LG:

Rural Marketing in India

Submitted To:
Prof. S. K. Pandey

Submitted By:
GROUP 3

RURAL INDIA
The Indian rural consumer lives in over 600,000 villages across the country and they account for over 70% of the population of the country. For several product categories, rural markets account for well over 60 per cent of the national demand. While the rural consumer is generally seen as less affluent than his urban cousin, things are changing in rural India over the last ten years. While in 1998-99 over 83% of rural households fell in the lower and lower middle classes, the number has fallen to 70% in 2006-07; the comparative fall for urban India is from 53% to 27% [NCAER data]. And if experts are to be believed, the number is set to fall at a rapid rate over the next 20 years.

Rural BPL Trend Over the Years

Percentage of Population below poverty line
53.1 51.3 45.2 45.7 44.5 40.8 39.1 38.9 38.2 37.3 36 32.4

Rural BPL Decreasing 10 % improvement in 10 Yrs. - Rural fast catching up with Urban - Has a rippling effect on the overall BPL of India - Rural overall faring better than Urban India

60 50 40 30 20 10 0

56.4 54.9 49

27.1 26.1 23.6

1973-74

1977-78 Rural

1983

1987-88 Urban

1993-94 1999-2000 Total

(Source: NCAER) This figure indicates the declining number of people lying below the poverty line thus presenting LG and other companies with the opportunity to tap or target this lucrative segment, which is exactly what LG did post 2002, once it realized that the urban sector growth is reaching a stable platform. And this is what led to the huge success of LG in rural India.

CORPORATE OVERVIEW
Established in 1997, LG Electronics India Pvt. Ltd., is a wholly owned subsidiary of LG Electronics, South Korea. LG faced major trouble while entering into the Indian market. Firstly,
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it entered into a joint venture with a Delhi based TV manufacturer BESTAVISION, but it didnt work out as bestavision was unable to come up with additional funds for the venture. Then they tried to enter through a tie up with Birla group, but the deal could not go through. Then in 1997 the consumer durables segment was de. licensed and thus LG entered and set up its operations in Noida. It still did not set up its manufacturing in India and hence imported its entire requirement from Korea. But then it soon realized that in order to grow and expand it had to set up its manufacturing plant. In India, LG is the market leader in consumer durables and recognized as a leading technology innovator in the information technology and mobile communications business. LG is the acknowledged trendsetter for the consumer durable industry in India with the fastest ever nationwide reach, latest global technology and product innovation. One of the most formidable brands, LGEIL has an impressive portfolio of Consumer Electronics, Home Appliances, GSM mobile phones and IT products. LG Electronics India Pvt. Ltd., a wholly owned subsidiary of LG Electronics, South Korea was established in January, 1997 after clearance from the Foreign Investment Promotion Board (FIPB). The trend of beating industry norms started with the fastest ever-nationwide launch by LG in a period of 4 and 1/2 months with the commencement of operations in May 1997. LG set up a state-of-the art manufacturing facility at Greater Noida, near Delhi, in 1998, with an investment of Rs 500 Crores. This facility manufactured Color Televisions, Washing Machines, AirConditioners and Microwave Ovens. During the year 2001, LG its assembly line for its PC Monitors at its Greater Noida manufacturing unit. The beginning of 2003 saw the roll out of the first locally manufactured Direct Cool Refrigerator from the plant at Greater Noida. In 2004, LGEIL also up its second Greenfield manufacturing unit in Pune, Maharashtra that commences operations in October 2004. Covering over 50 acres, the facility manufactures LCD TV, GSM Phones, Color Televisions, Air Conditioners, Refrigerators, Microwave Ovens Color Monitors. Both the Indian manufacturing units has been designed with the latest technologies at par with international standards at South Korea and are one of the most Eco-friendly units amongst all LG manufacturing plants in the world. LG had by then managed to create a premium brand positioning for itself in the urban market and then forayed into the rural market. How they did it, can be seen below.

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RURAL MARKET PENETRATION

At one level, the company figured it needed new cheaper product line for rural consumers to lure the rural buyer but at another level, they figured that more offices in smaller towns and cities were needed. LG moved quickly on both fronts. At one level, it has introduced a separate line of economy class products for rural India like its Sampoorna television range. One thing that the company did was to make sure that they did not provide cheaper products for the rural customers, i.e. cheaper variants of the products they marketed in urban areas. Instead they launched a new and a separate class of products targeting only the rural customers. Also they made sure that the new products that they launched were in accordance with the rural consumer. For eg. Launching products with hindi names such as sampoorna (TV). Also The naming of the products was with a reason. The name sampoorna signifies completeness, which is something that they wanted. On the other hand they expanded their distribution network. They went about this by setting up a number of CAOs and RAOs. The urban consumer durable market for products like color TVs, washing machines, refrigerators and air-conditioners is growing annually at between 7 per cent and 10 per cent. The rural market is growing faster than urban India now. The urban market is a replacement and up-gradation market today. Leading the way is LG. In 2002, 60 per cent of its turnover came from the urban market. Today, that's down to 40 per cent. The majority of LG's revenues are now coming from smaller towns like Hapur, Trichy, Jorhat and Asansol. The company has also taken other initiatives like setting up 65 Remote Area Offices under the branch offices that are empowered to directly link to the central billing system for orders, 230 service centers and 2,600 mobile authorized service personnel for villages having below 10,000 residents. All these moves are part of LG's efforts to push turnover to a whopping Rs 7,000 crore (Rs 70 billion) by year-end. All this is great music for rural dealers. A city dealer will today sell a CTV by cutting into his margin, closer to the dealer price rather than the marked retail price. So while he makes 5 per cent to 7 per cent, rural dealers make 7 per cent to 10 per cent on a sale. "Volume makes up in the city whereas value makes up in the rural area," says an industry observer. Also, the increased rural focus doesn't mean the urban market will suffer. Samsung, Onida and even LG are aggressively looking at the urban replacement market for their hi-end premium product range.
While entering the Rural Marketing, the most important Strategy Adopted by LG can be understood as: 4|Page

Products like, TV, refrigerator, etc. being high involvement product. Banking upon its brand image and success in the Urban Market the company entered the rural market with a significant brand differentiation which can be studied as follows.

Analysis of LGs Rural Marketing Strategy on the following two marketing concepts:
1. 4 As of Rural Marketing 2. Value creation and Delivery Sequence

1. Choosing the Value:

CHOOSE THE VALUE AND PRODUCT DEVELOPMENT

Market Product P1 Refrigerator P2 Washing Machine

M1Urban Preserved nutrition system Automatic systems Eg. Fabricare Technology

M2SemiUrban(CAO) Frost free refrigerators Semiautomatic machinePopular, Delight, Dream Four speakers, games, etc

M3 Rural(RAO) Less featureslower price Semiautomatic machinePopular, Delight, Dream TV Sampoorna CinePlus

P3 TV

Golden Eye for CTVs/Cricket Games , etc

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The company in order to have a Full Market Coverage, adopted the policy of Different Models Different Channels LG introduced its Economy range of products for rural market, and the stress was on reasonable products and not cheap products!

For example, in the Urban Market, features like preserved nutrition, automatic systems, golden eye for CTVs etc were relevant and important, but, in terms of semi urban and Rural Markets, features like local language, low cost, simplicity, etc were important. In fact, even for the products made for rural market customized products were customized according to Area Officers research and feedback, for example, 1. Features like twister trays and fir lamps in rural South India market were not considered important, so products at lower price were launched without these features. 2. Color televisions the 14, 20 and 21 inches models for rural markets came without four speakers (had only 2 speakers), back woofers and games and were launched at Rs. 1000 less. 3. Washing Machines under 3 new models, Popular, Delight and Dreams were launched in the rural market. 2. PROVIDE THE VALUE

Provide the VALUE

Consumer marketing channels

URBAN
1-LEVEL
MANUFACTURER

RURAL
3-LEVEL
MANUFACTURER

DEALER

DIRECT DEALERS

COSTUMER

SUB DEALERS LOCAL FMCG DISTRIBUTORS CONSUMERS

Instead of having a consumer-dealer-manufacturer distribution chain(as in the urban areas), LG used multiple channels and Intermediaries to enhance its reach .

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The company by the end of 2003, had 1000 to 1500 dealers and the number of sub dealers had climed from 2,800 to 5000. LG also distributed its products to local FMCG distributors, which not only enhanced distribution of products but also was a cost effective way of reaching consumers. Local FMCG distributors act as the REFERENCE GROUPS and OPINION LEADERS for the rural people, and they normally reduce their risk attached to buying a product by seeking more information from trust worthy people, and also by going to their trusted shops etc.

3. DELIVERING VALUE:

In terms of actual delivery of products to the customers, there were certain things that LG was doing different from its competitors: 1. Unlike the competitors who were providing 45 to 60 days of Credit period, LG asked for advanced payments. LG was able to do so owing to the following reasons: 1. There were not much substitutes and existing players in the rural marketing, thus the bargaining power of the supplier, that is LG was high. 2. Country of origin or Ethnocentricity, of India can be seen as considering foreign brands to be of better quality than the Domestic brands, thus Global players can operate on a premium and enjoy a greater brand preference. 3. Thus there was a pull of LG products in the market, which made the dealers pay in advance. Also, due to this risk, dealers started pushing the brand aggressively.

4. COMMUNICATE THE VALUE:

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The most important elements of Communicating the value are the Sales force, Sales Promotion and Advertising: Sales Force: LG set up 60 Central area office and 65 Remote area office in Class B and Class C towns respectively. Also, 23 Call Centres, 206 Service Centres, 1500 Engineers across 141 cities and 2600 mobile authorized service personnel for villages below 10000 people. ADVERTISING:

AIDA Model (Rural Market)

Attention

Interest

Desire

Action

The company increased its annual advertisement and promotion budget from Rs. 25 Crores in 2001, to Rs. 40 Crores in 2002. 1. Enhanced attention was worked upon by the following activities: 8|Page

a. Advertising Perennially: All the competitors were mainly promoting the product as per the seasonal requirements of the products, but LG made huge investments in Promotion, and advertised all thru the year. b. Company chose sports events as its medium to create awareness. During the 1999 World Cup Cricket, LG launched TVs that included cricket games. During the 2002 World Cup Soccer, the company launched TV, which was shaped like a football, and for 2003 World Cup Cricket 2003, the company introduced bat shaped remote controlled for its TVs. c. Most of the rural market has access to doordarshan channel only, so the company tied up with doorsarshan in order to promote its products. d. Also, the company used Local Language to promote its products, like, Hindi, Tamil, Marathi, etc. 2. Further Interest was developed amongst the people by, the use of hoardings, road shows and mobilevans for promotional activities. In February 2003, the company launched 40 road shows in the southern states targeting small towns. The road shows showcased the entire LG range of products and cost Rs 3.5 Lakhs per town 3. Increased desired to own the product by, launching appropriate products for the rural market, customized products for different regions, use of different languages for display like hindi, tamil, English, etc.

MARKETING STRATEGY

Availability The first challenge is to ensure availability of the product or service. India's 627,000 villages are spread over 3.2 million sq km; 700 million Indians may live in rural areas, finding them is not easy. However, given the poor state of roads, it is an even greater challenge to regularly reach products to the far-flung villages. Any serious marketer must strive to reach at least 13,113 villages with a population of more than 5,000. Marketers must trade off the distribution cost with
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incremental market saturation. Over the years, India's largest MNC, Hindustan Lever, a subsidiary of Unilever, has built a strong distribution system which helps its brands reach the interiors of the rural market. LG Electronics defines all cities and towns other than the seven metros cities as rural and semi-urban market. To tap these unexplored country markets. The company has also taken initiatives like A) 65 Remote Area Offices under the branch offices that are empowered to directly link to the central billing system for orders. B) 230 service centers. C) 2,600 mobile authorized service personnel for villages having below 10,000 residents. All these moves are part of LG's efforts to push turnover to a whopping Rs 7,000 crore (Rs

70 billion) by year-end.

Affordability

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The second challenge is to ensure affordability. With low disposable incomes, products need to be affordable to the rural consumers, most of whom are on daily wages. Some companies have addressed the affordability problem by introducing small unit packs. Affordability Reduce cost by
replacing 4 speakers by 2, back woofer. They also introduces frost free refrigerator without twister tray. Prices of Sampoorna : from Rs. 9000 - Rs. 5050

LG India has taken full advantage of a booming demand for colour TVs in rural India by launching Sampoorna, a colour TV whose operations booklet was in the Devnagari script. For this model, LG also introduced technology that provided better a reception in low signal locationswhich is a common problem in rural areas. Today, LG claims that Sampoorna series accounts for about 30 per cent of its colour TV volumes. .In 1998, LG launched its first low priced TV for rural consumers Sampoorna- Rs.3000 Cineplus- RS 4900

Acceptability The third challenge is to gain acceptability for the product or service. Therefore, there is a need to offer products that suit the rural market. One company which has reaped rich dividends by doing so is LG Electronics. In 1998, it developed a customized TV for the rural market and christened it Sampoorna. It was a runway hit selling 100,000 sets in the very first year. 1. Product localization is the key strategy used by the LG 2. LG came out with Hindi and regional language menus on its TVs. 3. Introduced the low-priced Cineplus and sampooma for the rural market. 4. LG was the first brand to introduce gaming in TVs in continuations of its association with cricket LG introduce cricket game in CTVs

Awareness The word of mouth is an important message carrier in rural areas. Awareness Mobile Vans (Garam Garam Khana) Road show van , Exhibition for TV sampoorna , Cookery classes as part of promotion. Company chose sports events as its medium to create awareness. During the 1999 World Cup Cricket, LG launched TVs that included cricket games. During the 2002 World Cup Soccer, the company launched TV, which was shaped like a football, and
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for 2003 World Cup Cricket 2003, the company introduced bat shaped remote controlled for its TVs.

Mobile Van at Kasargod

Cookery Classes

Exhibition at Rajamundry

Road Show at Satna

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Recent developments at LG
1. The Financial Express LG CHARTS PLANS FOR RURAL MARKET Posted: Wednesday, Jun 08, 2011 New Delhi: Electronics major LG is all set to expand its base in rural markets in the next oneand-a-half years on the back of aggressive R&D activities. Rural India contributes to about 20% of LGs annual revenue. The company has formed a special team, which will undertake an extensive study to introduce "the right products for the rural markets". Interestingly, this is in line with other consumer durable companies such as Godrej and Samsung, which have recently come out with products for rural markets. While Godrej has come out with its small refrigerator Chottukool, priced at R3,500, Panasonic is launching special products such as solar lanterns, televisions and other electronic items for rural customers. Soon Kwon, managing director, LG Electronics India, told FE, "We are looking at rural expansion and we would be doing this in the next one-and-a-half years time. Size of the rural market is huge and untouched and our focus is on rural expansion." The Indian subsidiary of the Korean electronics major said that a lot of R&D activities are being undertaken to bring out products such as refrigerator, washing machines and televisions especially for rural markets. \ Kwon said, "We are undertaking a research exercise on what rural consumers really need. We have a special focus team...which will study aggressively to produce the right products." LG, which enjoys 30% of market share, also announced its entry into the business solutions segment from which it aims to garner Rs 1,000 crore revenue by 2014. "We expect the B2B business to have a higher growth potential as compared to B2C and are expecting 30-35% growth rate as compared to 25 % growth rate of consumer electronics items. We are targeting a turnover of Rs 1,000 crore and market share of 25% by the end of 2014 in this segment." The total size of the business-to-business solutions for integrated display market is around Rs 2,500 crore and growing at the rate of 20-25% per annum. Kwon said LG has come out with a broad range of vertical solutions. These include digital menu boards for restaurants, digital signages for retail outlets and malls, room infotainment and digital signages for hotels, video-conferencing solutions, commercial displays and surveillance cameras among others. LG will take both the direct selling and channel partner route to market these products. LG will also be developing customer base for many different verticals, including education, hospitality, finance and governance. For this, the company has also roped in some of the prestigious clients such as ITC, IHC, Marriott and Cafe Coffee Day. "In the last two years, we prepared the whole product line for business verticals. Now we will sell 30% of the total offering

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directly and approximately 70% through channel partners," said Dong Pil Kim, senior general Manager (B2B marketing) LG Electronics India.

2. The Wall Street Journal LG Electronics: Rural Is the Future MAY 6, 2010, ET It is third time lucky in India for LG Electronics. After two failed joint ventures, it re-launched itself here in 1997, emerging as the market leader in color television sets, washing machines and air conditioners. As the urban economy boomed two years ago, it realized the next big growth bump would belong to rural India. That decision has been vindicated, as LG Electronics Managing Director Moon B. Shin tells Jyoti Malhotra in an exclusive interview for The Wall Street Journal. WSJ: LG is an acknowledged market leader in consumer durables in India, both in urban and rural areas. How important is the rural sector for LG?

AFP/Getty Images File Photo of LG Electronics India Managing Director Moon B Shin. MS: Not only in India, in all emerging markets, the rural sector is very important for LG. In terms of population and numbers of households, rural has become the future. It has become very critical for LG to grab mindshare by catering to all segments. About 73% of India's population lives in rural areas [and] 35% of the rural population own a color television set, 5% own refrigerators and 1% own a washing machine. Disposable incomes in rural areas have gone up considerably, primarily because the domestic market has maintained a healthy growth rate, despite the recession worldwide. Over the next five years, as the economy continues to grow, we expect disposable incomes to go up even further. WSJ: What are average incomes today?

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MS: An average urban household income is about $2,000 annually, while an average rural household income is $1,000. Rural spending is, of course, dominated by necessities, which means disposable income is still small but the number of households is large. Moreover, there are pockets of prosperity in rural India that are the drivers of rural growth. WSJ: Where are these pockets? MS: Punjab and Kerala can compare favorably with urban areas. Punjab, of course, has three crops, which makes it a highly developed area, while Kerala is special because the entire state is almost urban. Irrigated agricultural belts across the country are relatively wealthy, for example the rice-growing belt in Tamil Nadu, the sugarcane belt in Maharashtra and coastal areas in Andhra Pradesh. WSJ: What are the other factors that make rural India attractive? MS: The government is investing a lot of money in education, into improving literacy rates. That will mean building hundreds of schools and colleges, which in turn will produce thousands of educated men and women. As a company, we have to prepare ourselves for a likely massive increase in consumer spending [as a result of a more educated population]. WSJ: When did you launch your rural campaign? MS: Two years ago, in 2008, we put a team in place that surveyed each of these wealthy rural pockets. We looked at product design, after-sales service and created reliable distribution channels. LG has the widest distribution network across the country, which we put into place five to six years ago. We have 70 remote-area offices, which are extensions of the branch office, 40 branches, eight regional offices all over the country. Since most of India still lives in villages...we have extended our service infrastructure to provide service support in these markets. For example, mobile service vans reach out to people in the remotest villages, so we remain connected with the consumer even after our products have been bought. WSJ: How do you design differently for rural markets? MS: Colors are a major differential [and] we work with color specialists to design rural products. Rural people like brighter, beautiful colors, urban people prefer more classic colors, like grey or white, with a metallic finish.
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Durability is also very important. For example, we've introduced plastic bodies, instead of metal, for washing machines geared for supplies to coastal areas to guard against the high corrosive content of salt in the water supply. Also, we have tailored our designs to suit rural conditions. Often, rural areas have erratic electricity supplies and they tend to be dry and dusty, so product design has to meet those demands. For example, our refrigerators have builtin voltage stabilizers to protect the compressor from fluctuations in electricity supplies. WSJ: What are your most popular products? MS: The most popular first-time purchases are televisions. Recently we've come up with lowend, 14-inch TVs. Also, refrigerators and washing machines. These are the three products we see people buying when they get married. We call this the "marriage package" campaign, which we launched two to three years ago. WSJ: What are your targets for rural India? MS: Since we launched in 2008, in terms of volume, rural India provides 15%-20% of the business but only about 10% in terms of value, since most products are still low-end. But we are absolutely sure that rural disposable incomes will definitely improve. Over the past two years, growth rates in rural areas have been about 30%, much higher than urban areas, where the industry average is about 20%. All in all, I think we are sitting in a very sweet spot. We are witnessing high-end consumer sales in urban areas and low-end, high-volume growth in rural areas. The Indian economy will definitely make robust growth over the next 5-10 years, we have to be prepared to meet that demand. WSJ: What have you understood from the Indian market? MS: India's biggest advantage is its huge population, 1.2 billion people. Then there is the huge demand for better education, which will soon create an army of consumers. India is also hugely rich in natural resources, such as iron ore, zinc, copper. Also you have a large, Englishspeaking population. WSJ: How did India deal with the recession over the past couple of years? MS: India was not hit as badly, as dependency on the export market is very low. In LG's $44 billion global revenue last year, India is at fourth place, neck-and-neck with Brazil. The top slot is still taken by Korea, followed by the U.S. In the next five years we hope to move India
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to the No. 2 spot. Already, LG has 27%-30% market share in the consumer durables and appliances segment, while Samsung is second with about 19%. China is moving fast, but the big difference is that in China there are many more players, in India there are still very few. 3. Source: India knowledge @ Wharton Korean Conquest: How LG and Samsung Won Over the Indian Market Published: December 11, 2008 in India Knowledge@Wharton The world is still reeling under the biggest financial crisis since the Great Depression, but it seems that someone forgot to tell LG and Samsung. Sales of the two South Korea-based conglomerates were 35% to 50% higher in India in September and October 2008, compared to the same period last year. And both are confident of meeting their targets by this year's end, which include revenue growth of around 30%. Granted, the September-October sales figures may be higher this year for specific reasons. About 3.5 million government employees received the first installments of their delayed salary raises around that time, resulting in a sudden surge in disposable income. And the festive season in India typically sees a spike in sales of all products, especially consumer electronics and household appliances. What is not so easily dismissed, however, is the level of success LG and Samsung have achieved in India. In just over 10 years, the Korean duo has established dominance over the Indian white goods market, edging out traditional multinational companies and Indian competitors. Between them, they account for the largest share of the $6 billion consumer durables, electronics and appliances market, with LG claiming the preferred brand position for virtually everything from televisions to microwave ovens and washing machines, while Samsung is a steady number-two or number-three player. Over the past decade, both have consistently seen double-digit growth rates and are convinced they will maintain, if not surpass, those levels in coming years as well -an optimism that is shared by industry watchers. How did these two chaebols -- a South Korean term for family-owned conglomerates with government ties -- entrench themselves in India? LG and Samsung's success is a function not just of what these two companies did, but also of what their competitors didn't do. The super-premium price and positioning of technologically superior Japanese brands like Sony and Panasonic made them inaccessible to most of the Indian market. On the other hand, lower-priced Indian brands offered old-generation products; they did not invest sufficiently in R&D because they were not able to launch new products quickly enough to amortize those costs. "The other players in the consumer electronics space consider India a market for transactions, which is a short-term, unsustainable strategy," says Abraham Koshy, professor of marketing at the Indian Institute of Management, Ahmedabad. "On the other hand, LG and Samsung believe this is a market in which to do [long-term] business. Both have made a full commitment to India."
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Adds Pankaj Gupta, practice head (consumer and retail) at consultancy firm Tata Strategic Management Group (TSMG): "In any customer-facing business, your product, brand and distribution decide your success. Moreover, in the durables industry, after-sales service and product innovation are also key factors. These two companies leveraged their global R&D facilities to speedily bring in new products and offered more variety at attractive prices. LG followed this approach better than Samsung, which is why it is bigger than Samsung in India." In for the Long Haul LG may be the leading electronics brand now, but its initial attempts to crack the Indian market were disappointments. In the late 1980s and early 1990s, when government regulations prohibited foreign companies from starting independent ventures, Lucky Goldstar (as the company was then known) twice entered the Indian market with local partners; both ventures failed. In 1997, LG finally got permission to set up its own manufacturing facilities. The company has come a long way since: Revenues in 1997 were US$33.97 million; last year, LG India earned US$2.37 billion. Samsung India has maintained a steady growth since it launched in India in 1995-96, with 2007 revenues reaching US$1.3 billion. Early on, the two companies had very different approaches in India. LG's entry strategy was to establish its presence across the country, offering a range of affordable but feature-rich products. Margins in the consumer electronics industry are traditionally very low, and the company didn't try to push them up. Instead, it clung to the "value-plus" platform, counting on volume to bring in revenues. Samsung, on the other hand, focused on creating a premium brand image by emphasizing the design and technology aspects of its higher-priced products and building a more affluent customer base. "Customers would buy an LG [product] for their bedrooms but pick a Sony or Samsung for their living rooms," says Gupta. Over the past couple of years, though, there has been a reversal of roles. Now, Samsung is reaching out to the price-sensitive masses, offering affordable, customized products. Samsung India deputy managing director Ravinder Zutshi explains the new strategy: "We want market leadership not only in the premium end, but also in the large-volume categories." LG, meanwhile, is seeking to upgrade its image and product portfolio, thus moving from being a functional to an aspirational brand. "All our efforts are directed towards offering aspirational products that new-age customers can be proud of," says Moon B. Shin, managing director, LG Electronics India Ltd. When Samsung and LG's existing approaches to the market were obviously successful, why are they changing them now? "Your initial route is based on your company's heritage. But whether you choose a product-led or brand-led strategy, you have to complete the circle," says IIMA's Koshy. Adds TSMG's Gupta, "When you want to expand the market, it is easier to reach out to a segment where you don't have a presence than to eke out more value from an existing category." Product Innovation Is Key

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Regardless of which segment of the population they target, the key to LG and Samsung's success lies in their product innovation. While the basic design of the products originates in South Korea, both companies have invested heavily in local R&D to tweak product design to suit local tastes. This year, Samsung spent US$13 million to set up a 75-member hardware R&D center at Noida (Uttar Pradesh), while LG has budgeted US$50 million for R&D and manpower in the coming 12 months. "When LG and Samsung entered the Indian market, domestic companies were investing in advertising and marketing, rather than product development. The Koreans' promise of cutting-edge technology and their hunger for R&D worked to their advantage," says Harish Bijoor, visiting professor of strategic management at Hyderabad's Indian School of Business (ISB) and founder of Harish Bijoor Consults. Executives at the two companies agree. According to LG's Shin, "One reason LG is successful in India is that we listen carefully to our customers. We have realized that not just localization, but micro-localization, is required." Recently, LG conducted a nationwide lifestyle study "to know more about our consumers and their preferences," Shin says. "Products are designed based on those findings." He offers an example. In many Indian households, the washing machine is operated by domestic helpers who can't read instructions in English. LG's solution was to add speech technology that gives instructions in local languages. "Innovations like this help us connect with our customers and offer products that fit into their lifestyles," Shin notes. Customization of this kind has been part of LG's India strategy for some time now. It developed Ballad, a flat-screen television with 2,000-watt speakers sold only in the subcontinent, following research that said Indians in the southwestern part of the country preferred loud, bass sounds. The company's refrigerators have smaller freezers and large vegetable compartments than models sold in other countries, based on the fact that many Indians are vegetarians and use the freezer mainly for making ice. While the pace may only just be picking up at Samsung, product localization is nothing new for that company, either: In 2002, the company introduced a "sari" cycle in its washing machines, designed to prevent the traditional six-yard garment from getting tangled with other clothes. The focus of the current round of innovation, though, is on making mass, volume-driven products more appealing. That means including voltage stabilizers in direct-cool refrigerators (a feature otherwise found only in frost-free refrigerators) and launching semi-automatic washing machines with Samsung's proprietary anti-bacterial wash technology (earlier restricted to fully-automatic machines). Not surprisingly, the bulk of the improvements are in televisions, the mother category in the consumer electronics market. Accordingly, Samsung has developed customer insight-based features such as channel grouping and lowering volume with a single touch. "[Our] product innovations cater to the needs of diverse consumers. We will move towards customizing even mass and volume-driven products," says Samsung's Zutshi. Reaching Out

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Customization is just half the battle, according to electronics industry watchers. Those investments will pay off only when the sales volumes pour in -- and that won't happen unless customers are offered a complete range of products as well as easy accessibility to them. LG realized that early on and adopted a top-down approach: The smallest villages have remote area offices (RAOs) with individual budgets and separate servicing and marketing teams. The RAOs report to central area offices in larger towns that, in turn, report to branch offices. Just over a third of the company's revenues comes from urban markets; the rest is accounted for by semi-urban towns and rural markets. More than half of all the television sets sold in India are in rural areas, while the same markets account for close to a quarter of the total demand for other white goods. LG kept that in mind when it launched Sampoorna, a made-for-rural-India range of low-priced color TVs that were priced just above black-and-white TVs of the same size. "Both these companies chose their product ranges for the growth potential they offered, even if these required huge initial market development effort," points out Koshy. Now, Samsung is aiming to similarly broaden its presence across non-metro and semi-urban towns. Says Zutshi: "This year marked a new phase in our operations.... We are making a strong effort to reach a much wider base of consumers in tier-two and tier-three cities." Apart from increasing the number of branch sales offices and expanding its retail presence, the company is also reaching out to its customers directly. It regularly conducts road shows and live demos of its products and has begun distributing pamphlets and promotional literature in regional languages. Aggressive advertising by both companies has helped them build brand recall and increase not just share of mind, but also share of market. Marketing experts also point out that LG and Samsung's cricket sponsorships and use of film stars as brand ambassadors are smart moves. "Cinema is always a well-hedged bet, while no marketer can afford to ignore cricket, regardless of whether the product has synergy with the sport or not," says ISB's Bijoor. Samsung has sponsored the Indian cricket team as well as individual players, and recently signed on popular actor Aamir Khan as its brand ambassador.

Bibliography
www.lg.com Financial express www.wikipedia.com www.businessstandard.com www.economicstimes.com Wall street journal.

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