Philips: Analyzing the Marketing Environment in the Middle East

Philips Lighting Is No. 1 in the world market for lighting, but as the marketing environment constantly changes,
Philips has realized that assessing multiple factors for change is vital to the understanding of current and future
shifts.

Koninklijke Philips N.V. was founded by Anton and Gerard Philips in 1891 in Eindhoven to manufacture
carbon filament lamps. Among their first major clients were early electricity companies, who included the
provision of lamps in their power supply contracts. The company, now better known as Philips, is one of
the world’s biggest electronics companies and one of the world’s most respected brands. It has evolved
into a global player and today employs a workforce of 113,687 around the world. A market leader in
medical diagnostic imaging, patient monitoring systems, energy-efficient lighting, and lifestyle solutions
for personal well-being, Philips manufactures more than 50,000 products across 100 countries, in which it
also operates sales and service outlets. In 2014, the firm reported sales of $23,982 billion. But Philips has
also stayed true to its roots—today, it is the world leader in lighting products manufacturing.

On September 23, 2014, Philips announced that it would separate its healthcare and lighting businesses
into two new companies in order to better tailor its offerings to the specific customer segments and
leverage the Philips brand. Giving independence to the lighting solutions business, Philips claims, will
better enable it to expand its global leadership position and venture into adjacent market opportunities.
Both companies are supposed to be able to make the appropriate investments to boost growth and drive
profitability, ultimately generating significantly more value for their customers, employees, and
shareholders.

Since the 1980s, Philips has participated intensively in the concentration of the lighting sector by
purchasing smaller national companies such as Companie des Lampes (France), AEG (Germany), and
Polam Pila (Poland). It has also developed different joint ventures; for example, with Westinghouse
Lamps, Kono Sylvania, and EBT China. Today, Philips Lighting is no. 1 in the world market for lighting,
ahead of competitors like Osram, Halonix, and Crompton. Their lighting products (light bulbs and lamps)
are found all around the world, not only everywhere at home, but also in many professional applications,
including 30 percent of offices, 65 percent of the world’s top airports, 30 percent of hospitals, 35 percent
of cars, and 55 percent of major football stadiums.

For 124 years, Philips has been a leader in building and shaping markets with meaningful innovations
including the radio, audio cassette, video cassette recorder (VCR), compact disc (CD), and digital
versatile disc (DVD). In order to succeed in its markets, Philips must carefully and continuously analyze
the marketing environment. At the beginning of the 21st century, Philips needed a new and coherent
marketing strategy for the entire Middle East region, which had been identified as one of the key markets
by the company. In order to better address macroeconomic factors and regional preferences, Philips
wanted to develop a more integrated and less fragmented marketing strategy for the region.

The first objective was to select the most attractive markets in the region. Over the years, Philips has
developed a statistical model that displays a correlation between a country’s demand for lighting and its
GDP per capita. The company has identified this correlation after careful analysis of GDP growth rate
data and their corresponding sales figures. During discussions with agents and distributors in many
countries, Philips was completely dependent on its information about the market size. If Philips
miscalculated market size, it missed market opportunities. The key reason why this model was developed
was so that the company could crosscheck market estimations of its agents and distributors. The
developed model showed that the demand for lamps and bulbs is a basic need for a country, and as soon
as a country starts developing (which is indicated by the increase in GDP), this basic need increases.
However, as the country’s wealth increases, the growth in the demand slows down, because basic lighting
needs are covered at later stages of economic development.

In order to find the most attractive markets, Philips Lighting used the model and combined it with market
data of the Middle East that contained population, GNP growth, and GNP per capita. They multiplied the
demand for lighting per capita by the number of inhabitants in a country. Looking at the regions, Israel
and Kuwait had the highest GDP per capita, but their population size was rather small. On the other hand,
Iraq and Iran were (and still are) large markets for lighting, but they are very tough to enter because of
their politically difficult situations.

However, the Philips Lighting Middle East managers did not use market size as the only selection
criterion for priority; instead, the model was used as a starting point for discussions with agents and
distributors in the respective countries. If the Philips sales in large lighting markets were very low, this
would indicate a low Philips market share. This would lead to a discussion with local agents and
distributors about how to increase the regional Philips market shares in cooperation with the local
distributor.

Today, the lighting market is impacted by multiple factors, three of which are particularly important. The
first is the macroeconomic situation, which is influenced and shaped by factors such as inflation rate and
GDP, and which is influencing new construction and, consequently, the number of lighting installations.
This key driver was used as a main indicator by Philips in its model to screen markets in the Middle East.
Another important element used was, and still is, country-specific energy efficiency regulations and an
increase in energy awareness, which are redefining future lighting product portfolios. For example, in
2014 the UAE government announced an energy efficiency regulation on lighting products, which bans
the sale of inefficient standard bulbs while also seeking to reduce carbon dioxide emissions. Government
action limiting certain energy sources—key being nuclear power due to events over the last years—results
in additional demands for energy-efficient products such as LEDs. For example, Dubai’s government has
started an initiative in 2014 to switch all lighting in government buildings to LED, which is more energy-
efficient and can be digitally controlled. It is these such projects that have helped Philips to grow in the
region.

Philips has managed to assess these factors which heavily influence and shape the marketing environment
for change. The company’s ability to understanding current and probable future shifts in the lighting
market has driven its continuous growth in this region, making it the market leader in Middle Eastern
countries such as the Emirates, where it has a 38.5 percent market share; trailed by Osram, with 22.6
percent; and General Electric with 16.3 percent.