The Hindu Business Line : A fillip for Philips

THE Koreans have left enough signs to indicate that they are advancing. If the consumer electronics (CE) market is the terrain and Sun Tzu's Art of War is the rulebook, then Philips India Ltd is sure using defensive warfare techniques.

In the first three months of 2004, the Netherlands-based Royal Philips Electronics' subsidiary charted an indifferent growth trajectory. While its colour televisions division was still in deep water in comparison to its competitors, DVDs and audio products kept its chin up.

In colour televisions, Philips sold 99,400 units and had an approximately six per cent market share during January to March 2004. It sold nearly 5 lakh audio systems and bagged 32 per cent market share during the same period. In case of DVDs, Philips sold 31.48 lakh units and grabbed a market share of 49 per cent within this time.

"The CE division is all poised to register a 40 per cent growth at Rs 950 crore to Rs 975 crore for calendar year (CY) 2004 as against Rs 650 crore to Rs 750 crore sales approximately every year for the past five years. In case of colour TVs, Philips will have 55 per cent volume growth by end-December and 30 per cent growth in value," says Shiv Kumar, Executive Director and Senior Vice-President (Consumer Electronics) Philips India Ltd. In radios too it has seen a 30 per cent growth against an industry growth of 5-7 per cent and a 20 per cent growth in the mini-audio systems category against an industry growth of 10 per cent.

There is some cheer at the supply end. "Philips has performed well this year. The first few months witnessed quite a few innovations in almost all divisions of consumer electronics, besides aggressively holding ground in DVDs and audios," said Nilesh Gupta, Managing Partner of Vijay Sales Ltd, Mumbai.

A quick peek into the past, however, shows a grim picture. Former company officials point to the eve of the new millennium when the company apparently bit the dust. The turnover of Philips' CE division nosedived from nearly Rs 740 crore in 1999 to around Rs 650 crore in 2000, that too at a time when the CTV market was growing at 20 per cent per annum.

A former senior Philips executive points out that prices of its products were increased to hike value share. All this happened without increasing brand equity or communicating to the consumer the reason for the hike. This strategy backfired and Philips' market share plunged from 6.6 per cent to 3.5 per cent in one year, says this former official.

The double whammy in 2000, however, was adecision by an erstwhile senior manager to wash his hands off the distributors and sell directly to retailers. Interestingly, Philips was one of the first consumer electronics companies to identify the need for distributors in the supply chain way back in 1995, while most companies smirked at them. Today, almost all of them have strong distribution bases.

By 2001, the company changed gears, and started bringing the prices down. Dealers were roped in and the company's southward journey halted, the executive added.

By then, almost all competitors were eyeing a presence in 21-inch flat CTVs — the segment that had a clear northbound growth. Companies vied with each other to launch sub-brands. Videocon had Bazooka, LG was riding on Golden Eye, Onida had launched KY Thunder and BPL brandished its Emperor. However, Philips had no presence in this segment.

By 2002, the company started registering growth. It sold 2.5 lakh CTVs, a 20 per cent growth at a time the industry was speeding at the rate of 30 per cent per annum.

"Between 1992 and 2002, the CTV industry doubled every three years, but due to many reasons Philips could never keep up with the pace," says V. Swaminathan, a former senior executive of Philips and now Managing Director, Suhita Ethnic Marketing Services, a Mumbai-based marketing consultancy.

According to an ICRA report on consumer electronics, till the late '90s, the CTV market was dominated by older players of domestic origin. Although there is still a significant presence, they are steadily losing ground to MNCs such as LG and Samsung. BPL, which was the market leader in 2001, lost its market leadership position in 2002 to LG.

BPL's market share declined from 22.5 per cent in 1999 to 10.3 per cent in 2002. Videocon's share declined from 16 per cent in 1999 to 7.9 per cent. Including Akai, Sansui and Toshiba, Videocon's market share was an estimated 20 per cent in 2002, the report said.

Onida, whose market share had declined in the mid-'90s, had reported an increased market share in 2000 and 2001, mainly because of higher sales of all sizes, especially 14-inch. However, Onida's market share declined to an estimated 8.6 per cent in 2002 because of stiff competition and aggressive promotion of 14-inch models by competitors, especially Oscar, LG and Philips.

LG claimed the leadership position in CY2002. Its market share increased from 7.4 per cent in 1999 to 14.6 per cent in 2002. Samsung's market share also increased from 8.2 per cent in 1999 to 11.3 per cent in 2002, the report added.

By 2003, former HLL veteran Shiv Kumar took over the reigns of the ailing Philips as Vice-President (Consumer Electronics). Key areas of action were identified. His moves seemed like a straight pick from Art of War: "On the field of battle, the spoken word does not carry far enough: hence the institution of gongs and drums. Nor can ordinary objects be seen clearly enough: hence the institution of banners and flags."

The company had realised the need to brand itself aggressively, a move that the company hitherto took for granted. With JWT in tow, the company communicated its technology pedigree. DVDs began emerging as a king of `playability'. Philips Eye-Fi TV cable signals unchained the consumer from the mercy of the cablewallah, and the 21-inch screen bada TV asked people to think big. "Every couple of years, there is a window of opportunity in consumer electronics, we need to recognise that and capitalise on it like we did in DVDs," explains Shiv Kumar.

A senior executive of a prominent Chennai-based consumer durable chain, which stocks most durable brands, says that Philips has shown far more aggression as a brand in the past couple of years in promoting its CTVs and DVDs. He estimates that at least 65 per cent of DVD sales in the country could be accounted for by the Philips brand. Also, he says that the Korean brands such as Samsung and LG have so far not been aggressive in the DVD segment. The Koreans may not be able to match Philips' pricing, which most likely is due to it sourcing the DVDs from its plants in China, he surmises.

This dealer says that Philips' DVD pricing could also have been responsible for the change in ownership of DVDs and VCDs in urban areas. Earlier, in cities, 20 per cent sales would have been of DVDs and 80 per cent of VCDs, but now this ratio has reversed. He points out that in some markets, like Tamil Nadu, the Philips CTV brand still enjoys some loyalty and would rank third in terms of leadership after LG and Samsung. He says that Philips still enjoys leadership in what is called the portable audio or `mini-systems' and radios market; however, this is a stagnant or slow growing market, he adds. So, leadership in this category may not amount to much, he points out. Says Francis Xavier of Francis Kanoi Marketing Research: "The Korean players have been pre-occupied with colour TVs and other durables and projecting themselves as premium brands and don't see themselves as price warriors." Hence, they have pretty much left the DVD segment to Philips to dominate.

However, there are areas the company had to improve upon. While the Koreans recognised the pulse of Indian consumer, Philips was still introspecting. The company also had a long way to go in terms of after sales service. "While the Koreans were vying for cricket as a platform to promote themselves, Philips seemed more indulgent in its product. The company is lagging far behind against competition, in areas of after sales service," said Prem Shah, Sumaria Appliances, a consumer electronics retailer based in Mumbai.

Nilesh Gupta from Vijay Sales is pinning his hopes on the company's promise of putting in place an effective after sales system. "After sales service is one area in which the company needs to work. They have promised (to improve on after sales), let's see," he says.

"I accept the fact that the after sales service needs to be moved to a new level, on par with our marketing initiatives. We are in the process of training our service team at top-class service organisations such as Jet and Taj," Shiv Kumar said.

He added that the company will also continue with its consumer connect programme in 2005. The project covers 10,000 people last year, and popular insights lead to innovations such as the DVD amplifier, and low-cost radios.

Does the company at times get carried away with its indulgence in technology? Why have high-end products like Mirror TV, where the customer gets to see himself while viewing TV? Priced between Rs 1.18 lakh for a 15-inch screen to Rs 2.79 lakh for a 30-inch screen, does the feature really add value to the product? Similarly, how much of value would vertical DVDs add, asks a dealer

"Such innovations may not add great value, but they make the brand tremendously `aspirational.' Though the customer may not buy it, such innovations make the brand premium and sought after," contends Swaminathan from Suhita.

The road ahead is chalked out. "We will build upon the foundation set in the last 18 months. We have lined up aggressive competitive strategies that will focus on brand building and after sales service, besides other marketing initiatives," says Philips' Shiv Kumar.

The Koreans have set their base on top of the hill, from where the enemy position is clear. Once the bare necessities of equipping is through among other players, marketing history will have it that the consumer electronics war was one of the most watched and discussed ambushes in the Indian market.

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