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How Samsung plans to regain No.1 spot in India
Shuchi Bansal | January 15, 2008
It's been a long while since H B Lee really relaxed. Since last February, when he took over in New Delhi as President and CEO of Samsung, South West Asia, the 58-year-old Lee has been busy turning all Samsung strategies on their heads.
The Korean consumer electronics giant is now reaching deeper and wider into the Indian market, tempting consumers with technologically advanced products specially tailored to their needs.
Showrooms are being brought under a common umbrella brand and now, a new facility may well become a manufacturing hub for Samsung worldwide. Not that Lee views his "strategy revitalisation" effort as an attempt to change things. "What we adopted in 2007 was not really a change in strategy but an evolution of our strategy," he insists.
Surely not? Over the past decade, Samsung has clung to its premium positioning, with products that emphasised design, aesthetics and cutting-edge technology and prices that were commensurately higher. Until now. For the first time, it is moving downwards, so much so that industry observers believe Samsung may go after the masses much like its arch rival LG Electronics did until a couple of years ago: already, Samsung flat televisions are among the cheapest in the market.
Samsung India Deputy Managing Director, Ravinder Zutshi, vehemently rejects the price warrior tag, though. "Samsung is not a price warrior but today we are as competitively priced as our rivals. The focus is on expansion and deeper market penetration," he says.
So, which is it? Evolutionary or radical change in strategy? Decide for yourself.
Volumes do matter
In 2005, Samsung introduced over 100 new products that were sold on the lifestyle platform. These included flat panel, LCD and plasma TVs [Get Quote], top-end refrigerators, home theatre systems, digital cameras and camcorders, MP3 players, notebook computers and mobile phones.
At the time, sceptics argued that growth targets based on premium products rather than on India's voluminous price sensitive mass market were tough to achieve. More than two years later, Samsung isn't complaining about the progress of its lifestyle portfolio (even though it has turned turtle on that strategy).
It is the market leader in LCD televisions and super-premium, side-by-side refrigerators and claims respectable market share figures in other product categories as well.
In the IT segment, Samsung is the leading LCD monitor brand. And turnover in the past one year has grown 20 per cent to cross $1.3 billion. "India has been identified as one of the top strategic markets for Samsung," says Lee.
Still, focusing on the premium customer will get you only so far - India is still a market powered by volume-growth. Which is why, points out Zutshi, the current strategy is to gain greater reach among the masses - not through pricing, he insists, but through product innovation. "We are providing superior technology and differentiated products even for the mass market.
We are aiming at market leadership not only in the premium category of products but also mass categories like flat televisions," says Zutshi.
In other words, innovation is no longer confined to top-end products. Instead, Samsung is rolling out its technological improvements even in mass, volume-driven categories.
For instance, last year, the company also introduced in-built voltage stabilisers in its direct-cool refrigerators - a feature earlier found only in frost-free models. Keeping in mind the thrifty middle-income consumer, many refrigerator models are being promoted on the power-saving platform - complete with three- and four-star ratings from the Bureau of Energy Efficiency.
Yet others are equipped with strengthened glass shelves and cool packs in the freezer compartment that ensure freezing even during prolonged power cuts. "Most Indian cities have poor power supply, so these products have done well," says Zutshi.
Then, ahead of the festival season, Samsung launched two semi-automatic washing machines with anti-bacterial Silver Nano technology that, until now, had been available only in fully automatic washing machines. It also introduced the Easy View feature - a top-end feature developed for the Indian market, which allows multiple windows on the same screen - in conventional flat TVs.
This isn't the first time Samsung has adapted products for the Indian market. Washing machines with special sari rounds were introduced several years ago
In the past three years or so, Samsung has expanded its Indian R&D operations considerably, employing over 2,000 people across all divisions of the company. Many products sold locally have been customised for Indian conditions by the company's Hardware R&D Centre, making them more acceptable to Indian consumers.
"The idea behind the strategy is to carry product innovation to the mass categories and build support for the Samsung brand, not only at the premium end but also in the large-volume categories," says Lee.
The reasons behind the frenetic activity are not hard to fathom. Clearly, as competition intensifies, there is pressure to build differentiated products to capture marketshare.
Especially in a slow-growing market - Zutshi estimates consumer durables is growing at 6 to 7 per cent a year, while colour TVs are twice that. Meanwhile, the industry itself is changing.
"Players want to move up the value chain and offer superior technology, at the same time ensuring that consumers consider them affordable," says a Mumbai-based marketing consultant.
But if top-end brands become affordable, can they still claim the premium they charge for their brand names? "The premium for top-end brands will come not from their brand names, but from product innovation," the consultant declares.
Samsung officials say home appliances sales during the festive season saw a 30 per cent increase. This can be taken as vindication of the company's trickle-down innovation strategy.
But that's a seasonal spike. The company needs to now work hard to ensure its expanded product portfolio is available across the country - and that target customers are made aware of the brand.
The latter task is actually not that difficult. Samsung India has been around for a while now, and its close association with Indian cricket - team and tournament sponsorships and so on - has meant brand recall rates are pretty high. The core of Samsung's new strategy, therefore, has been to reach out to a bigger base of consumers, both in the metros and non-metro markets through its products and marketing/communication strategies.
To tap the non-metros and semi-urban markets, last year Samsung conducted over 100 road shows in class B and C towns.
"The Digital Home Road shows were meant to showcase our full range of products to customers in towns like Meerut, Saharanpur or, say, a small town in Tamil Nadu," says Zutshi. The success of the road shows was measured in terms of the number of people who visited these stalls and any bookings made with the local dealer.
And the focus on small towns doesn't mean the metros can be overlooked. There's a growing market for replacements as well as an increasing number of homes wanting multiple television sets. The growth of modern retail and the expansion of large-format electronics stores like Croma, Jumbo and E-Zones add to the opportunity.
"Our aim is to achieve deeper penetration into the Indian market - be it the metros or smaller cities. Today, it is important to understand modern retail as well in order to accomplish our targets," says Zutshi.
Meanwhile, company-owned outlets remain a key strategic tool - Samsung will add another 30 showrooms to its existing 100-odd this year. But, with a difference. Over the next few months, the existing Samsung Digitall Homes will all be rebranded Samsung Plaza, in keeping with the global practice.
Until now, India was the only market where Samsung followed a dual showroom strategy - larger (2,500 sq ft and more) outlets were dubbed Samsung Digitall Home, while smaller showrooms were called Samsung Plaza. It is not just about a name change, though. Samsung India also wants uniformity in appearance and sales experience at each of these showrooms - that means an emphasis on product demonstration, not just display.
Same game, new rules
Samsung's biggest rival, of course, remains LG Electronics. The other Korean giant has maintained its volume lead in colour TVs, washing machines, frost-free refrigerators and air-conditioners. While Samsung built its premium brand image and customer base, LG was busy seeking a wide reach and extensive distribution network that would help build volumes.
Now, though, marketing experts believe the chaebols are mirroring each other's strategies. LG Electronics Chief Marketing Officer, L K Gupta, denies copying Samsung but does admit there's been a shift in strategy.
"We do not wish to push sales but create a pull or demand. Our marketing will focus on higher brand value - aspirational and premium. The focus will be on consumer benefit and not price discounts," he explains.
The marketplace is very competitive and unlike in the FMCG sector, margins in the consumer electronics business are not very high. "Technologies change and there is price erosion in the market. There is pressure to generate more profits. We want a better price for a better brand," says Gupta.
Will Samsung be able to beat LG at its own game, especially now, when LG is busy building brand equity? "Samsung has always been the No. 1 technology brand. We have the conviction and capability of following our own approach and this is giving us a strong and consistent growth in the market," says Lee confidently.
Durables industry veteran Rajeev Karwal believes both biggies will create distinct niches for themselves. "Consumer electronics marketing is no longer complex - most products are available everywhere in the world. Only appliances require some regional tweaks. There is no threat to LG and Samsung in India. They are entrenched players and LG's distribution is not easy to match."
But will volumes follow, considering Samsung is making a big effort to reach out to the masses? Zutshi believes so. "We have the brand equity, marketshare will follow," he says. What, then, is Samsung's biggest challenge in 2008? "It's the customer - the challenge is to keep him happy and meet his aspirations," says Zutshi. Once that happens, Lee can finally take a break.