Mr. Pranesh Misra
President & COO, Lowe India
Good afternoon it is my privilege to talk about a brand that our agency has been associated with right from the beginning in this country. Lots of my experience is not my own in the sense that lots of these experiences are some thing’s that I had gathered from lot of people that I had talked to or worked in the Delhi office and talking to the client himself. What I have tried to do is to bring it to you. When Dharain asked me to talk about LG I was trying to fit it into a kind of structure and then couple of weeks back there was this book that got released called the 86% solutions by Professor Mahajan and Kamini. I thought that we should give the test if LG, the test of 86% solutions to the LG has LG really been following this test and the principles of 86% solutions are not or is it the kind of landscape that I would use in my presentation.. What is the essence of the 86% solutions? What is the thesis? Essentially 86% is the world’s population that lives in the non developed world and the emerging and the developed world and it is what they call the invisible opportunity. MNC‘s largely from the developed worlds US and western Europe have been ignoring the 86% populations of the world and have been focusing on the markets which had the spending power and the 14% has the spending power and that is where all the investment has been happening. And the authors say that innovation specifically for the 86% markets especially in the emerging and the developing worlds is necessary for you to exploit the opportunity or the cast potential, the invisible potential of these markets. That’s the basic thesis of that book. Now let us look at that perspective a quick over view of LG’s history, not only the LG India’s history but the LG company history. If you look at the year 1958 it was the gold star which is today’s LG electronics is established so it is less then a fifty year since it has been established history and if you look at the first twenty years of this history it was essentially focused on Korea. It was Korea’s first radio, Korea’s first fridge, Korea’s black and white TV and so on. So it was innovation focused on the coming of the electronics coming into the market in Korea. It also started fairly early in the game of basic exports, its early exports was to US which was the part of the developed world and to Hong Kong which was at the arm’s length distance. These were the two markets in 1962 that they were exporting radio sets to US and Hong Kong. Then after fifteen years in 1978 exports again surpassed 100 million dollars and it was the first in the Korea’s electronics industry to reach the target of 100 million dollars worth of electronics goods worth of exports. But the first two decades were focused on building the ground strength. The eighties saw them moving from Just exporting to creating and making the productions centers. And initially the global production centers were happening in the developed world. Germany and the US were the first set up in 1980 – 82, and then they moved on to setting up in 1989 production facility in Thailand, they went to south East Asia. So they started their initiatives in the developed world and towards the end of eighty they started getting into the emerging worlds and markets. And if you look at the nineties if you look at where Korea before many other companies and LG specifically discovered the opportunity in china and in 1993 they set up in china manufacturing and in 1997 they started manufacturing gin India. I guess that the big growth momentum in nineties is really the china India story. That’s broadly the history and if you look at year 2000 and the kind of things that come together is world’s first, the whole focused from the Koreas first in the first two decades to this decade where it is all about world’s first. World’s first internet enabled refrigerators. Global sales of fridges in the number one position and they are the world wide biggest manufacturers of fridges. World’s first IMT 2000 mobile phone technology and world’s first 76 inch PDP television and in this slide there are whole lots of firsts. The whole technology movement and the computation landscape were to be innovative and inventive for the world. Today’s its global revenue is 35 billion and if you consolidate the subsidiaries it is 45 billion , 72 thousand employees working in 77 offices and marketing offices world wide. And it is the world’s largest producers of CDMA handsets, DVD players and optical storage devices, air conditioners and so on. Growth for them has been really driven by globalization and how do we see that, you see the growth path over the last five six years and you find the yellow bar on the top is contributed by the international markets. So about 80% of their revenues come from globalization and global sales and only three percent t comes from domestic sales. When I was asking them how the vision was and how did they put it together, I came across this document which is also in their world wide website and it is accessible to every body. It s a very clear document and I hope that it is readable to all who are at the back, but I will read it to you “ the vision of the company LG electronics world wide is to be global top three by 2010 “ that is the state of the vision. The growth strategy is very interesting – fast innovation and fact growth and the word fast is something that needs to be completely underlined there, innovation and growth you have there with many corporate strategies I think that speed is something that they have very clearly captured and capitalized on. Product leadership, market leadership and capital leadership, and the culture, great company is basically what they have tried to build. Now that’s LG global world wide in a snap shot. Now looking at the story in India so far it has been as Dharain said a very good story. The company started in 1997 and the turnover was 125 crores and last year they finished at 7200 crores and LG has been having a significant growth path and today they are the leading market shares in washing machines, refrigerators, as well as micro waves and color televisions. That is the leading brand in the country. And really far ahead of the next competition in terms of the market shares; if you look at the brands intention to buy it is at 32% and the next competitor is at 11%. So it a huge brand equity that they have built for themselves, ( )awareness at 29% versus godrej’s at 12% and there again they have shown a huge stride. They have been successful but have they really applied their 86% solutions to India or have they brought international products or the products that they have developed in Korea and just sort of paced it in India with it. that is perhaps the question that we should ask ourselves. And that is the question that I’m trying to address in this presentation. One of the principles that the book sort of refers to is don’t build a car when you need a bullock cart. That is basically tweak your innovations, tweak your technologies, tweak your marketing principles to market rather then take whatever you have succeeded in your market to rest of the world and assume that everybody will follow. So that is the basic principle that the book sort of talks about; I believe that LG followed that and if you look at the history of seven or eight years they had closely studied the local needs adapted their technology to it. They discovered the key category barriers because realized that in India the market that they were entering in, it was not a market share game. They were entering a market at a stage where it was about the category conversion. It was about getting more and more people to buy into microwaves and refrigerators and color TV’s. So what are the category barriers and what are the innovations that we can have to overcome those category barriers, and it is very India focused strategy. So for example one of the category barriers for TV was watching TV causes eye strain and somewhere in the world they had a technology called the golden eye which adjusts the brightness and the contrast to the ambience light and they said that would work in terms of market for the brand. Indians didn’t want to buy fridges because they felt that you should always have fresh food and if you keep the food in the fridge it goes stale very quickly. They had a technology that was actually good at preserving the nutrition of the food, and with us in partnership we created this term PNS which is preserved nutrition system which was the huge reason why the brand started being successful. Expensive clothes should not be washed in washing machine because washing machines destroy these clothes and that is the perception because they have those blades. So they created the concept of fabric care. Air conditioners are for the luxury segment alone, it is not for every body. So the whole idea was that the health is for everybody, a health air system would work for the country. So if you look at all these examples they were studying what are the resistances to the category and saying that what technology do I have which will help me overcome these resistances. So this is the kind of work that we did in those early days wrinkle free viewing for golden eye technology, fabric care which is giving the ageless skin to your clothes. And the preserve nutrition system and also say goodbye to heat and dust. Let me just show you two commercials which happened about four years back for the golden eye television which took the Indian insight of the fear of mothers that too much of television viewing will spoil children’s eyes and which is the reason why lots of mothers stayed away from buying the TV’s. And how we used that insight to overcome that barrier.
So nothing Korean about the insights, nothing American about the insights, it is very Indian in terms of understanding what are the barriers in the consumers mind and how do you overcome these barriers using a technology which may have been discovered in Korea. And that I think is the biggest strength in LG and in fact the year that this campaign was launched is the year that LG color TV became the number one brand in that category. LG also invented products to meet consumer’s needs so they looked at the local insights and looked at innovations. TV signals don’t reach all over the country and LG was the first brand to launch the television set with a (DCHment – not clear) to it so that they can go into the rural market. World cup was a craze in 2002 so they launched a foot ball shaped TV into the market. Frost free refrigerators were far more expensive for the Indian audiences, there was a big gap from 4000 to 10000/- rupees gap in terms of the price so they invented a technology called the semi frost free, so it gave the same benefits of the frost free without the total technology of the frost free. And it has been made in the price that is acceptable to the large mass of consumers of fridges. Agitators in the washing machines can damage clothes, and they created something called the chaos punch which is basically a softer way of handling fabric. They also innovated to meet the consumer’s needs, for example majority of the Indian consumers do not read English and therefore LG was the first brand to introduce Hindi and then eight or ten different languages instructions on the screen, on the TV sets. Big audiences on the TV sets and if you look at the small town viewing as well as the rural viewing have large numbers of people and the windows are open and the ambience noise comes in, so the sound is very critical need and the quality of the sound and the loudness of the sound is very critical need in that environment. And that’s why the Ballard TV with the 2000 watts sound output was used. Cricket is the second religion of the Indians so cricket game with the television during the 1999 and also of course the world cup promotions. The second brief is connecting the brands to the market and there essentially, I think that the slide has gone a little bit a…Mr. Kim has this line saying cover India inch by inch. When it comes to geography I have worked with the Hindustan lever and they have one of the fabulous distribution networks but for a consumer durable company to say cover India inch by inch it is fantastic. They have some 71 branches, 72 regional offices and 112 outreach markets – that is something that he has built up. The number of distribution outlets that he has built up in this country is phenomenal and I think that is the big competitive advantage that they have. Speed to market products is the advantage that he derives from that, he reached all the 18 states within the launch of the company in three months. The products reached all the 18 states and service at the door step and again at the each of these markets there is a service center and 24 hours service available. Not just the bottom of the pyramid but the whole of the pyramid recognized that India is not one market; it is not a poor market and just the brand for the poor people and masses. They have on the top end IT, mobile phones, home entertainment, and wide price range, wide range of products, latest technology, and invention at the top end and keep refreshing the portfolio. About forty to fifty new models are launched every year. And there is huge visibility on the ground level. So take the brand to the market and it is something that you have to see it to believe it how well it practices. Mr. Kim travels about three weeks in a month to the market and he is there in the market and rolls up his sleeves and talks to the people on the streets. Think young is another recommendation for going into the 86% markets, capitalize on the youth passions, cricket and bollywood and they were the first people to get into the sponsor ship of the cricket and be associated with the cricket stars. Early sponsorship and association with the cricket and recently they have tied up with abhishek bachan who is the latest craze of the youth. Discover the lands of opportunity is what the book really talks about and I think that LG has truly done that, they have believed in making the so called impossible to possible by having faith in India’s potential. The business that they realized is lack of creation not of market share game, they have recognized that the lifestyles are changing and that will create new opportunities especially for consumer durables. The innovated or the tweaked innovations that are needed to meet the needs and aspirations of the local audiences and not sort of plunk the whole international thing and expect that the market will buy it and there is that greed for speed that they had I mean if you deal with LG everything is needed yesterday. We have an 24 hour agency working in Mumbai and in delhi because there is a need for things yesterday so we can never catch up with them. Target multiple segments in a country as big as India, the super rich, the middle class, the youth, and the rural. Price it right but not necessarily cheap, in fact in the initial three years LG strategy was to price it at a premium and the years in which they built their brand imagery it never really had a consumer promotion in fact Mr. Kim said that we didn’t want to de value the brand. One they had built the brand then they started pricing right and go a little bit below so that it became accessible so that there was an interesting two tier to a two stage dynamic pricing model that they followed. What’s the strategy, invest in communication, goals are always stretched, when they made the 3600 crore turn over they said that next year is going to be 7200 crores. That is the goal and I mean there is no question. But back it up with huge budgets on share of voice I mean today LG’s spending in a year is about 25 million dollars a year. 25 to 30 million dollars a year in advertising and marketing investment; continuous presence to maintain share of mind and top of mind awareness, you don’t get those kinds of top of the mind awareness and brand equity and slides cheap by spending small bucks. Invest in sponsorship and make the presence felt in the street level. Empower for speed – Mr. Kim has very empowered set up, deep distribution structure and the branch managers have the empowerment to take the decision, quick and on the ground decisions and the empowerment in the grass root level. And also the product group head structure where each product group head acts like a CEO of the product group and has a lot of authority on the investment. So to sum up what are the key success factors of the LG story? I think that it starts with a very clear statement with corporate ambition for global leadership clearly enumerated in one sheet for all the stakeholders. I think that implicitly although the 86% solution is a term that this book has picked up, which I think interestingly is a very good term. I think that implicitly they believe in this and they have put this in practice, focus on growth and innovation, speed is a very critical ingredient in the winning game. Dream the impossible dreams and to this we will add investment to convert the dreams into reality because it is very easy to dream the impossible dreams and not invest I think that is…there cannot be a gap between the dreams and investment. Before I sum up and close what I would like to show you is one of the top end brands that we launched for LG which is the LG canvass and the reason that I want to show is that this is our contribution to LG which has gone global. So this ad has been running all over Asia in the last couple of years. So with that thought ladies and gentlemen I believe that If you have a vision and you want to do it the world can be yours. Thank you.
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