Low penetration means big opportunity

Low penetration means big opportunity

Manoj Khatri: What are the principal drivers that influence the underlying profitability of the brown goods industry?

Gulu Mirchandani: In the current market scenario, where the value erosion stands at 15 per cent for 2003-04, it is increasing becoming difficult to hold on to the bottom line. Nevertheless, the following are the key drivers of profitability in this industry:

Volume Growths: The low penetration levels of these products is a big opportunity area and the industry is strongly taking this route of increasing the production and sales volumes in order to make the most of the economies of scale. With increasing consumption, the raw material prices have been moving southwards, thereby enabling better profitability

Product Mix management: The challenge is to be able to have a healthy mix of high-end products contributing to the bottom-line. This can only be achieved by offering products which are unique and where the customer sees value in his purchase. The customer is ready to pay more if she feels that she is getting something, which will improve her life and enhance her lifestyle.

Product Innovations: It is also important to catch the changing trends in consumer lifestyles and offer the right product at the right time. Basically, we must innovate on a continuous basis in keeping with the changing consumer needs and to differentiate in the market.

Operational efficiency: It is important to gain overall operational efficiencies like inventory management (Overall inventory less than 15 days), debtors management (Ideally nil bad debts and zero days operation). A good, committed and loyal network also contributes significantly to the bottom line.

Manoj Khatri: Which forces (macro as well as firm-level) are likely to play a major role in shaping the future evolution of the consumer durable industry, say, with regard to growth in demand or introduction of new value propositions?

Gulu Mirchandani:Growing disposable incomes and the low penetration levels: Substantially low levels of penetration, coupled with the growing disposable incomes, will ensure greater share of wallet for the consumer durables industry. The changing lifestyles of the consumers will generate demand and need for this products. The new markets and the resultant demands will be strong influencers on this industry

Opening up of the market/easy access to multi optional inputs: With enhanced possibility of better and easy cross border talks with the suppliers worldwide, the range of offerings has gone up while the cost is coming down

Entry of new players: With the number of players increasing, there has been more action throughout the year and the industry has a buzz around it with constant high pitch communication from the industry to the consumers.

Technological advancements: Innovations and inventions will play a major role in shaping of this industry’s future. Technological advancement has always been at the back of most of the peaks in this industry’s growth. Right from the introduction of colour picture tube to the recent technological advancement of CRTs becoming pure flat, technology is the prime booster for this industry. Advancements in future technologies like the LCD panels and DVD recorders and the like will critically impact the industry. It is expected that by 2008, 33 per cent of the worldwide demand will be met by LCD TVs and Plasma TVs.

Manoj Khatri: Given the competitive scenario in most brown goods segments, what are the central challenges an electronics company like yours must address, in order to retain its price competitiveness and market share?

Gulu Mirchandani: The core to handling various market challenges is to protect the bottom line while being competitive in the market.

Constant Product change: It is critical to have constant newness in the consumer benefit offerings so as to be relevant to the consumer and to be differentiated against the competition. Also, it is important to have low turn around times on the creation of benefits for the consumer, in order to be effective and ahead of the competition.

Operations Integration and Efficiency enhancement: In order to get better return for the inputs, organisations will have to look at integration on backend (components required for the making of the product, logistics etc) as well as the front end (customer touch points, direct sales etc)

Brand Positioning: Every purchase of the consumer is not guided by the cheapest of the prices, but by the benefit that she perceives for the investment planned by her. Hence, it is critical to be appealing to the image seekers while being relevant to the value for money seeker. With lifestyles improving and becoming important to individuals’ personalities, the brand’s positioning and its relevance to the consumer will become more important than ever before.

Customer Relationship Management: The experience that the consumer goes through during the entire purchase cycle and the post purchase usage experience is critical to the organisations’ future business. Managing customer relations and the experience that is offered to her throughout will be a challenge for all players.

Channel Management: A strong influencer on the buying decision is the network, and the organisation that manages the network better, has a substantial edge over others.

Manoj Khatri: What broad strategic initiatives were affected during the last few years by Onida in order to exploit any opportunity that the market offered and also hedge against any underlying risk? To what extent have these initiatives benefited Onida?

Gulu Mirchandani:The past couple of years could be termed as the most dynamic years in the history of this industry. We have witnessed the rise of MNC brands and its adverse effect on the Indian counterparts. Many Indian brands have become almost extinct. We are probably the only Indian brand who have not only survived but have grown during this period. Today, Onida enjoys a high brand salience and is seen as a trusted and reliable brand, with a very high degree of product satisfaction among its users. These have been our key focus areas where we have taken major initiatives. Today Onida offers three principal assurances to the consumer, which is key to our success:

Brand Image – A TV today is a lifestyle statement for the consumer and hence the brand must evoke that sense of pride of ownership in the consumer. At Onida we truly believe this and hence over the years we have been investing on making the brand more modern and contemporary. Today, we enjoy top-of-mind recall and our being among top three brands of the country proves that our investments on the brand have been worthwhile.

Product – TV is seen as a high-tech product with a high risk of obsolescence associated with it. Hence a consumer tries to buy the best at the time of purchase. Onida lagged behind a bit on this parameter primarily because of the delay in introducing flat TVs. However the brand has greatly regained its technological edge in the recent past based on strong focus on Onida Black, the flat screen TV, and today we are at par if not better than the multinationals in this segment. For very high-end consumers who value technology and who would like to have nothing but the very best, we are in a process of introducing plasma and rear-projection television, which is the latest technology available anywhere in the World. Onida is a brand where lot of action can be expected in the very near future. We will touch consumers at all levels and if one is looking for any product related to consumer electronics and home appliances, Onida will definitely change his world.

Service and Quality – Given that TV is a high-ticket purchase, the consumer needs a strong reassur
ance from the brand in terms of reliability. Longstanding brands that have proven track record of trouble-free product performance score on this parameter. Onida is seen as one of the most reliable brands in the TV category and we keep quality at top of our priority list. Like any product, electronic goods suffer wear and tear. It is how fast you address the problem that is important. We believe a satisfied consumer is the best brand ambassador we can get.

Manoj Khatri: Against the backdrop of slackening of demand in many categories of brown goods in recent times and entry of powerful MNC competitors, how are you redeploying their resources * be it with regard to ad spend, sales promotion, distribution channel or sales organization * with a view to maintaining a threshold level of growth in both top and bottom line?

Gulu Mirchandani:To start with, unlike the overall brown goods industry, colour television industry is growing and we expect the market to grow by 10 per cent this year. Industry CAGR as of now is 15 per cent, with all India-penetration of 18 per cent. So there is a huge potential in this market. Even in the metros, the opportunity is huge, with a penetration of around 40 per cent. Therefore, the industry is definitely poised for growth. The major part of the industry is expected to come from the black and white up-graders. Hence we have special focus on this segment. Our distribution strategy is to reach the rural markets and hence we have our sales and service teams spread across India through 30 branch offices, 150 service centres and 35 godowns. We are also looking into our distribution network and trying to seek other opportunities to increase penetration. Our advertising will also be focussed on both the bottom and the top end of the consumer triangle so that we get the best of both – the replacement and upgrader segments.

Another key area that we are redeploying our resources is our new businesses. We have just launched air-conditioners, which have been accepted very well among the consumers. This category is expected to grow at a very high rate in the years to come, and we expect to be among the top brands in the air-conditioning industry. We also have plans to re-launch washing machines in a big way this year. We are targeting 7-10 per cent market share in washing machine business, and have very strong marketing plans to achieve the same. Over all the brand is in the upswing and as of now we are among the top 3 brands in the country. Financially we are clocking profits every year, unlike many multinationals, which somehow lose focus on the bottom-line in their mad race to achieve market-share. So overall you can say we are having a healthy profitable growth both in terms of top and bottom line.

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