LG India: Towards digital leadership

Though it started operations in India only six years ago, LG has achieved a turnover that many other MNCs here haven’t achieved in decades. Now, by expanding its IT peripherals portfolio, increasing its focus on MY PC and the reseller business, and by targeting the upcountry market, the Korean major seems to be moving in the right direction, says Punita Jasrotia Phukan

Be it the regional distribution model, the opening of exclusive retail IT shops, or the launch of innovative products, LG Electronics India has always been known for scaling uncharted heights and reaping success in return.

Local assemblers offering customised solutions at a price differential have traditionally dominated the PC marketplace. LG’s entry should help the grey market to organise itself better, says R Manikandan

However, this has not been an easy task, considering that the company started operations in the country just six years ago. Delivering a good performance year-on-year, with a product portfolio ranging from consumer electronics to home appliances to computer peripherals, the company has successfully carved a niche for itself. According to IDC, LG is today the second largest monitor brand in India.

Impressive figures

LG posted a 44 percent jump in sales revenues for the first half ending June 2003. Sales turnover for the IT division touched Rs 199 crore against Rs 138 crore in the corresponding period of the previous year. Overall, the IT division grew by 43 percent in volume terms.

The monitor division registered a growth of 80.4 percent during the first half of 2003, over the same period last year. This is much higher than the 16.6 percent growth registered by the overall monitor market. According to IDC, in the LCD monitor market, LG has registered a robust growth of 381.8 percent in the first half of 2003 over the same period last year. The highest growth in the LCD space has been notched by 15-inch LCD monitors. This was possible because the company aggressively dropped prices of its monitors across technology spectrum and screen size.

In optical storage devices (OSDs) the company posted a growth of 30 percent in sales revenues. Keeping pace with changing technology trends, LG was the frontrunner in launching 52X CD-RW drive in the Indian market. “The half-yearly results have been much in line with our expectations. We are the market leader in the OSD segment, and currently extending this success to the monitor segment as well,” says R Manikandan, the company’s deputy general manager for sales and marketing of IT products.

Growth drivers

According to Ipsita Roy, analyst, peripherals research, IDC India, one of the major reasons for this impressive performance is the reorganisation of LG’s channel structure, besides various innovative promotional activities and price rationalisation. In pursuit of faster and a wider reach, the company opted for both the distribution routes—regional distribution and retailing. This helped LG to grow much faster than many of its competitors.

Channels

LG gives the credit for its success to its channels. Firmly believing in the policy of stock rotation, the company does not dump stocks on its channel partners. Rather, it provides stocks and simultaneously creates a pull, leading to stock consumption in a short span of time. This has also helped in creating confidence amongst the channel fraternity since prices do not fluctuate much due to overstocking or understocking.

Regional distribution

Starting out with four national distributors, the company shifted to a regional distribution model in early 2001. This was done with the objective of increasing volume sales by better penetration in smaller markets. It has helped LG in getting closer to the customer and responding faster to market changes. It has also enabled the company to utilise its resources in a more effective manner.

According to Manikandan, though initially it was termed a risky move, the model has been 100 percent successful. Today the company has close to 400 regional distributors. “With this system one can easily gauge the expectations of the market and get a quicker response time, which ultimately leads to better customer satisfaction,” says Manikandan.

The retail way

While on one side LG has been taking the channel route, on the other side it has also opted for the retail route. Understanding the reach and scope of retailing, the company started its retail experience in 2001. Manikandan insists that the two routes are complementary in nature, and don’t eat into each other’s business. To give a further boost to its sales, the company also recently started exclusive LG IT shops in which it is planning to invest close to Rs 8 crore; there are presently around 20 such shops across the country.

17-inch and flat monitors

After spotting the new trend towards flat, be it for PC or TV monitors, LG quickly introduced flat screen IT products. Over the years it has been able to make a considerable mark through its Flatron monitors. Indeed, the success of the brand is evident from the way the name ‘Flatron’ is sometimes used as a generic term for flat monitors.

The company’s 17-inch monitors are also gaining prominence, and becoming the preferred size for the Indian PC user. According to IDC, though the lion’s share (80 percent) of LG’s shipments is in the 15-inch CRT market, the company has increased its focus in the 17-inch market, the share of which has been growing steadily.

MY PC

MY PC has been the company’s first initiative to enter the branded customised PC market. According to Manikandan, local assemblers offering customised solutions at a price differential have traditionally dominated the PC market in India. LG’s entry into this segment should help the gray market organise itself better and take competition to a higher level in terms of differentiated offerings.

Also significant is the choice of Linux and other free software in MY PC units. Though this venture is still to gather speed, the company is optimistic about its growth with the increasing acceptance and adaptability of Linux in the Indian marketplace.

Innovative marketing

LG is known for running innovative and customer-friendly schemes every month. These not only help in keeping up the momentum of distributors but also results in higher brand recall. To create a pull factor, LG keeps coming out with different bundling propositions. This results in greater push for LG products. For its channel partners, the company has a unique point-based incentive scheme.

For example, one recent company scheme, Patakha Ghumao Inam Pao, was specially conceived for Diwali and valid till the end of October; it offered gifts on every purchase of an LG product. Manikandan says this scheme gave a further boost to the MY PC range of computers; the company showcased the entire range in its appliance retail outlets, and encouraged IT retailers to stock LG PCs. (The company has already appointed 1,000 IT retailers across the country to stock its PCs.)

For its partners, LG launched two SMS-based programmes in August. The LG Champions Club programme enables participating partners to track their balance points and rewards through SMS, while the Freedom Fiesta programme is a contest run completely through SMS.

Local manufacturing

LG believes in local manufacturing since it enables them to offer goods at cheaper rates with customised finishing. In 2001 the company established an assembly line for its PC monitors at its Greater Noida manufacturing facility, while recently it added two more manufacturing bases at Guwahati and Pune. The unit at Guwahati is already functional; the one at Pune is expected to commence operations in October next year. Meanwhile, the Noida plant is being geared up to manufacture high-end products such as high projection TVs and next-generation mobile handsets. Three months ago the company started manufacturing LCD monitors in this plant.

Focus on R&D

Research and development is one of the most emphasised activities at LG. The company is known for launching new products that are both consumer-friendly and have state-of-the-art technology.

By way of illustration, Manikandan points out that the PC is undergoing a lot of evolution. It is slowly becoming a lifestyle drawing room product, which also means a significant change in applications. This is further enhanced by the convergence phenomenon, where the quality of high-bandwidth, graphic-intensive applications like videoconferencing depends on the quality of the monitor.

Right from offering different colours (black or silver) to combinations or changes in applications, LG is trying to be innovative in its products. The company recently launched two new LCD models—18-inch and 23-inch. These monitors come with ‘Light View’ technology, allowing users to freely adjust brightness and colour according to their computing situations, like day/night, photo, movie and text, and thus make optimum working conditions possible. What’s more, these monitors are wall-mountable, that is, they are so thin that they can be easily hung on the wall, thus increasing space availability. Their other features include built-in power adapter, OSD lock, wide viewing angle and auto adjustment functions.

In IT peripherals, the company’s recent offerings include an Internet-ready multimedia keyboard, an optical storage device, 52X CD-RW and the two new LCD monitor models. The Internet-ready multimedia ‘My Key’ keyboards have special features like multimedia keys, Internet surfing keys and power keys to enhance a PC customer’s usage experience. Its features include seven extra multimedia keys to control functions such as volume, play, stop and rewind; four special keys for seamless Internet surfing, and two power control keys to shut down the PC and put it in a power saving mode.

The company is now looking at expanding its IT peripherals portfolio and increasing its focus on the MY PC business. LG will also be expanding its reseller base and targeting the upcountry market