LG's Managing Director K.R. Kim : Thinking ahead of the competition

LG Electronics India is an unusual company. How unusual? Well, enough to have motivational posters-Leader's Marketing, Premium Marketing, Fast Innovation, Fast Communication. Great Culture, Great People. Lead the Market, Meet the Market, Create the Market they scream-in the washroom (and in other places) within its Noida facility.

Enough to insist that managers report for duty at 8.30 am, well before everyone else.

And enough to derive the bulk of its growth from the rural market (honestly, how many companies you know can claim that?).

India's rural market-estimated at 128 million households-is the Holy Grail for most marketers. Few, however, embark on the path LG did in 2002. The urban market for its products was growing at a sleepy 6 per cent, and LG decided to look to the semi-urban and rural markets for that elusive growth.

The Korean consumer products major (with Rs 4,500 crore in revenues, it merits the appellation) wasn't the first company to venture into the great Indian hinterland that accounts, by some estimates, for 41 per cent of India's middle class, and 58 per cent of the corresponding purchasing power. The way it chose to do so was unique: central and remote area offices (CAOs and RAOs).

Those aren't mere abbreviations. A CAO is how LG refers to an office in a Class B town; and RAO, how it refers to one in a Class C town.

Today, LG boasts 60 of the former and 65 of the latter and rather than merely create offices, it has fashioned profit-centres that are empowered enough to deserve their own independent budgets for logistics, after-sales service, accounts, even sales and marketing. Managing Director K.R. Kim believes "this unique and aggressive model" will help LG stay ahead of the competition. In terms of the number of towns and cities it reaches, the company, arguably, is ahead of the pack: it reaches 3,823 towns.

That's not something the competition is in awe of. R. Zutshi, Director (Sales), Samsung India, LG's arch rival (its revenues in 2003 were Rs 3,708 crore) isn't in favour of "wild expansion".

The company has been content to work its two-year-old strategy of hosting roadshows in small towns to boost sales. Zutshi swears by this strategy's efficacy in increasing penetration and marketshare. Still, there's no denying the fact that the CAO and RAO model has worked for LG.

Its marketshare in the washing machine, microwave oven, colour television, and air conditioner markets is 25.5 per cent, 36 per cent, 19.6 per cent, and 34 per cent, respectively. Samsung's is 20, 30.5, 15.1, and 14. This year, 2004, LG hopes to register revenues of Rs 7,000 crore. The rural market, explains Anil Arora, Head (Marketing), LG, will boost volumes, while the urban market will continue to grow in terms of value.

WHAT LG DID RIGHT

Place: LG was among the first to institutionalise the concept of the remote area office (RAO). Today the company has 65 RAOs, 60 central area offices (CAOs), and 40 branch offices Management: RAOs and CAOs aren't just sales offices; they are full-fledged profit centres with elaborate decision-making powers Connectivity: An on-line back-end facilitates the monitoring of RAOs and CAOs on a daily basis, enabling micro-marketing Product: LG follows a 'Different Models, Different Channel' strategy. Products are customised in terms of pricing and features to suit local requirements Promotion: The branches have complete control over tactical advertising-from choice of medium to creative execution

Information Edge

Information is the ingredient that provides LG's business model with an edge: feedback from CAOs and RAOs is looped back into the company's product development (or product adaptation) process. Thus, LG's air-conditioner with plasma technology can't be found in small-town markets.

Today, LG's entry-level colour television retails for Rs 5,050, air-conditioner for Rs 19,990, and frost-free refrigerator for Rs 12,500. Each of these offerings has been specially crafted for non-urban markets. For instance, LG discovered that it could make 1.2 tonne air-conditioners for Rs 2,000 less than the 1.5 tonne ones.

Then, there's the advertising angle. At LG, most tactical advertising is local. Catalogues that once used to be printed by HQ are now printed by four vendors across the four zones; the branch offices place orders directly with them. The branch offices also decide on hoardings, the use of mobile vans, and other promotion-related issues. And 23 call centres back 206 service centres manned by 1,500 engineers across 141 cities.

The LG experience shows that it is possible for a company to position itself as a premium-player in the urban market and still make inroads into the rural one, although some competitors are quick to allege that LG's reach-intensive strategy does not have room for the creation of assets. For the record, LG claims to have invested Rs 500 crore in its Greater Noida facility and is investing an equal amount in a new one in Pune

Videocon may claim to be India's first real rural-market focused consumer durable company-"We started from Ahmednagar in Maharashtra and then moved on to the metros, a fact that worked to our advantage," gloats Venugopal Dhoot, Chairman, Videocon-but it is LG that has given the term rural market play an entirely different meaning. "LG thinks, acts and reacts one step ahead (of the competition) and that should never stop," says Kim. Well, there are no full stops in rural India.