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Suresh Krishnamurthy

`One cannot drop prices just because a market exists. The costs and returns on the investment will have to be looked at.' — Mr Pradip Tognatta , Vice-President, Sales and Marketing, LG Electronics

MARKETING during a slowdown is a challenge. Such challenges consumer durables companies faced in 2001. Business Line spoke to the marketing chiefs of Samsung and LG on such issues as price erosion, marketing spend, the impact on margins and cash flows.

Excerpts from the interview with Mr Ravinder Zutshi, Vice-President, Sales, Samsung India:

Mr Ravinder Zutshi

How much has the rise in sales of televisions in October and November offset the decline in the earlier months?

The growth in January-October compared to the previous year is only 4.85 per cent. In November 2001, the industry's volumes were 1.3 million against 1.1 million in November 2000. However, in terms of value, the growth is only about 4 per cent.

What is the growth, value-wise, in January-October 2001?

The value growth was not negative. But the bounce-back began only at the end of September. The overall business was pretty good in October and November.

Which segment dominated the growth?

The 20-inch segment. Its contribution to the total colour television business has increased.

Are margins lower in this category?

Yes, margins are definitely stressed out in this category because of a number of competitors. The pressure on the price position is quite strong compared to the 21-inch, deluxe or flat TV.

What has been Samsung's experience on price erosion?

There is price erosion in our case too. We have managed it by our new product line-up. We have ensured that the price erosion does not affect us directly. Our volume growth was around 23 per cent in January-November. Value-wise, the growth was around 18 per cent. The value-wise growth has been influenced by the contribution from Flat TVs, which has been around 8 per cent this year for us. For the industry, the flat TV contribution is around 2.9-3 per cent.

There is a feeling in the industry that Samsung and LG are spending a larger proportion of their revenues on advertising and promotion...

If you do not spend you cannot sell.

But would that not affect your profitability vis-à-vis your peers?

It is linked to growth and cash flows. Now, it is how you make the brand stronger that matters. There are companies in India whose accounts receivable position is more than 65-70 days. In our case, it does not touch 21-22 days.

With that kind of cash flow, we can afford to spend. Our borrowing cost comes down because of better cash flow management and that drives our advertising spend. We manage our costs, inventories, and cash flow better.

Mr Pradip Tognatta

— Mr Pradip Tognatta, Vice-President, Sales and Marketing, LG Electronics:

How did LG's marketing spend differ this year compared to last?

This year the spending was more effective. We got to know about the slowdown in March itself and started taking corrective action.

The advertising campaign was tactical this year and aimed at moving things at the dealer's end. For example, in-shop demonstrators, live demos, targeting welfare societies, organising van activities and so on. These were carried out aggressively. Earlier on, it used to be local press advertisements. Take for example, semi-automatic washing machines. They did not sell during the year and, therefore, there was no point going in for local press ads. Instead, we used tactical strategies such as live demonstrations.

How long did it take for your models to move from the dealer to the customer during the slowdown?

You mean the shelf-life of the product? Roughly, the dealer has 30-day stock.

What is the industry average?

It varies from brand to brand.

How do you estimate market size?

We take the previous year's sales as the base. Then we also consider the population, households, and other factors. In addition, consumer behaviour differs from State to State. If you go to Mumbai, buying a washing machine would not be a priority compared to an air-conditioner. The customer would buy a TV, a refrigerator and then an AC.

But the gap between refrigerators and TVs has widened. There is a suggestion that consumers have replaced their TVs rather than go in for refrigerators...

Again, it is a case of priority. Today, frost-free refrigerators are growing more rapidly than the direct-cool models. As of now we estimate that around 15 million direct-cool refrigerators are ready to be replaced with frost-free, especially in the 165-litres category.

But the price difference between direct-cool and frost-free is significant. Will that inhibit the upgradation?

That is true. But the consumer profile has changed. Consumer awareness has also changed.

Yes, the latent demand is there. But without reducing prices, will the demand materialise?

One cannot drop prices just because a market exists. The costs and returns on the investment will have to be looked at. You need minimum Rs 100 crore to set up a refrigerator factory. Prices will drop only when the market expands.

For example, the prices of frost-free will drop when sales overtake direct-cool models. Now, the cost of manufacturing is high.

But without lowering prices, can you expect growth in frost-free sales?

The market has in fact been growing. There has been growth in 2001 too. Unfortunately, LG was absent in the low-priced, frost-free segment — the 220 litres segment. Now, we have started producing that too.

Is higher activity likely in the semi-automatic and direct-cool models?

No, the action would be driven more towards frost-free. Every now one wants the latest.

If you look at the low-priced television segment, the sales increased significantly in October-November? Won't the same trend repeat itself in washing machines and refrigerators?

The upper segment has grown too. It depends on what you focus on.

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