have led customers to defer high-value purchases. Consumer durable brands are now playing the affordability card launching cheaper versions of premium products to get the price-conscious customer to dip into her wallet
Rising interest rates, inflationary pressure and a falling rupee have all conspired to keep the consumer durables industry on tenterhooks this year. With discretionary spending hit the most, consumer durables sales have been sluggish as consumers defer high-value purchases. That, however, is not preventing brands from re-working their strategies to get the customer to step into their showrooms. While some companies are trying to grab a larger share of the R35,000-crore consumer durables industry which includes air-conditioners, televisions, refrigerators, microwaves, vacuum cleaners, DVD players, cameras, etc., by withholding any hike in prices, others are playing the affordability card by coming up with cheaper versions of their premium products.
When it comes to market strategy, Japanese consumer electronics brand Sony, seen as a premium brand with its comparatively more expensive products, has been resisting any hikes that could scare away the customer. Tadao Kimura, general manager, marketing, Sony India said, "We do not have any plans to increase the prices of products till June 2012 as we have hedged the currency. In fact, the company hasn't raised prices since one and a half years."
On the other hand, brands such as Panasonic, LG and Samsung are following a consumer-centric approach by altering their products to suit the limited budget of the middle-class customer. Panasonic has introduced Cube air-conditioners (AC) a smaller version of a split AC without the concomitant cost. Manish Sharma, managing director, Panasonic India said, "The Cube AC has been developed considering the requirements of the Indian consumer who cannot afford a split AC. The new Cube AC range is available for R18, 490 to R21, 490."
Multiple price hikes in the last 12 months have left the customer unnerved. Companies such as Samsung Electronics and LG Electronics India had hiked their prices by 5-6% in 2011 and by another 1.5-2% in the current year. Panasonic is increasing the prices of its products by 3-4% from the first week of July. With customers spooked by the steep hikes, the replacement cycle has also expanded. The replacement cycle for consumer electronics including LCDs, home theatre systems, laptops and PCs is usually five to six years and for household appliances such as refrigerators, washing machines, air conditioners, microwave ovens, dishwashers it is seven years but consumers tend to extend it by another two years because of the liquidity crunch, said Panasonic's Sharma. The continuous price hikes will most likely affect the consumer sentiments towards buying new products which will impact the market sales for us," says Sharma. The accent, therefore, is now on introducing the customer to products which are more affordable.
Sony is also working on making its products more affordable. This is happening across various verticals which include the Bravia range of televisions which accounts for 35% of the company's turnover, besides Sony Playstation. The 40-inch Ex 720 series 3D television along with the kit which earlier came at a price of more than R1 lakh is now priced at R73,990 without the kit. Consumers can buy the television without the kit which was not the case before, said Masaru Tamagawa, MD, Sony India. To make its 3D range more affordable, Sony is now offering its 32-inch 3D TV, earlier priced at R55,000, for R47, 900.
Like its Japanese counterparts, Korean brand Samsung is launching several of its premium models at a comparatively lower price this year. According to Raj Kumar Rishi, VP and business head, audio visual business, Samsung, Samsung has also launched the EH series of LED televisions that are helping consumers upgrade from colour televisions to LED televisions. The EH range of LED televisions are are only 9-10% higher in cost as compared to LCD range of televisions.
Paresh Parekh, partner, E&Y (Retail and consumer products division) explains the phenomenon. "The strategy that consumer electronics companies are adopting is reducing the ticket size of their products. Keeping in mind the urban as well as semi urban and rural areas, companies are launching products starting from the lowest price point to the highest price points," he said.
Brands have renewed their focus on tier 2 and 3 cities, with the rural customer increasingly showing an appetite for premium products. Korean brand LG has introduced its new range of direct cool refrigerators priced between R10,000 and R19,500 which boast of features such as auto-defrost and more storage capacity. This range has been introduced keeping in mind the tier 2 and tier 3 customers, said LK Gupta, VP-marketing, LG ElectronicsIndia.
LG's LCD television sets start at R11,990 whereas LED televisions start at R16,990. A semi-automatic washing machine (6.2 kg) comes at a price of R8290. The cheapest split AC (0.75 tonne) from the LG stable comes for R21,990, says Gupta.
Industry experts are of the view that with the urban consumer showing her reluctance to dip into her savings for discretionary purchases, consumer durable companies are now trying their luck with the rural and semi-urban markets that account for 35% of their total sales. According to E&Y's Parekh, people in small cities and villages aspire for the latest products which is why the concept of cube ACs and cheaper flat panel televisions is becoming a success.
"The company aims to target both tier 1, 2 and 3 markets as our marketing and communication strategies are also aligned with this," says Panasonic's Sharma. He further said, "We have also introduced products specifically to suit the smaller markets new entry level 22-inch and 24-inch LCD TV models priced at R14,600 and R16,900 respectively, semi-automatic washing machines and direct cool refrigerators in a variety of colours."
Talking about their focus on tier 2 and tier 3 cities, Masaru Tamagawa, MD Sony India said, "Sony has a very good response from tier 2 and 3 markets and contribution from these regions is about 55% to total sales which is a very positive sign. Customers in smaller cities are as aspirational as their counterparts in the metros and prefer to buy LED TVs over LCDs. We have witnessed very good response for our 22-inch and 26-inch Bravia LED TVs in these areas."
Samsung is also strengthening and doubling its distribution network in semi-urban and rural markets. In tier 1 markets, primarily products such as large-screen flat panel televisions, inverter based home appliances and digital cameras are promoted. And in the tier 2 and 3 markets, the select range of LCD televisions, direct cool refrigerators and entry level home theatre systems are promoted.
Rishi believes that Samsung's new range of EH series priced between R24,000 to R94,900 will drive LED TV penetration in smaller markets. The EH series uses back-lit LED technology and offers a better viewing experience than LCD TVs at similar price points. Compared to conventional LCD TVs, the EH series offer richer colours, better motion clarity, consume 50% lower electricity than comparable LCD models and boast of 'Triple Protector' which ensures protection against electrical surges and lightning as well as humidity. The company expects LED TVs to account for 70% of the total flat panel TV sales this year. Prices of Samsungs flat panel TV product portfolio (LED, LCD and plasma) range between R12,800 to R2,73,000.
According to experts, consumer durable companies are going through a bearish phase not just in terms of their top lines but also with respect to promotional schemes such as discounts, freebies and consumer financing. Consumer finance schemes which earlier contributed 15-20% to the overall revenue of the company now pass on only 5-7% to the total income. While companies are of the view that this is due to the high disposable income, experts view it as the absence of big financial players in the market. According to experts, players such as Citi Financials and ICICI were operating in this market but after their exit, the industry is left with very few of them. Mahesh Krishnan, VP, home appliances, Samsung India said, The percentage of consumer financing to the overall revenue of the company is only 8% against 15% about four years ago. This is because of increasing credit card schemes and higher purchasing power of the consumers which doesn't encourage them to go for such options.
Several brands have, therefore, taken on themselves the burden of soft loans. Said Panasonic's Sharma, "We offer zero percent finance schemes to our consumers for easy purchasing of Panasonic products. We also have various finance and credit card schemes so that customers can purchase their favourite products in easy instalments."
Despite the turmoil in the market, companies are not cutting down on their advertising and marketing budgets. Panasonic, for one, has hiked its ad spend to R400 crore this year against last year's R350 crore, in a bid to push up sales and shore up its market share. Several brands are also focusing on online advertising which is more affordable and offers better access to the youth. According to LG, their online spend has increased by 50% in the last one year whereas Panasonic's online spends grew by 200% this year. Said Panasonic's Sharma, "Online spends have grown by 200% and account for about 5% of the advertising budget. Currently, Panasonic has a contest on Facebook for its Lumix cameras, with winners getting an opportunity to meet Bollywood celebrities. The brand is also hoping to cash in on its association with the London Olympics, as the official audio visual partner equipping the Olympic Park, in East London, with a full complement of its high-end audiovisual equipment, including projectors, projector screens and high-definition LED large-screen display systems. Meanwhile, Samsung India is also hoping to get the eyeballs as a sponsor of the Indian team at the Olympics.