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Product Management

Product Market Analysis - Refrigerator

Flowline
White goods Facts and figures Demand and supply Market segmentation Major players Market share Marketing strategies Industry analysis Critical success factors Environment Future trends

White Goods
White GoodsHousehold items that have white enamel or coating on them Refrigerator Washing Machines Microwaves Dishwashers Airconditioners etc

Facts and Figures


History
Refrigerators are being manufactured in India for the last four decades. Till early 90s only direct cool refrigerators were used in India. Videocon introduced frost-free refrigerators in 1991.

Past trends
Demand for refrigerators grew from 11,000 units in 1968-69 to about 2.25 million units in 1996-97 Demand for refrigerators has grown at a CAGR of around 22% from 1.04 mn units in 1992-93 to 2.18 mn units in 1997-98. The total stock went up from 3.3 million units in 1968-69 to 17.2 million units in 1996-97, but still covering only about half of the total households in middle and high-income groups.
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Facts and Figures


Current Scenario
The current demand for refrigerators is approx. 2.9 mn units per annum. The 165-200 ltrs of refrigerators comprise of 80% of the total demand. Frost free refrigerators contribute 15% of the total demand with 5% coming from the premium range.

Market Demographics
Penentration (%) per '000 Households 1985-86 1989-90 1992-93 1995-96 Urban 88.4 140.4 196.9 252.3 Rural 3.3 7.7 11.9 20.4 Total 26.2 45 62.1 86.1
Source : NCAER Report

Low rural penetration


Inadequate infrastructure - Lack of electricity/power cuts Low disposable income levels Price factor Different lifestyles

Average price movement 1997-98 1998-99 1999-00 Refrigerator 16000 15000 14500
Source : Industry Estimates

Market Demographics
Regional Share of purchases(%) Year North South East 1985-86 31 21 1989-90 25 26 1993-94 26 28 1994-95 28 29 1995-96 29 28
Source : NCAER Report

West 10 13 13 14 15 38 36 33 30 28

Major market Share North and West followed by South

Demand Determinants
Purchasing Power
Income Level growth in personal disposable income Availability of Finance Eg. BPL tie up with ICICI, Standard Chartered, Instabuys, Transamerica and Bajaj Consumer Finance

Price Penetration Levels Replacement Demand Avg life of refrigerator 15 Yrs Purchase HierarchyCTVs, refrigerators, washing machines and air-conditioners Product Customization
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Customer Perspective
Demand for consumer goods 1990s-change in the socio-economic scene
Rapid economic growth Increase in the number of working women Changing lifestyles and Higher aspirational levels - exposure to satellite television Easy consumer finance

Other factors affecting demand Growth in urbanization Trend towards smaller families Seasonality in demand Oct Dec 30-35% sales Festive season Apr June 25 % sales before summer
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Supply
Installed capacity of refrigerators in FY99 was about 5.2mn 165ltr direct cool refrigerators were estimated at 2.7mn As per ASCON, during FY2000, the refrigerator production grew by 5%
Capacity Utilization and Sales of Major player in 1997-98 were as follows
BRANDS Godrej Whirlpool Kelvinator Voltas BPL Capacity (Units) 1100000 1000000 300000 550000 300000 70.94% Cap.Utilisation 75.06% 65.90% Production (Rs Crore) 825.69 659.01 218.23 470.96 212.81 262.67 Sales (Rs Crore) 673.79 455.80 204.25

Source: Annual Reports

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Product
Refrigerator Manufacturing Process
Press shop Paint shop Final Assembly Testing

Inputs and Technology


Cost Content Raw materials Compressors Cold rolled steels Electric motors Others Total
Source: Industry, ETIG

Cost content to the total cost(%) 35 14.6 17.1 43.3 100

Other Components evaporator, innerbody and liners, polyurethane foam etc. Manufacturing cost directly related to degree of backward integration viz. firms manufacturing compressors in-house have a lower cost structure as they account for a major cost element Technology depends on type of cooling system 11

Product
Process - Runs on the vapor compression cycle, as does an air-conditioner. Main components Sealed compressor, condenser coils, a capillary tube, evaporator and a control thermostat. Presently almost all refrigerators now are without coils running zigzag at the back. Refrigerators nowadays are frost-free, i.e. they have a timer mechanism for automatic defrosting. Also, many refrigerators have several additional features like multi-doors, ice dispensing facilities, a special fan for uniform airflow and so on. The refrigerant gas used is a CFC (Freon 11 or 12). But with the date for implementing the Montreal Protocol drawing near, some companies like Whirlpool, have started manufacturing CFC free refrigerators or are in the process of setting up new capacities.
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Product
Basis for Differentiation - various price points for same capacity top and high categories.

No. and type of doors


Crushed ice and water dispenser Quick chilling zones

Multiple temperature zones


Adjustable racks and shelves Multiple use compartments

Refrigerant CFC free Vs CFC


Energy efficient compressor Freezer space vis-a-vis refrigeration space
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Market Segmentation
Cooling System
Cooling System Mkt Share (%) Direct Cool Manual Defrosting 85% Frost Free Built in system, takes care of ice built up 15%

Capacity
Consumer type for various sizes
Capacity (In lts) < 100 L 100 L - 200 L 200 L - 330 L 15 330L & above
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Market Share(%) Consumers 5 Hotels/restuarents, dispensaries Household with space crunch 80 Small households Replacement market and huge households

Market Segmentation
Segmentation on Buyers Demand ('000 units) % age Top 7 metros 707 Other 1 mio + Cities 233 0.1 - 1 mio 561 < 0.1 mio 310 Rural 310 Total Households 2121 Institutional Demand 85 Total 2206 32 10.6 25.4 14.1 14.1 96.2 3.9 100 Penentration Lvl 44.5 27.6 22.6 15 1.1 7

Price Sensitive Brand awareness of Indian Brands High Large % of rural buyers first time buyers After sales service - critical Need for strong distribution network
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Major Players
Godrej

Whirlpool
Electrolux Videocon Intl

BPL Refrigeration
Koreans viz. LG and Samsung

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Market Share
Estimated Market Share
Company Name Whirlpool of India Ltd Electrolux Godrej-GE Videocon BPL Koreans
* Imports CFC Free Refrigerators Source: ORG:GFK Survey, Published Reports

Brand Name Market Share (%) - 1999 Whirlpool * 26.5 Kelvinator,Electrolux, Allwyn, Voltas 30 GE*, Godrej 21 Videocon 10 BPL 6 LG, Samsung 6.5

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Manufacturing Facilities
Company BPL Godrej-GE Manufacturing Facilities Bangalore, Palghat(Kerela) Malanpur (M.P) Out Sourcing Direct Cool from Allywn-Voltas

Videocon Whirlpool

Chittegaon, Aurangabad Faridabad, Pune, Pondicherry

Voltas

Warora, Thane, Hyderabad

Samsung LG

Greator Noida(planned) Greator Noida

Importing till 1997 from Korea Direct Cool from Voltas

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Competitive Profile
Godrej Appliances Ltd 21% Market share approx

95% of revenue from refrigerator business


Product range Penta Cool Series World Series Ultra Cold Gold Deluxe Cold Gold Focus on Cost Competitiveness Target rural/semi Urban Market
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Competitive Profile
Samsung Korean company Product range Side-by-side Bio-fresh range Super X flow range Twin cooling system

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Competitive Profile

Promoted by the Videocon Group Videocon Appliances Ltd. was incorporated in 1988 Entered the market in 1992 Videocon pioneered India's first Frost-free refrigerators In technical (design and drawing) collaboration with Matsushita Refrigeration Co., Japan Conventional refrigerators Frost-free refrigerators
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Competitive Profile
Electrolux AB
World leaders in white goods manufacturing Electrolux, Kelvinator, Allwyn, Voltas Brands Focus on building the kelvinator brand Strengthen distribution network Approx mkt share 30%

BPL Refrigeration Niche player - Frost Free Segment


High Value strategy Premium pricing Exclusive showrooms
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Competitive Profile
LG Electronics Major global player in electronics & telecommunications Premium pricing strategy Product Range Dios Frost Free Direct Cool Cute N Cool

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Marketing Strategies
LG Electronics strategy includes developing non-traditional channels of selling even while it continues to strengthen its retail sales network.

The company has banded together small teams of people to be attached to its branch offices to carry out brand promotions in smaller cities and
towns.
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Marketing Strategies
Electrolux - Multi-pronged strategy Aggressive product launches Focus on quality and increased rural reach Focus on building a strong market for its 35-year old brand Kelvinator Introduction of at least four new refrigerator models every year The group has outlined a multi-brand marketing strategy aimed at customers high-end - Electrolux upper end and middle income - Kelvinator lower segments - Voltas and Allwyn Voltas brand will soon be phased out.
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Marketing Strategies
Electrolux (Contd.)
Different marketing strategies for different customer segments. The focus will also be on the price-sensitive rural markets. To push the products, the dealers are trained such that they are able to explain the value-addition to prospective customers. At the top-end, the company's products are priced higher than the competitors. Strategy for growth this year includes Consolidation of its existing operations and Entering new product segments. Electrolux has put the Internet on the forefront of its sales strategy.
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Marketing Strategies
Whirlpool
Very aggressive dealer-push strategy to get a foothold in the highly competitive marketplace Discovered that most customers associated refrigerators with ice and cooling Realized that the upwardly mobile consumer was sheepish at the thought of having to borrow ice The company merged the two findings to create its hummable Ice, Ice campaign

Samsung
Samsung Market based Management strategies include:

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Brand Building
Sponsorship of TV programmes on various channels
To position its products as an elite product Improve brand visibility
Samsung, LG, IFB and Electrolux sponsored movies on the Star Movies network. Samsung and IFB, for instance, sponsor the Saturday and Sunday night premieres. LG has sponsored, Kaun Banega Crorepati?.

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Brand Building
Branding strategies Videocon - Umbrella branding strategy for their products. VIL claims to be the first company in India to introduce frost-free refrigerators and fully automatic washing machines. Assiduously built images over the years. Convey the message of leadership to their customers. Videocon, for example, has changed its logo to convey the message of precision, quality and technical edge in all company activities.

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Brand Building
Kelvinator
A good example of how a well-known and popular brand suffers due to a lack of adequate marketing support Early entrants in the market Limited portfolio of models Lower brand visibility and indifferent dealers

Electrolux (which has bought over the brand since January 1997) - bolster the brand
Kelvinator will be the flagship brand straddling most of the market segments Kelvinator being present in India for a long time and popular as a brand which is the coolest one, was chosen ahead of others
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Brand Building
Kelvinator (Contd.)
A new campaign for the brand was launched as part of a mega promotion exercise at a cost of Rs160mn. The earlier popularity of "the coolest one" campaigns ensured that it is continued with. In one of the recent ads, an old mans dentures, kept in a bowl of water, are seen chattering every time the door of a Kelvinator refrigerator is opened. Some of the print-ads campaigns also highlighted Kelvinator as a refrigerator, which freezes ice within no time and saves power consumption by as much as 33%. The product portfolio has been beefed up with the introduction of three new models including one in the 300-litre segment. A new frost-free range was also introduced.
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Pricing
Pricing
Refrigerator sectors operating at 65% capacity utilization.

Penetration pricing
Entry-level prices lower in order to activate demand.

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Industry Analysis
Industry characteristics
Low penetration Rural markets yet to develop due to infrastructure bottlenecks Rising raw material costs Competition from new entrants Stiff competition leading to higher advertisement expenditure Growth, less than foreseen Policy changes

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Industry Analysis
Economies of scale
Godrej, BPL , Whirlpool, Videocon and Voltas have achieved economies of scale unit cost low. Godrej has a capacity utilization of 75% and the highest capacity in the industry. Godrej also possesses economies of vertical integration as it manufactures its own compressors. BPL and Videocon who are currently outsourcing their compressors also plan to set up their own manufacturing units for compressors in the long run. any new entrant to come in at a large scale and risk strong reactions. The industry has high exit barriers for the members who have invested in the manufacturing facilities in India in the form of 34 specialized assets.

Industry Analysis
Product differentiation:
Godrej, BPL and Videocon - very old players in the Indian market, high brand awareness and consumer loyalties. These brand names are associated with trust and reliability in the Indian market. Korean players - LG and Samsung who engaged in heavy advertising and brand promotion, created a niche for them in the premium segment. new entrant to spend heavily to overcome existing consumer loyalties and to build a brand image.

Capital requirements:
Huge Capital requirements - advertising, product development, production facilities, distribution channel credit, inventories and for covering up the start-up losses.

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Industry Analysis
Access to the distribution channels:
Godrej, Videocon, Voltas and Allwyn cater to mass market, have a strong distribution and dealer network.
Urban and rural presence Established relationship/developed ties with the channel members over the period of time

Whirlpool has also developed a strong network of 4000 dealers in urban and semi-urban areas in a period of few years. South Korean majors like Samsung and LG have a dealer network of more than 1500, mainly in urban areas and plan to expand it in rural and semiurban areas also. a major barrier as the new entrant has to persuade the channels to accept its product through high margins, promotional allowances, better credit facilities and advertising support, which will reduce the profits.

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Industry Analysis
Cost disadvantage independent of scale Learning or Experience curve: Old players viz., Godrej, BPL, Videocon are high on the experience curve, as high local market knowledge. Government policy: Duties on the imported Refrigerators and refrigerator parts advantage to the Indian Players and in a way protect them from price competition in the market with the MNCs.

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Industry Analysis
Rivalry Very High - Intense rivalry in the various segments
Same dealer network Low differentiation, high ad spent Have high strategic stakes in the refrigerator business - major fraction of their revenues come from this business

Pressure from the substitutes - No threats As no substitutes


The domestic refrigerators have no substitutes and so it faces no threats in terms of that.

Bargaining power of the buyers - High


Presence of many competitive products in the market. Low differntiation switching between the different brands based on other criteria such price, service, warranty, promotion and financing schemes.

Bargaining power of the suppliers - Not very High


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Critical Success Factors


Brand Image Distribution Strengths After-Sales Service Product Range Technology Financial Strength Product Quality Compressor Quality Features and aesthetics

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Strategic Group Mapping


Strategic group mapping of industry players:

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Competitive Analysis
High price Medium price Low price

High perceived quality

1.Premium strategy (1) LG, Samsung, Daewoo

2. High value strategy (2) Whirlpool, BPL

3. Super value strategy

Moderate perceived quality

4. Over charge strategy

5. Medium value strategy

6. Good value strategy (4) Videocon

(3) Godrej , Kelvinator

Low perceived quality

7. Rip off strategy

8. False economy strategy

9. Economy strategy (5) Voltas, Allwyn

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Positioning
Premium Strategy - LG, Samsung, Daewoo
Operating only in the frost-free segment Large product length Products only in the above 300 ltrs segment The brands follow premium strategy of high quality at high price They are targeting to the upper income, upper higher middle class of the society with the products that are associated with status These companies have shown a tremendous growth in few years

High Value Strategy - BPL , Whirlpool:


Frost-free models in the below 300 ltrs capacity segments as well as the above 300 ltrs segment The models in above 300 ltrs segment cater to the replacement market and to the higher middle class Emphasis on providing high quality at a moderate price Below 300 ltrs - targeted at the first time buyers of middle class and are not high in price
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Positioning
Medium Value Strategy - Godrej, Kelvinator
Old brands of India, high brand awareness Presence in urban as well as the rural markets Mainly serving to the direct cool segment Have few models in the frost-free segment These brands are catering to the middle class and are not very high in prices

Good Value Strategy Videocon


Introduced frost-free refrigerators in India Value for money products Lowest prices in the market - catering to the middle class of the society

Economy Strategy - Voltas, Allwyn


Cater to the middle and lower middle class of buyers with their low priced ranges
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Distribution
BPL

Kelvinator and Godrej

Deawoo and Samsung

Whirlpool

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Distribution Network
Company BPL Distributors in India N.A Dealers in India 1500 Service branches *

Godrej-GE

6000 (Direct)

Videocon Whirlpool Samsung

* * * 4000 1600

* 18 *

LG

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2000
2000

*
*

Electrolux-Kelvinator *

N.A: Not Applicable *:Data not Available

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Distribution
Aimed at reducing inventory holding cost - direct delivery of the product to customer once the dealer enters the order. Corporates willing to invest in creating inventory - holding facilities at dealers end and pay for holding charges. Intense competition - higher ad spent and emphasis on streamlining distribution network and reduce dealers margin Whirlpool and Electrolux trying to provide quick service to dealers - allowing to stock within 24 hrs

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Environment
Montreal Protocol - Environment conciousness - depletion of Ozone layer
CFC Free Refrigerators
Year 2003- deadline by which Indian markets is to be replaced with CFCs free refrigerator -Move towards using HCFC ( Hydro chloro fluoro carbons) HCFCs non-harmful, easily available, no major technology change Year 2030 move into using HFCs (Hydrofluorocarbons) HFCs major technology changes in manufacturing process, cost of HFC-based pilot plant is approx 10 crore.

Whirlpool India has already set up a 0.4mn unit capacity plant near Pune to manufacture CFC-free refrigerators LG Electronics has converted its entire 300-litre plus range of models as CFC-free Electrolux AB has found a cost-effective alternative way of a hydrocarbon coolant (R-600)

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Policy
Till the late 80s - white goods sector was labelled as a luxury goods industry- an oppressive regime of licenses and taxation 1993-94 government removed all investment obstacles
Duty structure Excise duty Custom duty 1999-00 2000-01 2001-02 1999-00 2000-01 2001-02 16 16 16 45.6 44 40.4 19 16 16 44 44 40.4 40 40

Refrigerator Compressor Rebate


Source : Industry

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Future Trends
Replacement market is expected to increase to 25-30% on account of faster replacement (further induced by exchange scheme) Refrigerator market is expected to grow at a CAGR of 14% in the medium term aided by the rising per capita income and growing consumerism The demand for refrigerators is expected to be about 3.6 million units in 2000-01 with a penetration rate of about 13%
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