (BPL). As
a result it had a quality and precision oriented mindset at the shopfloor. To gain
consumer acceptability, the company decided to create a high level of brand
awareness by spending heavily on advertising. The promotion of the brand as BPL-
Sanyo also helped them in gaining initial consumer acceptance. Having established
itself as a brand with quality image in the TV market by 1991, they extended the
brand into the audio industry where Philips was the leader.
First Move by BPL: Launches Superior Quality Products and not Range
The image of Philips at that time was an old fuddy-duddy company, which is not
keeping pace with the times. The major advantage, which Philips enjoyed, was its
range covering most of the price points existing in the market at that time. BPL had
two options to counter Philips. One was to take Philips head on by launching
products in entire range, or the second option available was to launch products with
limited range but of high-perceived quality. BPL went in for the second approach to
retain consistency with its cultivated quality image in the TV market. However
Philips had a distribution which was developed over the years through their
presence in the Indian market. BPL was able to leverage its distribution channels
for TVs, which it had developed since its launch of TVs. One of the earliest strategy
of BPL to counter Philips was that it launched products with superior technology
and a price of 8 to 10% lower than that of Philips. According to the company
sources, for about two years they consistently retained this strategy and gained a
lot at the expense of Philips.
Philips responds by creating Midi-Stereo Segment : Launches Powerhouse
Meanwhile, Philips with its better understanding of the Indian consumer found a gap
in the market within a price segment of Rs. 6000/- to Rs. 8000/- and launched
Philips Powerhouse. With its launch a new segment known as Midi Stereo
Segment (MSS) was created. The product was launched on the platform of power
at a very low price; simple operating system inspite of advanced features; and sleek
looks. This product was runaway success with 80,000 unit sales in the first year of
its launch which brought in more than Rs. 50 cr. in revenue.

BPL’s reply to Powerhouse and advent of CD players in Indian market

BPL responded to this with the launch of audio products in hi-fi range with stress on
the sound quality rather than the power or loudness of the sound. With this
development there was a second round of showdown of strength between Philips
and BPL. This launch of hi-fi series was followed by the launch of the CD based
systems termed as Di-fi series of the Audio systems. This launch substantiated
BPL’s earlier position of emphasis on sound quality. Initially BPL gained a lead over
Philips in the launch of CD systems because of world over Philips NV’s emphasis
on promoting digital cassettes rather than compact discs. But later on by the year of
1995, CD systems were considered to be status symbol by the upper segment of
the consumers and thus a lot of growth was witnessed in this segment.

14
BPL gains due to its agility to launch new models faster
Another area, which witnessed competition, was about the ability to bring out new
models faster than the competition. BPL has its own tool room where its ability to
make the dies for the moulds used in making the cabinets of audio systems and
TVs has helped it in launching new models faster than the competition. A case in
point is about the launch of ‘smartline series’ by Philips in response to BPL’s sleek
Z2K model, which was quite late to match the initial advantage gained by its rival.

BPL offers an assortment of White goods along with consumer electronic goods
BPL gained over Philips by reaching consumer's house through various entry points
such as TV, refrigerator, washing machine, microwave ovens, audios and vacuum
cleaners and thus leveraged the consumer learnings across the product categories.
It launched an Umbrella TV advertising in the form of 'home alone' campaign where
it projected its concept of 'BPL Gallery'- the company owned showrooms offering a
complete range of white goods and consumer electronic goods. Thus, they
changed the image of the brand to a reliable and exciting brand. However Philips
could not match such campaign and instead launched Hi-Fi audio sets in the range
of Rs. 25,000/- and above to fight out against the BPL and the latest entrants like
Sony, Samsung, Aiwa, Panasonic etc.

Integration of audio-video
Philips is trying to integrate the video and audio segments to cash on its
capabilities. In this direction Philips has recently launched a three -in-one cum video
CD player. So Philips is taking battle to the higher level of sophistication. BPL has
not retaliated yet. Effect of this strategy of Philips on competition is not expected to
be much, atleast in short run. But it will help Philips in building image of a
technologically advanced company.

Conclusion
The competition in audio market is at both product features and brand level. This is
evident from the fact that market is witnessing newer and newer products day-by-
day and attempt of the players to build image and create customer pull.

BPL: Strategy
All the businesses of BPL can be divided into two categories for the purpose of this
report:
 New diversified businesses like telecom and power
 Consumer electronics and household appliances business

BPL entry into new areas is an attempt to capture opportunity and then develop
competency. Entry into new areas can affect the consumer electronics and
household appliances business as some resources will be diverted towards that.
Apart from this no significant effect is expected. So we are exploring corporate
strategy for BPL's consumer electronics and household appliances business to
explore BPL's strategy for its audio business.

15
Corporate strategy: To be present in every corner of household.
This strategy can be divided in two parts:
1. To gain entry into the Indian household through any of the consumer
electronic or home appliances.
1. Once entered, to be in every corner of that house through their whole
range of products.

Evaluation of strategy
Any strategy can be evaluated on two parameters:
 Can it be implemented?
 If correctly implemented, will it lead to success?

1. BPL has defined numerous product categories for it to be present in. Its
aspirations are surely much more than what its resources - managerial and
financial - permits. The implementation of its strategy depends completely
on its ability to produce stretch in the organisation.
2. BPL can capture the customer at early stage of their development. By
building an image of being reliable and quality product, BPL can sell their other
products in consumer electronics and white goods. Once BPL has the customer
through one of its products, the customer will definitely consider BPL while
buying other consumer electronics or household appliances. Thus, the strategy
seems to have the requisite potential to bring success.

Other Benefits:
• Generally all the consumer electronics and household appliances are
sold through same distribution network or have the potential of being sold
through the same channel. BPL being present in all the categories can cash on
this synergy in terms of lower distribution costs and higher bargaining power
with dealers. In future it will help BPL in launching new products in similar
categories quickly.
• Knowledge about the customers: This can be looked from two angles -
a) Contact with the customers will help them come with new ideas in the
different categories. What is important is to know what the Indian consumer
actually looks for in a consumer durable.
b) The database of customers buying any product can later be used to sell
them the other products, once BPL decides to take to any direct marketing
exercise.

Operationalising the strategy (Functional Strategies):

Production strategy:
 Technology tie-up with Sanyo (Japan) for consumer electronics and
household appliances. This is critical to match the technology of competitors
and to introduce the products in all the product categories.
Issue: Sanyo is perceived as a value for money producer in Japan, while
BPL has an up-market image. BPL has overcome this problem by dropping
Sanyo brand name. Secondly, will Sanyo be able to provide technology for
all the product categories to compete with the world leaders in all product
categories.

16
  Emphasis on quality. This is essential for success of their corporate
strategy, as they need to make impact from very first purchase of their
products. Also, quality is a part of their group philosophy. This can be
attributed to their engineering background (they used to supply to defense
and make measurement equipments).
 In-house production capabilities:
 Tool room capabilities: Due to a large product portfolio they can
afford to have a tool room of their own. This helps them in developing
new product designs - pattern and mould making.
 Production of components: The group has 65% of the market for
electronic tuners, flyback transformers and deflection yokes. These are
also supplied to some of their competitors. These provides the group
vertical integration lowering the cost of production, controlling the market
for components and scope for developing new products quickly.
Issue: Benefit of controlling the components market will only arise if the
component is critical, technological development matters and imitation is
difficult.

Marketing strategy:
 Distribution: BPL has followed two-pronged distribution strategy.
 Multi-brand dealers - Provide much-needed reach to the
company. They have a strong network of about 3,500 dealers.
 Exclusive showrooms - displaying the complete range in
consumer electronics and household appliances (establishing brand
image & creating awareness about their breadth and depth of products).
 Consumer Pull & not dealer push. This is important as they want their
customer to come to them again and again. Thus, they are building BPL as
a reliable, technology savvy, quality brand. To leverage this image across
product categories they are going for umbrella branding.
Issue: To compensate for their high advertising spends, BPL is giving low
margins & incentives to its dealers as compared to its competitors. BPL
believes that customer pull and a large range with frequent new
introductions will satisfy the dealers. But this may explain why, although
nearly half the potential customers for CTVs start with asking BPL by name,
about 40% of them are converted by dealers to other brands. This
phenomenon can also be expected in other product categories like audio.
 Use top-of-the-line products in every category possible to gain attention
and get he rub-off on the entire range down the line. This also helps in
attracting first time buyers of consumer electronics and household
appliances towards BPL. For example- the launch of BPL home-theatre
system.
 Linkage with entertainment industry. To promote CD players in the
Indian market BPL joined hands with music companies and launched
numerous music titles.
Issue: How can BPL make sure that launch of CD titles results into
increased sales of its own CD players.
 BPL is expanding the product range in all the product categories. This is
necessary to satisfy the need of existing BPL customers looking for BPL
products in other categories. In 1991, BPL had only 1 model in two-in-one
segment as compared to seven of Philips. They increased the number to 6
by 1993.

17
  To take advantage of marketing synergies BPL has combined the marketing
of all products under a centralized division i.e., CMO.

Financial strategy:
 BPL has limited funds but its requirement is huge because of its strategy
of being present in all categories of consumer electronics and household
appliances. To make best use of its limited funds BPL has allocated funds
according to the level of competition in product category and its importance in
achieving corporate strategy. Right now, BPL is diverting most of the funds
towards CTV and audio segment and other product categories like vacuum
cleaners are required to generate funds for themselves.
Issue: As competition increases in all product categories BPL will face problems
regarding funds. Infact, increased debt capacity and better financials was one
reason for the restructuring of the group.

Competencies

 Lowest cost of production next to Videocon only: Manufacturing cost for

BPL is 6% as compared to 16% average for industry,without compromising on
the manufacturing quality of the product. As they produce all the components
and also supply to others, they take benefit of lower component cost also.
 BPL is in the unique position of leveraging its presence in all the product
categories of consumer electronics and household appliances. This competency
seems to be sustainable as no other company, Indian or foreign, is expected to
have such a broad portfolio with quality and range at par with players in all
specific categories. This is sustainable also because of resources and time
required to develop such portfolio.

Business Strategy
BPL's corporate strategy and the way it is operationalised have clear implications
for their strategy in audio market or for that matter in all other consumer electronics
and household appliances business. They want their product in each category to be
leader or closely follow the leader in terms of quality, price, image and product
range.

Philips India Ltd: Strategy

Philips has a presence in a large number of industries, the major ones being-
consumer electronics, industrial electronics, lighting and telecommunication. For the
purpose of studying the corporate strategy of Philips India, only the consumer
electronics division has been taken into consideration.

Corporate Strategy
To be the feature, range and technology leader at aggressive prices.

Evaluation of the strategy

18
1. The above strategy can be easily pursued by Philips India because of its strong
linkage with the parent company - Philips NV. This linkage provides Philips access
to the latest technology, features and range. This helps in launching new products
at a relatively faster pace as it can source it from Philips NV.
Latest example of the help which Philips get from its parent company can be seen
in its latest integrated offering. Through this product, Philips is making a move
towards introducing a multimedia and interactive product offering in the Indian
market. Although this may not bear any fruit in near future, in the long run Philips
can fulfill entire entertainment and communication needs through just one product
offering. Towards this end, the company has started introducing products with
digital technology like CD-ROM, CD interactive, Digital videodisc (DVD).
2. The audio market is still in its growth stage and companies are coming up with new
ideas. Any technological discontinuity (say the CD phenomenon), if not copied, may
leave one behind very soon. Similarly, the feature requirements of the consumers
are increasing briskly if one compares with the 90-91 era. Being technologically
superior will help Philips in controlling the price performance curve. Thus, the
strategy has a potential to bring success if correctly implemented.

Other Benefits
• Brand equity rub-off in the lower and medium range products (volume segments).
• Further, Philips India can, thus, concentrate its resources towards marketing,
distribution and adaptation of product for Indian conditions.

Functional Strategies

Production Strategy

At present Philips has a very high ratio of manufacturing expenses as a percentage

of sales. It is limiting the profitability of the company. To decrease the cost of its
products, the company’s strategy is to assemble the final product as close to its
customer as possible. This would ensure that the working capital gets blocked only
at later stage and for a shorter time. In future, Philips plans to open its own
assembling centers whereas at present private manufacturer assemble the Philips
product. This will enable Philips to have a better control over finished product
quality. The company is trying to be the sourcing base for Philips NV and to export
its products to south Asia. This will reduce the per unit cost of production.

Marketing Strategy

The company’s marketing strategy can be further divided into further sub categories
to enable clearer understanding

19
 • The quality image (let’s make things better) – The LMTB slogan adopted
by Philips has paid dividends in terms of equipping the company with a strong
corporate image. The idea behind this philosophy is to chisel the acquired brand
value into individual product.
• Philips has over the year consciously tried to make its products available
at all price points ensuring acceptance across all customers segments. It plans
to reduce its prices of two-in-ones from 8 – 10 % to increase sales volumes.
• An existing wide dealer network coupled with forays in rural market is
ensuring its reach to all potential customers. Also on the distribution front it
came out with the concept of fast moving consumer electronics products
(FMCE), which means there is a shift from big dealers to the mass distribution
network.
• Philips introduced the concept of sub-branding in the audio segment with
the introduction of Philips Powerhouse. It helped Philips in defining a product
category, which did not exist earlier.
• In car audio systems the company has tied up with car manufacturers.
This will ensure steady sales of its car stereo systems.
• After sales service network : Philips has a strong after sales service
network which is must for continuing presence in this industry.
• Large product range: Philips is pre- emptying competition by flooding the
shop shelves with numerous models. Also it ensures better bargaining power
vis-a-vis its dealers. In fact it has been launching a new model every month to
maintain its market share.
Issue: This strategy, however, puts pressure on inventory and working capital
management. Also the salesman needs to have higher skills to service the product
range effectively.

Competencies

• Technology leadership through constant product innovation and new

product launches ( e.g.- creating the CD market in India)
• Fully integrated in designing and developing new products.
• Distribution network which spreads even to the interiors of the country
( where the future growth lies)

Business Strategy

The corporate strategy of the consumer electronics division translates completely

into the business strategy for audio segment.

Industry scenario in future

Time frame
For analyzing the most likely scenario of industry in audio market we chose a time
frame of five years. We chose so because industry is not highly volatile but it is not
stable either.

20
Factors that will affect the industry
Factors can be grouped in two categories:
 Factors affecting size
 Factors affecting composition of market
 Factors affecting characteristics of market

Factors affecting size

 Multiple ownership
 OEM Car-audio market
 Entertainment factor
Industry is expected to increase from 1000 cr. to 2000 cr. by 2001-02. OEM is
expected to account for 10% of total market by 2001-02.

Factors affecting composition of market

Market for audio can be divided in urban and rural market. At present, all the
players are concentrating on metros and semi-metros, though there is huge market
in rural areas with high latent demand. In fact 50-60% of Mono and Radio sales in
volume terms are made in rural areas. This is happening because of following
factors:
 High growth potential of metros and semi-metros.
 Lack of deep distribution in highly dispersed rural markets
 Lack of electricity
 Lack of purchasing power in rural areas for upgradation to stereos
Competition is expected to shift to rural areas in next 5-10 years when urban market
satiates and the factors inhibiting entry in rural market weakens. One major
assumption is that there will be no pioneering efforts by a particular company which
may force companies to react beforehand. Thus, growth of stereos, minis and hi-fi’s
will drive audio market in next five years.

Factors affecting characteristics of market

 Factors affecting industry directly
3 Miniaturization
3 New features such as product software
3 Automation in design and manufacturing
3 Auto-insertion and surface mount technology
3 Components and key modules
These factors are expected to affect the industry in next five years.

 Factors affecting industry indirectly

3 Integration of medias
3 Modularisation
These factors are not expected to affect industry in next 5 years. But they will
surely affect Indian industry in future, if global trends are any indication.

Most likely scenario

 Stereos, minis and hi-fi’s will grow at a rate faster than growth of audio industry
as a whole.

21
  Competition will become more intense as new entrants would have stabilised by
that time and there will be few more global players- such as Hitachi – in audio
market.
 New features, advanced manufacturing and smoothening of price-performance
curve will be drivers of industry.
 Apart from “Mass” audio market, two different pockets will develop:
3 Niche market for audiophiles. This market is not expected to be
more than 5% of audio market. And this is not expected to affect the
characteristic of non-niche audio industry either.
3 New products – such as integrated media offering, modular
products - representing future of Indian audio industry.

Competencies required to compete in future

The character of industry is not expected to change. Only change envisaged is that
competition will become more intense on all the CSF. Thus, as mentioned in our first
report, CSF’s will be:

 Range
 Price
 Sustaining power
 Technology
 Reach

Considerations in strategy making for next five years for any player
Apart from considering the CSF and structure of industry in next five years,
following two should also be considered though they are not expected to effect
industry in next 5 years:
 Niche market for audiophiles. This should be considered even for making
strategy for non-niche area as:
3 Presence in audiophiles segment creates brand rub-off effect
3 It helps company in maintaining the technological edge.
 Products which will change the future of audio industry should be
considered as they all are highly technology intensive. Thus preparations for
that type of competition requires preparation in advance.

Current Corporate Strategy for BPL

To be present in every corner of the house. this strategy and resultant operational
strategy has been covered in detail in our second report.

Challenges faced by BPL in next five years

• Access to latest technology.
• Avoiding loss of sales because of low margins to dealers.
• Overcoming resource constraint.
• Having efficient and flexible manufacturing.
• Tapping growth potential in rural market.

22
Changes in operational strategies to face challenges

 Access to latest technology . Basic need of BPL is not to be a technological

innovator or technological leader. Their corporate strategy requires them to be able to
match offering of other players and come up with new product features. Given this
requirement, BPL have following alternatives to overcome this constraint:
∗ Buy technology from existing players. Players who don’t have any plan
to enter India or marginal foreign players may be willing to sell technology to
BPL. Once technology is purchased develop on them using your R&D.
∗ If above suggestion is not implementable, enter into technological tie-up
or licensing arrangement with such players.
∗ If both are not possible, you have still 3-4 years in which technology will
not change and BPL can survive with . Use that to develop your own R&D. BPL
can use reverse engineering, if possible. It will require having tie-ups with
companies who may not be in audio segment directly but up in the value chain -
component manufacturers, software companies, speaker manufacturers, circuit
board manufacturers. These competencies are expected to be necessary in the
future.

 Avoiding loss of sales because of low margins to dealers: We can’t

increase dealers margin as that will force us to either increase price or decrease
already squeezed price. Way out is to follow following steps:
∗ provide complete range of consumer electronics and household
appliances to dealers. It will increase dealer’s turnover, thus, increasing dealers
absolute margins.
∗ Better supply management - such as more frequent supplies which will
reduce inventory at dealer’s place and BPL’s factory also.

 Overcoming resource constraint : BPL’s ability to raise resources is limited

because of already high debt-equity ratio (as compared to industry average). Thus,
it forces BPL to prioritize the businesses and/or functions for resource allocation on
the basis of their criticality for implementing the corporate strategy, e.g.,
∗ Investment in technology - non-niche products should get priority over
niche ones.
∗ Investment in CTV - The brand equity of BPL, right now, depends on the
performance of its CTV. Thus, it is necessary for BPL to maintain its top position
in this fiercely competitive market. A drop here will be a big financial loss (high
growth market) as well as a strategic loss (erosion of the image of being best).
Thus, some products like vacuum cleaners will have to live on internal resource
generation in the mean time.

 Having efficient and flexible manufacturing : This is critical for coming up

with new models quickly and attaining error-free performance while reducing cost of
production. However, it is felt that it can wait for a couple of years as BPL is still
ahead of most of its competitors ( as in case of component production) .

 Tapping growth potential in rural market: Though the market is very

attractive, it will require huge resources. Given the constraints & priorities, BPL can
not go for this market on full scale right now. Thus, BPL should only focus on the
gradual expansion of dealer network for now. However, if some other player starts

23
 targeting this segment aggressively & successfully, BPL will be forced to change its
priorities so as not to be left behind.

New Opportunities

 OEM Car audio market: This segment is expected to be about 10% of the
total market (i.e. about Rs.200 crore). Thus, ability to grab contracts will provide a
relatively stable market that will generate some cash flows.

 Linkage with the Music industry:

∗ Development/promotion of music software - This is required for
introducing new audio hardware for which software may not be available, e.g.
the case of CDs.
∗ Co-Branding - Linking the brand to music software is like a promotional
exercise. However, it is expected to be more effective as the two are closely
related.

Philips possible action/reaction

Philips can act in the following ways:
1. Flood the Indian market with new products at the top end, thus,
enhancing its image of product innovator.
2. Capitalise on its strong rural network & brand equity and pre-empt BPL’s
entry in this market.
3. Cut prices in the mono-cassette & radio segment and, thus, increase
pressure on BPL from both ends.

However, Philips has its own priorities:

• The thrust areas of Philips NV in India are changing. The share of

consumer electronics is expected to decline from 55% of 1994 to 48% in 1998.
An investment of $10 to $20 million is expected till 1998. Expansion is expected
mainly in the area of domestic appliances, lightning, medical equipments,
personal electronics, precision metal & plastic products.
• Philips has setup its first global software development center in
Bangalore.
• Even in the audio segment, Philips top priority is to cut cost of
production. Thus, it is investing to have its own production facilities in the
country. Recently it has acquired Elcompo - a components company in Madras -
as a step in this direction.
Thus, it can be concluded that Philips right now may not be in a position to pursue
options 2 & 3. It is, thus, expected to take option 1 and not very aggressively.
Hence the response is expected to be no different of what Philips is presently
doing.

24
Certain Check Points:
In any strategy implementation phase there should be some check points to
evaluate whether the strategy is being implemented on its course or not. With this
as objective we wish to state the following check points for BPL:
• The company should look at the pace of the development of the rural
market at the end of each year so as to ascertain its emergent strategy.
• The company should also set some guidelines on the extent to which the
resources have been generated over the years so that timely and profitable
investments could be made.

Appendix

Source: ORG MARG retail audit March'96-April'97

Segments Volume Market Value (Rs. Market share
('00s) share Lacs)
Radios 32302 49.8 12346 16.2
Mono Cassette 15020 23.1 15877 20.8
recorders
Stereo cassette 13111 20.2 30808 40.3
recorders
Hi-fi Systems 1519 2.3 15532 20.3
Walkman 2960 4.6 1829 2.4
Total 64912 100 76392 100

25
Audio Sysytem - Total Market Share
(Branded - 1000Cr, Unbranded - 300Cr)
(Company Sales to dealer)
Source: Brand Equity Jan'97

Grey
market Philips
28% 27%

Others BPL
10% 12%

Foreign Videocon
Brands 10%
M arket
13% Share - Stereo
Others
Sony
21%
1%
Philips
Videocon
41%
1%
Market
Panasonic Share - Hi-Fi Systems
5% (Source : ORG RetailOnida
Audit)
BPL 1%
30%
Others
Sony 4% Philips
22% 30%

Videocon Onida
5% 1%

Panasonic BPL

17% 21%

26