Kwang Ro Kim, MD, LG: The company overtook BPL to emerge top-dog in the CTV market this Agust

For two years now, B.K. Agarwal, the 50-year-old owner of Smartmart, one of Delhi's larger dealers of consumer electronics and appliances, has been in high spirits. That's because he's selling more televisions, refrigerators, and washing machines than he would two years ago. "Indian buyers today want price, quality and service, not just a brand," sounds off Agarwal. The customers may not be brand-obsessed but, sitting in his just-flagged-off showroom in Delhi's tony Model Town area, Agarwal is hooked on one mega-brand. "With a range like this, I can address all price segments and all product categories," he gloats. The brand Agarwal's singing praises to is LG. "No Indian company can match LG's price and quality. The only one that can is Samsung," concludes Agarwal, who owns two LG Shoppes, one of which is housed in his three-storey Smartmart-a consumer durable retail chain.

Doubtless, Agarwal isn't the only dealer in India riding on the success of the Korean chaebols, LG and Samsung, in the Rs 15,000-crore consumer electronics and appliances market. They started just six years ago, when well-entrenched domestic rivals like BPL, Videocon and Onida, as well as discount brands such as Akai and Aiwa ruled the roost. Today, it's a different story. For the first time, in August, LG overtook BPL to emerge top dog in the crucial colour television (CTV) segment, a 6.5 million sets-a-year market that accounts for 65 per cent of the consumer durables industry by value. LG's market share in August stood at 13.1 per cent.

M.B. Lee, MD, Samsung: The 'DigitAll' campaign helped position Samsung firmly at the high-end of the market

LG is also the leader in air-conditioners, fully-automatic washing machines, microwave ovens, and semi automatic washing machines (6 kg and above). In frost-free refrigerators, it ranks amongst the top three. Samsung, meantime, figures amongst the top three in CTVs, microwave ovens, and 300-litre frost-free refrigerators.

Even more fascinating is a glance at the consolidated Korean performance. Every fifth fridge and every third frost-free model sold are Korean. One out of every three washing machines sold is an LG or a Samsung. And half of the microwaves sold are Korean brands (See Scoring Impressive Numbers).

That dominance in the market place is reflected in the revenue numbers. From Rs 225 crore in 1997, LG had boosted sales by almost 10-fold in 2001, to Rs 2,216 crore. Samsung surged to Rs 1,350 crore last year by growing at 12 per cent. That may not appear spectacular, but it is impressive if you consider that almost every consumer durable category was stagnant in 2001. The first eight months of the current year appear have been even better for Samsung-a 40 per cent jump in revenues (over the previous year's corresponding period) to Rs 960 crore. And don't forget: this growth has come pre-festive season.

Rewriting The Rules

So how do the Koreans do it? M.B. Lee, Managing Director, Samsung, makes it sounds simple. "Technology no problem, money no problem, people no problem." Whilst that may be true, the Koreans have introduced many firsts in the Indian market, and in the process rewritten many of the rules. For instance, LG took just four months to establish a pan-Indian presence.

It also demanded advances from the trade, when credit is the norm. And LG is staying away from the price game, steering clear of exchange schemes and discounts that most of the competition is resorting to. Samsung may have been more cautious-it broadened its product range only after consolidating its position in CTVs-but it's message of "No scheme, no gimmick, great products and honest prices'' has been well received by consumers.

To be sure, the Koreans haven't compromised on the promotional front, using well-directed communication to connect with the customer. LG's ad budget this year is Rs 130 crore, and Samsung will spend Rs 82 crore. Videocon's ad spend compares poorly, at Rs 30 crore. "We make money, we spend it," quips Pradeep Tognatta, Vice President, Marketing, LG.

So, unlike many Indian brands that advertise seasonally, the Koreans' communication is all round the year, which results in high brand recall and successful positioning. LG, for instance, has established itself on the health platform, which contributed in a major way to the company dethroning former top dog in the air-conditioning market, Carrier. Samsung's "DigitAll" campaign has worked in positioning the company as a digital (read hi-tech) player in the consumer electronics space.

Along with the relentless communication, the Koreans maintain interest in the market with a regular pipeline of new products. The thrust is more on home appliances, with Samsung launching six refrigerators, six washing machines, and four microwaves in the current year. At the same time, the bread-and-butter CTV category isn't being neglected-Samsung has launched 14 models, many of them in the higher-end segment. These include the 100-hertz projection TV and the Samsung Plano digital.

LG too has come out with all guns blazing. Last year it had all of 45 new models in the market across its entire product portfolio. This year, LG will have 60. That's exactly why dealers like Agarwal are so taken in by the Korean chaebol. He now has an opportunity to offer his customers an entire range of CTVs, starting from Rs 7,000 going up to just under Rs 2 lakh.

It's not as if the Koreans haven't made a botch of things along the way. Three years ago, Samsung strode into the audio market with some CD systems, other high-end products priced above Rs 20,000 and plenty of fanfare. The products bombed. The launch of cameras too didn't take off. LG too has had its share of lemons: DVDs and vacuum cleaners.

The company is today more cautious, which is reflected in the current bout of test-marketing of the audio range in Delhi, Ahmedabad and Pune, before going all-out in the national market. "I think the audio market requires a huge range, which can take some time to build," warns Rajeev Karwal, Senior Vice President (Consumer Electronics), Philips India.

Turning Wiser

Samsung too has turned wiser since its slip-up in audio. In September, it revisited the audio market with another set of contemporary products. The difference: All the eight models, with mp3/vcd platforms, are priced below Rs 10,000. "They have learnt their lessons well," avers Saumitra K. Ghatak, Executive Vice President (Marketing, Sales & Services), Godrej Appliances.

The question on your lips by now would be: But why haven't the Indian majors been able to put up a fight? The answer could well be summed up in one word: Money. If, for instance, BPL was to consolidate its leadership position, it had to allocate more resources to this business. But then, BPL also had ventured into the investment-intensive telecom business.

What didn't help matters is the litigation BPL got embroiled in with its ad agency when it couldn't pay up. As a result, the company couldn't advertise for a period. "The difference in resources decides the outcome in this war," says Francis Xavier, Managing Director, Francis Kanoi Marketing. "It's a one-way street; it is very hard getting back once you let go."

The Koreans haven't compromised on the promotional front either. LG's ad budget this year is Rs 130 crore, and Samsung will spend Rs 80 crore

The other player capable of giving the Koreans a run for their money is Videocon. But where was the brand, you have to ask. Rival marketers point out that rather than fortifying the mainline brand at the height of the Korean blitzkrieg, the Dhoots chose to invest in acquired brands like Akai, Sansui and Kenstar.

As a result, today the company's market share of 27 per cent with the four brands put together isn't as much as Videocon single-handedly commanded three years ago. Venugopal Dhoot, Chairman, Videocon Industries, disagrees. "The combined marketshare of all Videocon brands is more than Samsung and LG put together, so how does it matter whether it is brand Videocon or not? I own all the brands," he thunders.

BPL and Videocon may have lost their position of pre-eminence in the Indian consumer durables market, but that doesn't mean that the Korean duo doesn't have any competition worth talking about. There's Whirlpool, which has cornered 28.9 per cent of the refrigerators market, and 20.8 per cent of washing machines, relegating LG to second position. Onida too has been grimly holding its own in the television market, with its KY Thunder finding many takers. And Godrej has inched up in refrigerators (gaining 5 per cent marketshare) after it got International Design Center to design its products and launched the Preity Zinta ad for Pentacool and its five-side cooling feature.

For long, the Koreans did stay away from price wars, but of late they too have learnt the game. Last fortnight LG dealers dropped prices of some TV models by Rs 2000 and were also doling out gifts. LG also sparked off excitement in the ac market by slashing the price of its 1.5-tonne model to Rs 19,500. The quest clearly is for volumes, even as margins are compromised.

In the April-September period, LG gained 62 per cent in volumes, although value growth was just 35 per cent. Samsung witnessed a price erosion of some 10 per cent. Both companies hope to make up the difference by increasing localisation. But are the LG and Samsung brands suffering in the chase for volumes? At least one competitor thinks so. "We don't want to run after volumes and cause our brand value to deteriorate," says Vivek Badrinath, Managing Director, Thomson.

The support the LG and Samsung brands are getting from dealers like Agarwal has little to do with margins and more to do with the extensive range they're able to display in their outlets.

Then, the Koreans have also been able to identify the unique needs of Indian customers and finetune their products accordingly. For instance, the LG CTVs have an on-screen display in 10 regional languages. Technology, and their deep pockets may have contributed in a large way to the Korean success story, but LG and Samsung have also proved they know the Indian customer better than many of the entrenched-for-decades local players.