Electrolux Case Study

CASE 30
AB Electrolux
Challenging Times in the Appliance Industry
Alan N. Hoffman
Rotterdam School of Management, Erasmus University and Bentley University
Axel Wenner-Gren is the founding father of AB Electrolux. In 1908, he passed by a vacuum

cleaner in a store window in Vienna and thought to himself that “there should be one of
these in every home” despite the fact that this vacuum cleaner cost a small fortune and
weighed about 45 pounds. Two years later, this visionary founded the company known
today as Electrolux. In 1912, Electrolux produced the first household vacuum cleaner
known as the Lux 1. Wenner-Gren had an ability to grasp the basic needs of customers
and produce and sell appropriate products and services, and so, in 1925, the company
entered the refrigerator market.
As World War II paralyzed many of Electrolux’s manufacturing plants, the com-
pany reorganized some of its production facilities and made air filters and steel fittings for the
Swedish defence forces. Following the end of the war, the company continued on its path to
dominating the household appliance industry by introducing the first household washing
machine in 1951 and the first household dishwasher in 1959. Acquisitions of other companies
played an important role in the growth of Electrolux throughout the past 90 years, and it helped
the company become a global player in the industry. It has acquired over 300 companies from
various countries throughout the world, providing Electrolux with better production capabilities
and access to large mature markets and established brand names, such as Eureka, Frigidaire, and
Kelvinator. In 1997, following years of acquisitions, Eletrolux began a two-year restructuring
This teaching case was compiled from published sources and written with the assistance of Tao Yue from the RSM
Case Development Centre.
RSM Case Development Centre prepared this teaching case to provide material for class discussion rather than
to illustrate either effective or ineffective handling of a management situation. The author has disguised identifying
information to protect confidentiality.
Copyright © 2010, RSM Case Development Centre, Erasmus University. No part of this publication may be
copied, stored, transmitted, reproduced, or distributed in any form or medium whatsoever without the permission of
the copyright owner.
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738 C ase 3 0 AB Electrolux
program in an effort to improve its bottom line. It divested several of its sectors including
industrial products, sewing machines, and vending machines and laid off 11,000 employees and
closed 23 plants and 50 warehouses. Following its success in the European markets, Electrolux-
branded appliances were introduced in North America in 2004. Hans Stråberg was appointed
Electrolux’s President & CEO in 2002 and remains in that position today. The company is
currently the world’s second-largest appliance maker, behind Whirlpool, and has over 50,000
employees in more than 50 countries around the world. Its headquarters are in Stockholm, Sweden.
Product Offerings and Brands

Electrolux sells over 40 million products to customers in more than 150 different global markets
every year in two product categories: consumer durables and professional products. Its con-
sumer product offerings are broken down into three segments: kitchen products (for example,
fridges and freezers); laundry products (such as washers and dryers); and floor-care products
like vacuums. Electrolux also sells spare parts and services associated with its products. In its
professional products division, it offers food-service equipment for restaurants and industrial-
kitchens, as well as laundry equipment for the health care industry and apartment buildings.
Consumer durables are a core piece of Electrolux’s business, representing 93% of overall sales
in 2009. Kitchen products represent a majority of the Electrolux consumer product category
with 57% of overall company sales. Electrolux’s roots are in the floor-care business, and today
those products only contribute 8% of the company’s annual sales. The professional products
business makes up a smaller portion of its sales at only 7% (in 2009). Through its acquisition
strategy in the 1980s and 1990s, Electrolux acquired many different brands in several global
markets, with various brands offered in different regions of the world. Approximately half of
the 40 million products Electrolux sold in 2009 were sold under the global Electrolux brand.
Strategic Direction
Electrolux is in the business of developing and marketing premium household and profes-
sional appliances. The guiding principle that the company follows is to offer products and
services that consumers prefer, that benefit both people and the environment, and for which
consumers are willing to pay a higher price. The company is truly in the premium market
category of household appliances. Electrolux is also a very consumer-driven company. The
“Thinking of You” slogan indicates the high importance the company places on understanding
customer needs. Whether it’s in product development, design, production, marketing or
service, the customer is always at the forefront of Electrolux’s mind.
The vision of Electrolux coincides with the vision of its founding father 90 years ago
when he believed that there should be a vacuum cleaner in every home. The company’s vision
is to surpass Whirlpool and become the world’s largest manufacturer of household appliances.
Their aim is “To be the world leader in making life easier and more enjoyable with the help of
powered appliances.”1 This vision is illustrated throughout their marketing campaign in North
America featuring Kelly Ripa with the tag line “be even more amazing.” The focus is on the
customer and helping to make their day-to-day life simpler with its products.
Industry Environment
Recently, the appliance industry has seen sluggish sales moving through the current recession.
There have been several government programs similar to the Cash for Clunkers program but
instead implemented for the appliance industry. These programs are intended to rid homes of
non energy-efficient appliances but also have a second motive, to spur demand. In an attempt
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Case 30 AB Electrolux 739
to satisfy consumer demand, appliance companies have been developing more and more
Energy Star approved efficient products. Further, appliance companies have been producing
their products in a more environmentally friendly manner.2,3
According to a paper published in 2008, the income elasticity of appliances is less than
one, and in the case of washers and dryers, income elasticity was found to be merely 0.26—a
figure proving that appliance sales are quite inelastic. This means that if a person’s income
was to increase or decrease, their expenditures on appliances would, on average, not increase
or decrease at a similar rate. This makes sense, as many consumer appliances are considered
a necessity to which a family cannot live without. It can also be inferred that with such a low-
income elasticity, the appliance industry could be insulated from a recession.4 Finally, the
appliance industry is mainly dominated by Electrolux and Whirlpool. The industry market
capitalization is about US$12 billion with an industry profit margin of approximately 8.42%.5,6
Competition
Whirlpool Corporation, a company devoted strictly to the appliance market, has a market
capitalization of over US$6 billion and is currently the largest appliance manufacturer in the
world. Prior to 2006, Electrolux held that title; however, following Whirlpool’s acquisition of
Maytag, it surpassed Electrolux as the world’s largest appliance maker. Whirlpool currently
produces products under the brand names Kitchen-aid, Jenn-Air, and Amana and has approxi-
mately US$20 billion in sales, an operating margin of 5.8%, and a growth rate of 8.8%. This is
quite below the industry average growth rate of over 29%. Whirlpool’s current product mix is
one of medium cost and quality. Many of the company’s products excel beyond their generic
counterparts but fall behind in features that many luxury appliance brands offer. Whirlpool
Corporation employs approximately 67,000 people.7,8
GE Appliances, a subsidiary division owned by General Electric, currently has a prod-
uct mix that is most similar to that of Electrolux. It produces high-quality ranges, ovens, and
refrigerators that have many of the same features as Electrolux products, including an induc-
tion cook top. This type of cook top has become quite desirable as it uses electromagnetism to
create precise heat in half the time while using much less energy than a classic gas or electric
stove. While financial information specific to GE Appliances is not widely available, General
Electric, the parent company, currently has a market capitalization of over US$167 billion.
One benefit to a diversified large company, such as General Electric, is that it can use resources
from another division and reallocate the resources to the appliance subsidiary if needed.9,10
LG Electronics, a privately owned subsidiary of LG, Lucky Goldstar, offers a lower-cost
product mix with a few high-end appliances, but does not have certain features other brands
offer, including induction cook tops. The financial information specific to the appliance
division of LG Electronics is not readily available, but it is estimated that it employs
28,895 people. LG Electronics also has the benefit of being part of a very large diversified
parent company that can transfer resources to the appliances division if needed.11,12
Sustainability
For the past six years, Electrolux has been implementing a production restructuring program
that involves relocating approximately 60% of its manufacturing to low-cost countries such as
Mexico and China. Electrolux also has a goal of reducing its overall energy consumption by
15% of the 2008 levels by 2012 in an effort to achieve more efficient energy consumption in
its manufacturing process. The company also has goals specific to its sustainability focused on
four issues: climate change, sound business practices, responsible sourcing, and restructuring.
Every business sector of Electrolux has launched a “green” range of products in its efforts to
increase awareness of the company’s energy-efficient and climate-smart products.
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Increasingly, sustainability initiatives are creeping into the collective consciousness of

governments and the general consumer. There is an awareness level around sustainability that
is pervasive and now influences consumers’ purchasing behavior. In addition, this movement
has become so strong that it is now a major part of nearly every legislative agenda around the
world. The American Recovery and Reinvestment Act, passed into law in 2009, has earmarked
a whopping US$27.2 billion to energy efficiency and renewable energy research and invest-
ment.13 Going “green” is no longer a fad—it’s a behavior incentivized by governments. For
example, in the near future there will be criteria for lower energy consumption when appli-
ances are in standby mode as well as smart electricity meters that distribute power consump-
tion more evenly throughout day and night. Currently, these types of incentives generally take
the form of rebates offered to the consumer for buying brands that have met a standard level
of energy conservation requirements. In the future, it is likely that governments will not only
provide rebates on the purchase of energy-efficient appliances, but mandate it as well. Indus-
tries like home and commercial lighting are already feeling the impact of this type of directive
with the law that incandescent bulbs will no longer be available on shelves after 2014. These
mandates are a significant opportunity for Electrolux. The company is in a prime position
to capitalize on this trend by rapidly rolling out energy-efficient products that capitalize on
today’s consumer awareness and positions it well for tomorrow’s mandates.
The 2008–09 Global Recession

The appliance market is impacted greatly by the fluctuations of the credit market. Clearly, the
current state of the global economy has taken its toll on major appliance makers such as Elec-
trolux. Retailers had limited credit to stock appliances, and consumers were operating with
shoestring budgets. Instead of purchasing new appliances, many were forgoing the purchase
altogether and opting to repair an outdated appliance. Of course, the economy is cyclical and
by most accounts has already hit bottom. As the recovery moves forward, the credit markets
will open and provide a new opportunity for Electrolux. This expanding credit market will
inevitably lead to an increased rate of new appliance purchases. The purchase of new appli-
ances is also inextricably linked to home buying. People tend to buy major appliances in the
midst of a new home purchase or remodel. As credit becomes available, home buying will
surge upward and serve as the tailwind needed to jumpstart appliances.
Like the automotive industry before it, the appliance market is facing stiff competition
from Asian companies such as LG, Haier, and Samsung. These companies will pose a sig-
nificant challenge to the success of an established brand like Electrolux. In addition, as Elec-
trolux looks to outsource production to developing nations—it needs to be mindful of the
increasing cost of labor in these countries. China, once the epicenter of global outsourcing,
is already being viewed as a risk when it comes to outsourcing due to the inevitable increase
in wages. In July of 2010, 18 provinces in China increased the minimum wage by an aver-
age of 20%.14 This increase in wages could offset the cost advantages Electrolux hopes to
achieve by moving production. Finally, Electrolux has recently churned out a few encourag-
ing quarters in a row and have trumpeted the fact that its operating margin is slowly creeping
upward. Part of this is because commodity prices are cyclically low. This is a natural reaction
to a down economy. When the economy suffers, commodity prices tend to fall. Electrolux
has benefited from this reduction in commodity prices because it has helped to reduce the
company’s costs throughout the supply chain. A manufacturer like Electrolux relies heavily
on commodities like steel for the production of its appliances. As the recovery continues,
commodity prices will increase and impact the operating margin and bottom-line earnings of
the company. Some of this increase should be offset by the ability to charge higher prices, but
the threat is still present.
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The Growing Middle Class in Asia

As the social and demographic trends continue to evolve, so do the opportunities afforded to
Electrolux. The most significant demographic shift globally is the growing middle class in
Asia, which includes families with incomes between US$6000 and US$30,000. It is estimated
that by 2020 there will be one billion more people in the global middle class than there were
in 2010.15 Correlated with rising incomes worldwide, homeownership has also increased at a
substantial rate giving rise to increased demand for consumer durables such as refrigerators,
washing machines, and dishwashers.16
Consumers worldwide are also working longer hours with increased workplace demands,
and consequently their “free” time to maintain their domiciles is shrinking.17 Consumers are
expecting more out of their appliances to fit their unique needs, including faster cycle times
for washers and dryers and the automation of processes. For example, consumers are looking
for ovens that automatically determine at what temperature food needs to be cooked, how
long it needs to be cooked for, and an automatic shut-off when the food is done cooking. For
refrigerators, consumers are more focused on the freshness of stored food and are using this
as a guiding principle in appliance comparisons.18
Consumers are no longer simply concerned about the usability of their appliances, but
who makes the appliance, how the appliance was made, and what happens to the appliance
after its use. Corporate social responsibility is a growing factor in differentiating companies
for consumers and it has become more and more important for companies to invest in the com-
munities of their target customer. Consumers are also more concerned about the environment,
now more than ever, and companies have to be creative in incorporating environmentally
friendly practices. Energy consumption, pollution, and recyclability of appliances are all vari-
ables that consumers keep in mind when selecting their home appliances.
Aside from practical and environmentally conscious concerns, there are also the continu-
ally evolving tastes of consumers. The kitchen has become the favored entertainment space for
people, which has led to a more fashionably conscious consumer in picking out kitchen appli-
ances. It is important to recognize new consumer tastes of aesthetics rather than just focusing
on the practicability of appliances.
The greatest social and demographic threats to Electrolux are the erroneous perceptions
of consumers about appliances in regards to energy consumption and ease of use. Currently,
less than half of the households in Europe own dishwashers.19 A substantial segment of con-
sumers in Europe still believe that dishwashers consume an exorbitant amount of water for
each cycle. With the development of energy-efficient dishwashers, the average dishwashing
cycle consumes only 10–15 liters of water.20 A comparable load of dishes washed by hand
would use nearly 80–90 liters of water.21
Technical Advancements
The evolution of technology has allowed companies like Electrolux to meet the ever-changing
consumer demands and tastes for appliances. One of the most important factors for consum-
ers in selecting home appliances is the level of energy consumption. Consumers are not only
now using this as a variable in selecting fuel-efficient cars and electricity-saving light bulbs,
but also in choosing dishwashers, stoves, and refrigerators. The AEG-Electrolux Super-Eco
washing machine is a great example of energy efficiency, in that it features a cycle that only
uses cold water.22
The ability to create appliances like AEG-Electrolux Super-Eco has come from
several technical advancements. Refrigerators now have the ability to store food with sustained
freshness and frost-free freezers.23 In line with becoming more environmentally friendly,
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the Electrolux Lagoon is a system for washing, drying, and finishing using only water and
biologically degradable detergents. This system can even wash and dry linens that normally
would only allow for dry cleaning.24 These technological advancements are most significant for
cookers, ovens, and hobs where technical differentiation is extremely important to customers.25
As previously mentioned, the Inspiro oven is just one example of Electrolux’s aim at incorpo-
rating new technologies in its products.
Driven by consumer preferences, there has been a growing demand for lower noise–
emitting vacuums. With this in mind, Electrolux has focused on developing vacuums that are
much less noisy than past models. One of Electrolux’s vacuum models focuses on air flow,
enhances the performance of the vacuum, and reduces the noise level, resulting in an effec-
tively silent vacuum cleaner.26
While the demand to incorporate new technologies into appliances to increase the
standard of living persists, the ability to use different recyclable raw materials in devel-
oping appliances is also another technological opportunity. Environmentally conscious
consumers look for appliances that use at least some recycled material and are taking into
consideration the recyclability of their appliances after their use. This presents a unique
opportunity for Electrolux to use new technologies to meet these environmentally con-
scious consumers.
One of the more significant threats for Electrolux is the Internet. The Internet allows con-
sumers faster and more extensive access to information about products and services, which
in turn leads to greater price awareness.27 Products like refrigerators and dishwashers, which
have low profit margins in geographic areas like Europe and are more difficult to differentiate
except by price, suffer the most from the use of tools like the Internet. Consumers can easily
shop online to discover the lowest-priced appliance without ever interfacing with a sales per-
son or traveling to an appliance store.
In general, kitchen appliances like refrigerators, stoves, and dishwashers are heavy
and bulky, which makes shipping these goods much more expensive.28 Products like these
need to be manufactured and produced near their end-market to reduce the cost of shipping.
As mentioned before, many of these appliances already have a low-profit margin, so any
reduction in cost to produce and ship allows Electrolux the ability to be more competitive
based on price. In a push by the appliance industry to produce in low-cost countries, heavy
and bulky appliances create a complex problem that companies must overcome in order to
remain price competitive.
Global Opportunities and Threats

One of the most important opportunities for any manufacturing company is the ability to
manufacture at low costs. There are several regions and countries of the world that allow
companies to establish manufacturing plants that reduce the cost of goods sold, especially in
the production of appliances. For Electrolux, all vacuum cleaners are produced in low-cost
countries.29 As previously mentioned, part of Electrolux’s campaign to relocate production
facilities to low-cost countries has resulted in Electrolux plants in Poland, Hungary, Mexico,
China, and Thailand to reach the company’s global market.30 As indicated before, certain
bulky appliances must be produced near the end-market. For example, the Mexico manufac-
turing facilities for Electrolux serve its North American market.31 Manufacturing facilities in
Thailand, on the other hand, serve the Australian market.32
With rising incomes and increasing worldwide homeownership, there are several attrac-
tive markets for appliances including Southeast Asia, Latin America, Mexico, Argentina, and
Brazil.33 For dishwashers in particular, the European market has experienced tremendous
growth with increased demand for dishwashers of 20% since 2004.34
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It’s important for companies to also identify countries where governments have intro-
duced economic recovery plans that favor appliance corporations. For example, Brazil’s
government has rolled out a stimulus package that led directly to an increase in demand for
consumer durables supported by lower taxes on domestically produced appliances, as well as
lower interest rates and greater access to credit.35
While predicting the next boom of consumer durable demand globally is difficult, there
is one variable that helps companies determine when to ramp up production and prepare for
increased demand. As previously stated, there is a direct positive correlation between raw ma-
terial prices and strong economic periods.36 As the price of raw materials increases, Electrolux
can use this relationship phenomenon to identify future economic booms.
With the opportunities available for companies that take advantage of the global market,
there are certainly threats that make it difficult to maintain a competitive advantage. For Elec-
trolux, operating and manufacturing in dozens of countries across the globe opens the com-
pany up to currency risk exposure in fluctuating markets. With such economic uncertainty, as
witnessed from this most recent economic recession, it is now more important than ever to
hedge currency risks and identify, and respond to, markets that are a detriment to the business.
Raw material prices also fluctuate with great volatility and are difficult to forecast.
A complicating factor, supporting price volatility for companies, is the scarcity of natural
resources used to manufacture appliances like steel.37 Companies must balance short fluctu-
ating prices of raw materials and adjust menu prices as needed while keeping in mind what
consumers must be willing to accept and pay for the price variations.
Financials
Consumer products make up 93% of Electrolux’s sales. North America and Europe are its
largest markets in both sales and income. However, sales in Latin America have continued
to increase over the past few years as the company gains greater market share in Brazil. As
discussed in the global opportunities section, the Asian market is growing at a rapid pace, and
as such, the company has seen an increase in sales and market share in this region as well.
The company’s income in all regions increased in 2009 primarily due to the lower cost of raw
materials and cost-cutting measures taken by the company.
The company has had a tough time increasing its sales since 2002 and its year-over-year
sales growth has been less than 10% in that time period. In 2005, the company’s net income
loss was mainly due to the higher cost of raw materials, namely steel. Raw material costs
make up approximately 20% of the price of an Electrolux appliance, so the fluctuation in cost
has a significant impact on the company’s profitability. During 2005, the company also faced
a weakening market in North America and significant competitive challenges in the Chinese
market. These factors all contributed to their 2005 loss. Despite the global economic crisis
in 2008, the company’s sales remained flat year over year. Due to the decreasing demand for
Electrolux premium appliances in 2008, the company decreased their prices in an effort to
keep their sales flat; however, this had a negative impact on their bottom-line profitability.
The company also took cost-cutting measures in order to prepare for the uncertain economic
climate in 2009 by reducing headcount and transferring production to low-cost countries such
as Thailand, China, and Mexico. In 2009, Electrolux was able to slightly increase its sales
by 4% and significantly improve its income from SEK 366M to SEK 2.6B. The increase in
income was a result of the company’s cost savings initiatives and a lower cost for raw materi-
als. Some of the cost-cutting methods the company took in 2009 include closing 16 plants,
reducing headcount by over 3000 employees and reducing the number of component vari-
ants in its products. Electrolux has moved 60% of its production to low-cost countries and
expects that this manufacturing restructure will generate annual savings of approximately
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SEK 3 billion. The company also cut its plant capacity to respond to the decrease in demand
so that Electrolux’s capacity utilization is only 60% versus a normal of over 85%. Electrolux’s
laser focus on maintaining cost efficiency helped it to survive and emerge stronger from the
recession. Electrolux needs to maintain a lean cost structure and focus investments on market-
ing to strengthen its brand.
Operations
The operational structure of Electrolux provides a glimpse into its overall strategy. Electro-
lux has four global regions for the sale of major appliances: Europe, North America, Latin
America, and Asia Pacific. For the remaining product divisions, the company established a
single global entity that manages the entire line—floor care and small appliances, along with
professional products. This operational structure aligns with the strategy of focusing on high-
end, premium appliances. More attention has been devoted to the appliance business because
it represents the largest growth sector and the highest-margin products for the company.
The primary objective of Electrolux from an operational standpoint is to achieve an
operating margin of 6%. For the last few years, the company has been focused on improving
its operating margin. This focus developed as the company realized its cost base was signifi-
cantly higher than the majority of the industry. In addition, Electrolux strives to be an inno-
vation-driven company focused on the consumer. It does this by maintaining a focus on the
consumer during product development, design, production, marketing, logistics, and service.
Because of this continued focus on improving the operating margin, one of the strengths
of the company’s operations is the diminishing cost of its supplier and production network. By
the end of 2010, Electrolux will have moved 60% of its production to low-cost countries, sav-
ing the company SEK 3 billion annually.38 Another strength is that the company is not blindly
relocating production facilities on the basis of price alone. Electrolux is making a strategic
decision with each new production facility based on current and future costs of labor, trans-
portation parameters, access to local suppliers, and proximity to growing markets. Because of
this, the company has made strategic decisions to keep some production in high- or medium-
cost countries. For example, the company has determined that plants for built-in ovens and
cookers for Europe must remain local due to advanced technology and high transportation
costs. Likewise, refrigerators and washing machines must be produced close to the end market
because the items are expensive to ship and labor costs make up a small fraction of the total
cost of the product. The two production plants in Juarez, Mexico, are a prime example of this
strategy. While Mexico is not a country with high labor costs, it is not considered low either.
Two plants have been established in the country to serve the North American markets—one
for kitchen appliances and one for washing machines and dryers. This helps to reduce the
cost of labor but also maintain a facility in close proximity to the end market. Conversely,
vacuums are inexpensive to ship and labor makes up the bulk of the final price of the product.
As such, 100% of Electrolux vacuum cleaners are made in low-cost countries—primarily
Thailand. This represents a significant strength for Electrolux because it makes strategic deci-
sions around its production facilities rather than constantly chasing the lowest-cost labor.
Though Electrolux has been improving its operating position, the company still has a num-
ber of weaknesses. As mentioned earlier, the company has undergone a strategic initiative to
significantly reduce its cost structure to achieve an operating margin of 6%. The company is
nearing its goal with an operating margin of 4.82 %. But even at 6%, Electrolux is well below the
industry standard of 8.42%. This slim margin is a glaring weakness. Another weakness of Elec-
trolux is that its margins are impacted greatly by an over-reliance on low-cost items like vacuum
cleaners where margins are much tighter. As the company pushes toward the stated goal of a
6% operating margin, it will need to continue to emphasize high-end appliances over vacuums.
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Marketing
A key strength for Electrolux is that after many years of continuously declining prices, the
company managed to increase prices in Europe at the beginning of 2009 and at the same
time maintained its price position in the American market. This is indicative of a strong
brand that consumers are willing to pay a premium for—especially in the face of declin-
ing demand.39 A second strength of the Electrolux marketing function is that the company
has multiple customer touch points and entry points into the home, similar to GE. Also, the
company has roots in door-to-door sales. This type of relationship selling is becoming even
more crucial in today’s market. While it’s not door-to-door sales, consumers expect a one-
to-one relationship with companies and are increasingly reluctant to engage with a brand
that focuses on pushing messages to the masses. Electrolux is uniquely positioned in this
regard. The company is also strongly positioned when it comes to sustainability initiatives.
Many companies have jumped on the sustainability bandwagon, but few have done it with
a clear plan on how they will cut energy consumption and how that will save the company
resources in the long run. By year-end 2012, Electrolux factories, offices, and warehouses
will use 15% less energy than in 2008. These reductions will result in CO2 savings of over
73,000 tons—the equivalent of the yearly emissions from more than 32,000 cars. This re-
flects Electrolux’s continued commitment to reducing energy use that has been ongoing and
allow the company to save approximately US$100 million per year.40 Finally, the company’s
marketing function is strong in the fact that the department is engaged in the product devel-
opment process from the start. This helps to produce key innovations such as an induction
cook top that can boil water in 90 seconds and a washer dryer that can complete a load of
laundry in 36 minutes.
Because Electrolux is such a large company with several brands, a primary weakness
of the marketing function is that the sub-brands are often more well-known than the pre-
mium brands. For example, many people in the North American market are familiar with the
Frigidaire brand but have only a minimal awareness of the Electrolux brand outside of vacuum
cleaners. This could pose a challenge for the company as it aims to move upstream and focus
on high-end appliances. In addition, another key weakness of the Electrolux marketing team
is its roots in door-to-door sales. While it is also a strength due to the heritage in relationship
selling, it runs counter to the idea of a premium brand. When people think of high-end appli-
ances, they don’t immediately consider brands that sell vacuums door to door. If Electrolux
hopes to move more squarely into the high-end appliance segment, it will have to distance
itself from this history.
Innovation
Electrolux’s core competency is its unique focus on comprehensive innovation and its
ability to successfully create differentiated value in its products. Electrolux has been able to
take cutting-edge technologies and integrate them into household appliances, catering to new
consumer preferences and tastes. This ability to combine practicability and aesthetics has
supported Electrolux as a prospector in the appliance industry.
The Ultra Silencer Green vacuum cleaner is a perfect example of combing the unique
consumer tastes with new technologies. As previously described, the Ultra Silencer Green
vacuum is comprised of 55% recycled plastic material and is the most energy-efficient
vacuum cleaner on the market. Its high-efficiency motor reduces the Ultra Silencer’s energy
consumption by 33% compared to the standard 2000-watt vacuum cleaner.41 With a sleek
black finish, highlighted with green buttons, this vacuum cleaner sets the pace for an aestheti-
cally pleasing model with the environment in mind.
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Another example of Electrolux’s focus on innovation is the new 200G Compass Control
Electrolux industrial washer machine with the ability to send text message updates to users
of the machine when cycles are completed.42 With this, Electrolux has been able to capture
more of an already mature market by introducing washers and dryers that clean clothes that
would have normally only allowed for dry cleaning. The Electrolux Calima is a premium
washing machine that is fitted with a fold-out heat map for sensitive garments such as woolen
pullovers.43 This ability to capture some of the substitute competitors market is a testament to
Electrolux’s ability to identify new opportunities in what was believed to be a mature market.
The supporting factor in Electrolux’s core competency is its ability to listen to its cus-
tomer, and recognize evolving consumer demands and tastes. The Ultra Silencer vacuum
cleaner originated from a comprehensive study that Electrolux completed in which consumers
were surveyed and focus groups were assembled, to assess the most important variables in
selecting vacuum cleaners. A growing factor in vacuum selection was noise level.44 By
focusing on the air-flow system of vacuum cleaners, Electrolux was able to take this growing
trend and develop the Ultra Silencer, which effectively eliminates all noise pollution from the
vacuum cleaner. This technological advancement allows customers to play music and have a
conversation with someone while vacuuming.
Challenges
Although Electrolux has differentiated itself as a prospector and prided its business on inno-
vation and incorporating cutting-edge technology, there are a few key weaknesses that nega-
tively affect its potential. Electrolux has been unable to maintain sales of high-profit margin
appliances in Germany, Spain, the UK, and China.45 Due to low-priced competition, and an
inability to differentiate products such as refrigerators and dishwashers, Electrolux has
squeezed only low profits from these mature markets. In relation to other markets and prod-
ucts offered, refrigerators and dishwashers sold in the aforementioned markets require signifi-
cant company resources but return little in the form of profits.
In 2009, capacity utilization was only 60% for Electrolux.46 With significant resources
tied up in capital of production facilities, Electrolux suffers financially from high overhead
costs and costs of goods sold. The return on the company’s current manufacturing facility as-
sets has declined significantly as a result of the past recession. Although Electrolux has closed
16 plants and cut back production in 5 others, low capacity utilization is still a major issue that
Electrolux must resolve in order to compete on price against other low-priced competitors.47
Electrolux has always positioned itself as an appliance company focused on value over
volume. Although the company chose to lower its production utilization and lessen its inven-
tory levels due to the abrupt decline of consumer demand during the last recession, Electrolux
has been stuck with inventory in its factories.48 Electrolux’s competitors have experienced
the same over-production, which leads to an industrywide problem of increased supply with
decreased consumer demand. This basic economic dilemma leads to downward pressure on
prices and lower profit margins for Electrolux.
Electrolux has not maintained the same level of innovation, value, and competitive
advantage in all of its strategic business units. With multiple brands and hundreds of products,
it has not been able to sustain high-profit margin products that are highly differentiated from
its competitors. Although Electrolux excels in sales and profits in the Professional Products
segment of the business, it falls behind its competitors in specific product categories like
refrigerators.49 Electrolux can be regarded as a prospector when it develops products like
the Inspiro oven, but it can be seen as a defender in Europe with its line of standard, price-
differentiated refrigerators. How can Electrolux identify and strengthen its weaker strategic
business units in order to maintain its competitive advantage?
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