Hooked up. That’s how Anuj Dayal describes his one-bedroom rented apartment in South Delhi. A peep into the house of the 26-year-old financial analyst, a bachelor who earns more than Rs7 lakh a year, explains why. His small living room has space for a 32-inch plasma television, a home theatre system with multi-directional speakers hung untidily from various corners, a remote-controlled air conditioner and six beanbags. Dayal is also the kind of customer consumer electronics companies such as LG Electronics India Pvt. Ltd and Samsung India Electronics Ltd dream about.
India’s consumer electronics industry has been in a constant state of flux for the past five to six years. The economy has been growing at a breakneck rate of 8%-9%, and rising incomes across sectors have helped most businesses to grow (most services sector grew by around 30-35%, fast-moving consumer goods by around 15-20% and the auto industry by around 15-20%), but the consumer electronics industry has been languishing.
According to audit firm KPMG, the industry registered an 8% compounded annual growth rate between 2000 and 2005. The state of affairs was evident in the performance of individual companies, too. LG, the market leader in most product categories in the consumer electronics industry, had to slash its revenue targets twice—first from Rs8,500 crore to Rs8,000 crore, and then, to Rs7,500 crore—in 2005. Samsung incurred losses for the first time in 2005 and Whirlpool of India Ltd continued its loss-making run with a net loss of Rs38 crore in 2005-06 and Rs4 crore for the quarter ending December 2006. Other players, such as Sanyo BPL Pvt. Ltd and Philips India Ltd, didn’t fare much better. Things, however, began to change last year.
The industry, which, according to some estimates, stood at Rs22,000 crore in 2005, grew to Rs25,000 crore in 2006 and companies are hoping it will touch the Rs27,500 crore mark this year. And this optimism is based on the growing number of consumers like Dayal. “Lower-end product categories in the business had stopped growing in the past few years. But the spurt seen in the premium product categories now is helping in negating the slump,” says Gulu Mirchandani, chairman and managing director, Mirc Electronics, the company behind the Onida brand. The categories Mirchandani is referring to include plasma and LCD screens, frost-free refrigerators, split air conditioners and automatic washers. “The trend, which has only become visible in the past one-and-a-half years, is an indication of the tremendous increase in disposable income among young consumers, who are beginning to live on their own. These consumers are spending a significant part of their pay cheques on upgrading their lifestyles,” says Nikhil Mathur, associate director, client service, ORG GfK Marketing Services (India) Pvt. Ltd, a joint venture between market research companies The Nielsen Company and GfK.
The other reason, as pointed out by market observers, is the change in the marketing tactics employed by the industry players to push growth. “Introducing new models more frequently, backed by aggressive and aspirational marketing and advertising campaigns, is also prompting consumers to convert their old models to newer ones,” says Neelesh Hundekari, principal, AT Kearney, a consulting firm. “Advertising by consumer electronics companies has become more lifestyle oriented in the recent past. Now, these companies try to sell a concept rather a product to consumers,” says a senior advertising executive of an agency handling one of the companies, who requested he not be identified. By some estimates, consumer durable firms are spending approximately 5-6% of their total revenue on marketing activities. Marketers back up such advertising with promotional offers and easy financing.
Consumers seem ready to spend a few thousand rupees more on new lifestyle products. LG Electronics, for instance, claims to have sold more than 1,50,000 plasma television screens in 2006. The price range: Rs50,000 to over Rs1,60,000. The company says its revenue jumped from Rs6,500 crore in 2004 to an estimated Rs9,000 crore in 2007. “Sales in our high-end segment is growing 10 times faster than the conventional segment,” says Girish Rao, vice-president, sales and marketing. “Since consumers are willing to spend more on these products, LG is directing all their resources to develop this market,” he adds.
Mirc Electronics’ sales of LCD colour televisions (CTVs) in 2006 registered a volume growth of 255%, those of 21-inch flat screen grew at 33%, and that of conventional TV sets almost remained stagnant. To sustain this growth, Mirchandani says he is investing more than Rs100 crore over the next three years in research and development and innovation in design across the high-end categories.
Similarly, Samsung’s revenue exceeded Rs4,100 crore in 2006, thanks to its high-end premium line which brought the company back from the dry spell it went through in 2005. The company says that while its sales of flat panel televisions grew at 40.9% last year, those of plasma screen televisions grew at 100%. The company has stopped manufacturing old-style curved-screen televisions due to negligible demand in the segment. In the air-conditioning category, sales of split ACs grew at 201% as compared to those of window ACs, which grew at 50.3%. The story for other players such as Whirlpool of India and Videocon Industries is no different. “One may argue that the growth in new segments seems bigger because of their smaller base. But (with) the premium products being almost 30-100% more expensive than conventional products, this makes a significant contribution to the top as well as the bottom line,” says Shantanu Das Gupta, vice-president, marketing, Whirlpool.