The Indian consumer durables market is being flooded with an ever-expanding range of appliances in the hope of expanding the custom- er base in a country where penetration levels of these product categories are still low.
LG Electronics India Pvt. Ltd (LGEIL), Samsung India and Godrej Appliances have as many as 70 models of air-conditioners, 100 kinds of refrigerators and 50 washing ma- chines each.
In the last three years, the number of models per category has steadily risen across brands and categories. For in- stance, MIRC Electronics Ltd, which sells ACs, washing machines and other durables under the Onida brand name, has more than doubled its AC models from 22 in 2008 to 47 in 2010. With the launch of its new range two weeks ago, LG now boasts of 51 AC models, 38 washing machines and 100 refrigerators.
Samsung launched three new premium refrigerators, taking the total to 109.
Such variety is unique to developing markets such as India where penetration of refrigerators is only 12-13%, washing machines is 5-6% and ACs is 4-5%, according to Y.V. Verma, chief operating officer, LGEIL and president of the consumer electronics and appliances manufacturers association (CEAMA).
In most developing markets, where companies are driven by the need to meet consumer expectations at affordable price points in a competitive scenario, they offer something for every pocket, said Giraj Sharma, director of brand consulting boutique Behind the Moon. Sharma handled sales at Onida and LG earlier.
Ramesh Shrinivas, executive director, KPMG Advisory Services Pvt. Ltd, agrees: “At this stage of growth in a country's durables sector, the increasing number of SKUs (stock keep- ing units) is a step to capture wider share by reaching as many consumers as possible".
The wide range of models straddles markets from mass to super premium, offering differentiated design, features and positioning.
Ravinder Zutshi, deputy managing director at Samsung India
Vipul Mathur, general manager and business group head, Onida Air Conditioners, at MIRC Electronics Ltd, agrees.
“Indian consumers today as- pire for products that answer their needs more precisely.“
In developed markets, manufacturers are not obliged to offer as many price points.
“Companies wish to increase brand value and to increase market share at this point.
Once this has been achieved, companies may scale down the number of models to increase profitability as this strategy en- tails a relatively higher input cost as well as an exponential increase in supply chain complexity,“ says Shrinivas of KPMG.
Once this has been achieved, companies may scale down the number of models to increase profitability as this strategy en- tails a relatively higher input cost as well as an exponential increase in supply chain complexity,“ says Shrinivas of KPMG.
The strategy adds to the re- search and development and manufacturing costs, besides building up inventory. Verma of LG Electronics says that the cost of manufacturing and production definitely goes up with a wider range of models. That's not all, even logistics and distribution becomes tough.
The cost of holding inventory escalates by 15-20% for fast moving goods and 30-40% for slow moving goods, which in turn negatively affects cash flows he explains. Marketing costs on the other hand do not rise, as only a few representative products are advertised to communicate to the consumers, Verma adds.
Mathur of Onida says in- creasing the range adds to in- puts costs as well. Getting the right product to the right place at the right time is not easy. “Limited space at multi-brand retail outlets is a challenge for showcasing a wide variant line-up”, adds Mathur.
“A high number of variants brings in production and logistics inefficiencies, so we don't increase the number of models by more than 5-7% (in a single season)”, says LG's Verma.
However, most companies say that their systems are high- ly advanced and stocking is done in close to a real time framework.
Zutshi says production capacity is not a problem as the entire inventory system is linked to three months of advance planning.
The shorter lead time for re- search and product development also helps manufacturers maintain a high number of models in stock.
Does choice confuse customers? Pradeep Bakshi, executive vice-president and chief operating officer, Voltas Ltd, does not think so. “Far from being confused, consumers are more or less aware of the defectors across brands that have their unique selling points”, he says.
Eric Braganza, president, Haier India
(Source-: livemint)