While consumer electronics companies worldwide were struggling to keep out of the red during the recession of 2008, two Korean brands were quietly scripting their success story in the Indian market. The two brands?Samsung and LG?pushed their products in the Indian market catching the Indian consumer?s fancy with their range of affordable but feature-rich products. For over a decade now, the two brands have been ruling the Indian market, and between themselves have close to 50% market share in extremely competitive categories such as television, refrigerators, air-conditioners, washing machines and microwave ovens. In the bargain, they have edged out Japanese brands such as Sony and Panasonic, even as the Indian brands lie virtually decimated.
While Samsung holds the number one position in the LCD television segment, it is the number 2 in case of refrigerators, air-conditioners and washing machines, according to the January-July 2010 data released by market research firm ORG. Likewise, LG is the number 1 brand in the refrigerator and air-conditioner segments. The two brands have also made inroads into the personal gadgets space ? mobile phones, digital cameras, PCs and notebooks. And after gaining supremacy in the mass market, the two are now eyeing the premium end of the market with their cutting-edge products. Across their businesses, they are introducing multiple models ever year, therefore keeping the buzz alive. For example, both plan to launch 40-50 models of mobile phones this year.
Their hold over the Indian market has all along been backed by huge investments in technology. In case of Samsung, three years ago it made another strategic move. The research and development division which was housed in the head office was shifted to a new swanky office in Noida, near the national capital. The company then announced its plans to recruit 700 engineers to work on cutting-edge technology. One which would drive its growth in not just India but globally. Today, of its total direct employment of close to 8,000 people, around 40% of this workforce is engaged in research and development and they are filing 40 patents every year. The Indian arm of Sam-sung is busy working towards its goal of becoming an over $10 billion-dollar company in three years. The company in 2009 had a turnover of around $2.2 billion.
?India is rated amongst the top three markets for Samsung Electronics along with US and China. We look at manufacturing as our key competence and today most of the products that we are selling in India , including 3D TVs are manufactured in India. In the future, I am looking at the Chennai facility being a global manufacturing hub for our operations in the South West Asia region,?says JS Shin, president and CEO, Samsung India. In fact, Samsung?s factories in India have the highest product-ivity levels in TV, refrigerators and mobiles among all Samsung units globally.
Around 50 miles away from the Samsung India headquart-ers in Gurgaon, another satellite town bordering New Delhi, LG has set itself a target of a $ 9-billion turnover by 2013 from its 2009 turnover of around $2.6 billion, backed by investments to the tune of $300 million and expansion into new product categories. ?By 2015, India will contribute 12% to LG?s global revenue, which would perhaps be the second largest after the US. India is a different market and customer needs here are different. We have introduced products under Stars of India, which were very well received. Now, we are beginning a customer insight programme, based on which we will launch a new product platform in 2012,? says Moon B Shin, managing director, LG India.
LG and Samsung?s success has hinged on a couple of factors ? diverse product range and price points, aggressive marketing and distribution strategies, and constant upgradation in technology. What these companies also did was to listen to the consumers and develop products which cater to the Indian psyche. For example, introducing sub-woofers with a 700-watt PMPO in television sets which meets the unique Indian demand for high volume while watching TV.
?If you look at LG and Samsung, both the companies entered the Indian market when the consumers did not have much option. On one hand there were the Sony and Panasonic which were strong brands but unaffordable and on the other there were Indian brands which were within the reach but weren?t feature rich. And this was the time when Indian economy started liberalising, income levels were increasing, and they were willing to go for aspirational products by paying a little more. That?s where the Korean companies scored with their product positioning,? says Rashmi Upadhya, managing consultant (strategy) at consultancy firm PriceWater-house Coopers. The two Korean companies understood the Indian market was a low-margin, high-volume game and if they got it right, they would succeed.
Marketing and advertising played a key role in the success strategy of the two Korean brands, turning them into household names. For example, in order to create its brand awareness, Samsung signed up cricketers as its brand ambassadors, cashing on the popularity of cricket in India. Instead of just ads featuring cricketers; Samsung launched its ?Team Samsung, India first? campaign, sponsoring the Indian cricket team. And once it was able to successfully establish its brand presence, the focus of its ads moved on to the product features. Bollywood actor Aamir Khan today is the brand ambassador for Samsung Mobiles. ?Aamir and the ‘Next is What’ salvo was to essentially drive home the fact that our brand was about redefining and refreshing the frontiers of mobile technology. And without doubt, the route has paid off for Samsung. Aamir with his Ghajini look, was differenciation enough. But we added to the tech appeal with advertising that explored realms that other brands didn’t own.
In fact, what we did at that point in time helped Samsung to veer away from the flock and found an independent and distinct niche for itself,? said Prathap Suthan of Cheil Communications which has the creative mandate for Samsung.
All along, the underlying message in its campaigns has been innovation at an affordable price. Samsung spends around Rs 400-500 crore on marketing.For LG too, a tie-up with cricket ensured the brand building exercise would score well on consumer recall. But along with it, the brand roped in Bollywood star Abhishek Bachchan and then Akshay Kumar to promote its products. And the momentum hasn?t let up. LG, today, is one of the most aggressive advertisers in the white goods industry, spending close to Rs 750 crore on marketing activities.
?We may appear to have eased down on the brand front. But we also believe that there is a significant feeding back to the brand that has started to happen with our product and feature specific campaigns. However, I do believe that the Samsung brand is at an elevated brand position than ever. And our progress will continue to strengthen the brand as we go ahead…We do make sure that our work pushes the brand enough, yet keeps the communication within an optimistic, premium, and relatable context. This deliberate effort to drive even better advertising will continue as the days go by,? added Suthan.
LG too has worked on an aggressive advertising and marketing strategy. Says Minakshi Achan, chief creative officer, Rediffusion Y&R, ?India has changed a lot over the last few years. The lifestyle category has exploded and the communication captures that change featuring products that fit in and help consumers live a good life. High-end technology and international styling come together in a LG world.?
LG?s communications have been ably supported by extensive research of the market and public preferences. ?Our operators help us understand regional trends by keeping us informed about their activities over the next few months. They also provide us with invaluable feedback they get from their customers,? said LK Gupta, chief marketing officer, LG Electronics India.
At the same time, both the brands have focused on the rural market. The Korean brands quickly built up a vast dealership network reaching out to far-flung towns of the country in contrast to that of the their Japanese competitors who focused only on the big cities and metros.
?They have been very clever in understanding the Indian market. They established a strong distribution network in the rural areas way in advance. And today when the rural market is growing fast, they are able to reap advantage,? says Upadhya.
?These companies looked at the Indian market bottom-up and not top-down, as the Japanese companies did. The focus was on the distribution as well. Intermediaries such as retailers were pampered and trained and exposed to the best. Effort was made to crack distribution,? adds Harish Bijoor, CEO, Harish Bijoor Consultants.
Also, it is the big investments in technology that have yielded dividends. ?We have emerged as market leaders in the Indian market owing to our ardent research and delivery mechanism. Supreme technology, great designs and high functionality are the key parameters which decide the future of a product and its compatibility with its target group,? says YVVerma, chief operating officer, LG India.
Rivals acknowledge that the Koreans have been able to score much better. ?They have been focusing on localisation and catering to specific requirements of India. But there is ample amount of space, as the penetration levels are very low,? says Manish Sharma, marketing head, Panasonic India Ltd. The company is soon going to set up its first manufacturing facility in India and has been aggressively marketing its products.
But it?s not as if whatever they did was a big hit. Take, for example, when Samsung decided to get into the refrigerators business in the late 90s. It launched a premium range of refrigerators and imported it from Korea which consequently pushed the price upwards. The product failed to take off in the market.
?What we realised was that going mass was equally important. You could not afford to be just premium when the brand identity was not firmly set in. Plus, our not having a manufacturing capability here severely hampered any scope of growth,? says Ravinder Zutshi, deputy managing director, Samsung India. The company relaunched the refrigerators in India two years back and this time they have addressed both the categories.
Clearly, the two Korean chaebols are hungry for more growth. ?The level of penetration of product categories is not so much. This has to expand. The challenge is how we can do that,? says Zutshi. The LG top brass too thinks that way. It sees the television and mobile phone business as its key growth drivers. But, for LG, the mobile phone market has been a tough nut to crack. It currently has around 6% market share as opposed to 17% of Samsung. It has seen its market share drop and is currently struggling to gain back share. What also poses a challenge to these companies are the clutch of Indian and Japanese companies which are trying for a comeback.
That?s an issue that has been troubling them even globally. Both LG and Samsung have earned a good reputation and have been performing better than the Japanese brands in recent times. ?Visibility, proximity and availability of Korean products especially at the retail are very high. They have worked hard for penetration across the country. As they have created a good reputation in the world, the Indian masses think of them as successful international brands today and not as Korean brands?, says Shombit Sengupta, founder, Shining Consulting.
But they are not resting easy on their laurels. They are moving up the product ladder, coming out with premium models sporting cutting-edge technology to attract the high end customer, innovating constantly.
?We are now looking at these companies focusing on premium range of products as well. This is again in response to the evolution of Indian consumer, especially in urban cities, who has the income to support spending on such goods,? says Upadhya.
Besides, both the companies are moving towards becoming a device plus (where the apps designed exclusively for that device drives the revenues) company. Something which Apple has brilliantly executed. Samsung?s efforts towards its open mobile platform, ?bada? (Korean word for ocean), point towards that direction. But will they taste success here? They have the financial muscle and capability to invest in that direction.
?I think in the era of digital convergence , the services that you provide ? applications and content will dominate the market dynamics .And companies who can innovate and respond quickly to market/consumer needs , will be able to grow and retain consumer loyalty?, says Samsung?s Shin.