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Can Videocon move up the price ladder?

Source : BUSINESS_STANDARD
Last Updated: Sun, Sep 16, 2012 19:51 hrs

Price upgrades can be hard to get right and brand renovations take a lot of time and money. Above all, it can be difficult to transform customers’ perceptions. However, mass market brand Videocon believes it can climb up the price ladder, given its long association with the Indian consumer. Experts discuss Videocon’s prospects

Amitava Chattopadhyay
L’Oreal Chaired Professor of Marketing-Innovation and Creativity, INSEAD, and faculty on executive education programmes, ISB

The Indian consumer durable goods market, in particular the household durable goods market, is dominated by LG, Samsung, and Videocon, in that order. What separates the two Korean brands from Videocon is that the Koreans have built a premium brand perception, starting with urban India, while Videocon is stronger in rural and semi-rural India with its portfolio of products that compete in terms of price.

As the Korean brands have penetrated the semi-urban markets, a natural progression for these brands, as incomes have grown in these markets, Videocon is seeking to build a premium reputation in urban India to counter the threat of its Korean rivals. Given its current positioning this is a significant challenge. Let me elaborate.

A research report, in our recently published book (“The New Emerging Market Multinationals: Four Strategies for Disrupting Markets and Building Brands” by Amitava Chattopadhyay and Rajeev Batra, with Aysegul Ozsomer [2012], New York: McGraw Hill), clearly suggests that it is extremely difficult for a brand that is perceived as a price brand to move up price tiers to position itself as a premium offering in the minds of target consumers. Indeed, LG Electronics faced this dilemma some 20 years ago when under its Goldstar brand it sold products that competed on the basis of price. To move up to its current and desired premium positioning, it phased out the Goldstar brand, while launching the LG brand in 1995, rolling it out systematically across the globe over the next seven years as a premium brand.

Other firms from emerging markets that have initially built a business on the basis of price have also found that they need a different brand to meet their desire to have a premium play. Thus, in consumer household durables, Turkish player Arcelik has acquired brands such as Arctic, Grundig, Elektra-Bregenz, and others to market its more upmarket products at premium prices.

In India, Tata Global Beverages filled its portfolio need for a premium leaf tea brand by acquiring Tetley in 2000. More recently, Tata Motors has filled the premium position through the acquisition of Land Rover for SUVs and Jaguar for sedans. Thus, Videocon’s ambition to build a premium play in urban India would require it to either build a new brand from scratch, as LG did, or acquire a premium brand as did Arcelik, Tata Global Beverages, and Tata Motors, to name a few. The reason is simple, extant perceptions are difficult if not impossible to change.

Notwithstanding which of the two routes to building a premium brand Videocon chooses to take, it has to clearly understand that a premium brand needs to offer a premium product portfolio supported by premium service. Building a premium brand is not about the marketing folks screaming out to consumers that their brand is a premium one. It is about walking the talk in terms of product and service innovation consistent with what the consumer perceives as premium. It is the experience that Videocon will create through its products and services that will determine whether it succeeds or fails to have a brand that is considered premium.

For Videocon to succeed in its desire to establish itself as a premium player in the minds of urban Indian consumers, it needs to develop or acquire the capacity to innovate technologically, bring to market products that consumers find to be premium and attractive on the backs of these innovations, satisfy distributors and retailers that it can support such a positioning and get them on board, create an opportunity for the target customer to see, touch, and learn about the premium products, and then, if and when, service support is needed, ensure that it is delivered in a timely, reliable, and effective manner. This is the challenge that Videocon needs to accept if it chooses to become a premium player in the Indian marketplace. The marketing hype can only follow once this basic foundation is in place.

Move too early with the marketing hype and the faster will the premium strategy die.

Pranesh Misra
Chairman & Managing Director, Brandscapes Worldwide

Videocon has been successful as a mass market player offering value for money products. Trying to enter the premium, high technology segment of the consumer electronics market is a strategy fraught with danger. Mass market and premium are two ends of the totem pole. The rules of the game are distinctly different — and moving from one end to the other is not as simple as offering a premium product mix or communication mix. Opting to be a premium player means re-engineering the business systems over a broad spectrum, in areas such as R&D, customer service infrastructure and mindset, distribution coverage, pricing strategy, knowledge and attitude of front-line staff and long-term top management commitment. It means organisational un-learning of the mass-market rules, and replacing these with premium market principles.

Videocon should consider the risks involved in making this transformation. First, their current consumers and dealers are likely to resist change. The millions of consumers and dealers who have respected Videocon for its value offering are likely to feel abandoned. This would be an opportune time for a competitor to enter and offer them an alternative in the value for money market.

Second, the premium markets are highly risky and volatile. The premium players need to be committed to forecasting what consumers will want in the future and offer futuristic solutions. This needs very high upfront investment in innovation and technology. With high international competition, technology obsolescence is a reality. Life-cycles of high tech products are getting shorter — and the company has to recover its investment in a few months or at best a year or two. If you get your foot off the pedal, you fall behind very fast. One can never afford to be complacent as a technology player, as Nokia discovered to its horror, in recent times.

Third, as a premium player, Videocon has to compete with global leaders like Samsung and Sony, who have deep pockets. They also have history and heritage to their advantage. Their countries of origin — Korea and Japan — have far positive technology imagery than India. Fighting them is like taking on the titans. A lot of blood, in terms of investment in technology and brand building, has to flow; and success is only a small possibility. Does Videocon have the reserves to enter this battle field and keep fighting for at least five years? To my mind, five years is the minimum time frame they should plan for making this transformation.

Fourth, history has shown that it is nearly impossible for mass market players to make credible forays into premium segments. Toyota, for example, struggled for years to credibly enter the premium car segment and compete with premium European brands like Mercedes and BMW. It had the capability of building products that were competitive. But given their mass market equity, consumers were just not willing to buy-in to the proposition of a high status premium brand from Toyota. This is what led the company to launch Lexus with a dramatically different business model and imagery from the mother company, while Toyota continued to perform in its mass segment.

An alternative, perhaps more prudent, strategy could be to consider entering the premium range with a completely new brand name and business structure. Rather than go broad spectrum in terms of category offerings, the company should concentrate on one or two high potential, high growth categories and bring about real technology innovations in these categories. This is what Bose did in the audio system business to claim global technology leadership through sheer step-ahead innovation.

Anirudh Dhoot, perhaps could take the leadership of this new business. From press reports, entering the premium end seems to be his brainchild. His best chance of success is to keep everything about Videocon out of his business. He should find a new, young, enthusiastic team and give the business a new name. He could think of relocating the headquarters to some other country, where the country of origin has a positive value addition — because India’s image in this regard is not going to change for a long while.



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