TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market                                   ...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market Kanvic is a management consulting ...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketTURNING UP THE COOLRealising untapp...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketAbout the AuthorsDeepak Sharma is a...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketContentsForeword                   ...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketForewordIndia’s consumer durable in...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketExecutive SummaryThe air-conditioni...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketInnovation will also play a central...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketstrategies in financing, innovation...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketThe low penetration of AC in India
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketThe paradigm shift in the room air-...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketThe commercial segment consists of ...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketprogressive shift in consumers’ per...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketA huge market remains largely untap...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketCloser to home, the wider Indian co...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketStrategies for accelerating growth
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketStrategies for accelerating growthT...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market1. Develop and communicate easy fin...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketFurthermore, the availability of ch...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketIndeed, such financing options can ...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market2. Innovate to reduce costs and sat...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketDue to the high price of energy in ...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market   Innovation at a glance: Solar AC...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketAddress seasonality concerns throug...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market3. Develop customer-friendly commun...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketFor instance, one company’s brochur...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market4. Improve the selling approachThe ...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketCustomer educationThe technical nat...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketImplement cross-sellingCross-sellin...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market5. Target new customer segmentsTher...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketIncreasing incomes and changing min...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketgrowth companies will have to desig...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market1. Price consciousConsumers in this...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market4. Health sensitiveAnother trend th...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketConclusionIndia’s room air-conditio...
TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketkanvic.comBangaloreRavindra Beleyur...
Upcoming SlideShare
Loading in …5
×

TURNING UP THE COOL Realising untapped potential in India’s AC market

3,727 views

Published on

In ‘Turning Up The Cool’ Kanvic sheds light on the cause of this low penetration rate and shows the shift in demand that occurred from the commercial to the residential segment. In so doing we can see how the industry has struggled to adapt to serve this larger but more complex consumer market. In this report we hope to provide the industry with practical strategy options that will enable it to more quickly realise the untapped potential of India’s room air-conditioning market.

Published in: Business
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
3,727
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
261
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

TURNING UP THE COOL Realising untapped potential in India’s AC market

  1. 1. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market ACTURNING UP THE COOLRealising untapped potential in India’sroom air-conditioning market
  2. 2. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market Kanvic is a management consulting firm helping businesses develop winning strategies, drive profitable growth and achieve operational excellence to reap long lasting rewards in the fast growing Indian economy. We work with C-level executives to develop innovative solutions for the business challenges of 21st century India by bringing in leading edge management thinking informed by in-depth research and sound analysis.
  3. 3. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketTURNING UP THE COOLRealising untapped potential in India’sroom air-conditioning marketDeepak SharmaShiv Kumar SharmaDavid Daniel-SainteffJuly 2012kanvic.com
  4. 4. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketAbout the AuthorsDeepak Sharma is a partner and co-founder at Kanvic where he leads the strategypractice. Shiv Kumar Sharma is an associate consultant and David Daniel-Sainteff is ajunior consultant in the strategy practice.AcknowledgementsKanvic would like to acknowledge the contribution of the team behind the report,especially to Gehan Wanduragala and Vlad Flamind who provided editorial guidance.Further informationWe welcome your questions and comments on this report. For further information,please contact us at:Email: deepak@kanvic.comPhone: +91 99283 77800
  5. 5. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketContentsForeword 7Executive Summary 8The low penetration of AC in India 12The paradigm shift in the room air-conditioning marketThe huge market that remains largely untappedStrategies for accelerating growth 19Develop and communicate easy financing optionsInnovate to reduce costs and satisfy customer needsDevelop customer-friendly communicationImprove the selling approachTarget new customer segmentsConclusion 38
  6. 6. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketForewordIndia’s consumer durable industry has witnessed fast growth in recent years and it isexpected to grow at a similarly rapid rate for some time to come. However, India’s air-conditioning industry has been something of a laggard compared to its peers. Despiteseemingly impressive headline growth rates, the penetration of room air-conditionersremains strikingly low compared to other white goods, with a mere 3.8% ofhouseholds having adopted this product category.In ‘Turning Up The Cool’ Kanvic sheds light on the cause of this low penetration rateand shows the shift in demand that occurred from the commercial to the residentialsegment. In so doing we can see how the industry has struggled to adapt to serve thislarger but more complex consumer market.Whilst the long-term growth outlook for the air-conditioning sector remains positive,the late onset of summer in 2012 has combined with an uncertain economic climate toexpose weaknesses in the industry’s current approach. In a growing market sub-optimal strategies can survive for a time, but when they are buffeted by the chill windof an economic downturn, the entrance of new competitors or even the vagaries of theweather, they are quickly blown away as a lot of hot air.In this report we hope to provide the industry with practical strategy options that willenable it to more quickly realise the untapped potential of India’s room air-conditioning market.Deepak SharmaDirector and co-founder
  7. 7. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketExecutive SummaryThe air-conditioning market in India has witnessed rapid growth in recent timesthanks to the country’s strong economic performance, rising household incomes and afavourable shift in consumer perceptions towards air-conditioners (AC). The market’scompounded annual growth rate (CAGR) has run at 17% over the last three years. In2011-12 air-conditioning sales reached around Rs. 17,600 crore 1. However despitethis rapid growth air-conditioners have still only reached a mere 3.8% 2 of Indianhouseholds according to the most recent data. This low penetration rate illustrates thehuge opportunity the AC industry in India is yet to seize.In recent years the Indian AC industry has been marked by a fundamental shift in thesource of demand for room air-conditioners. This shift has seen the bulk of sales moveaway from the traditionally dominant commercial sector and toward the residentialsector, which now comprises 60% of the market. The AC industry in India has so farfailed to fully grasp the more complex needs and expectations of this newer, largerand more diverse customer segment. This lack of understanding means that the ACindustry is behind the curve in areas from customer communication to easy financing.As a result, AC penetration in India lags behind other developing markets as well asother categories of consumer durables in India.This report highlights the current low penetration level of AC in India and develops anumber of effective strategies the industry could adopt to accelerate growth andthereby increase penetration. These strategies relate to financing, innovation,communication and the selling approach. All of these strategies will need to betargeted appropriately to both existing and emerging customer segments:To begin with, developing easy financing options for customers will bring air-conditioners within reach of a much larger percentage of the population. At presentthe high up-front costs of an AC are a major barrier to adoption for many Indianhouseholds. By following in the tracks of the automobile industry and makingfinancing the established means of purchase, AC manufacturers will be able toincrease penetration and accelerate market growth. However, simply providing thefinancing options is insufficient, the industry needs to communicate their availabilityand affordability more effectively.1 AIACRA, Kanvic analysis2 RAMA, Francis Kanoi, MarketLine, Businessworld - Marketing Whitebook 2010-11, Kanvic analysis
  8. 8. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketInnovation will also play a central role in spurring industry growth if it focuses onreducing the running cost of AC and increasing its benefits. Advances in technologywill help improve energy efficiency and therefore lower the currently high runningcosts. This is particularly important in India where the traditional air-cooler offers acheaper substitute for households at a time when energy prices are rising.Furthermore, by adding additional functions to air-conditioners like heating,innovation can address the industry’s problem of high seasonality by providing year-round benefits, while keeping the price-performance ratio aligned with customers’expectations.Simpler and more effective communication by AC companies will help customersovercome their current doubts about air-conditioners. At present AC manufacturersrely too heavily on industry jargon and exhaustive lists of technical features in theircustomer communication. This fails to illuminate the real benefits the customer willderive from their product and makes it difficult for them to compare different productofferings.Improving the selling approach will help manufacturers to engage more effectivelywith the customer. In this area there are three major points for improvement:customer education, solution-selling and cross-selling:Firstly, customer education will improve the level of awareness of the benefits of ACand help dispel existing customer concerns. However, customer education must not belimited to sales staff. Any employee who comes into contact with the customer, forexample service staff, must be engaged in this process.Secondly, adopting a solution-selling approach will unveil new ways to engage thecustomer. Rather than focusing on selling a product, companies should diagnose thecustomer’s problem and suggest the appropriate solution. For AC manufacturers thiscould mean conducting home surveys to identify a customer’s air-conditioningrequirements.Thirdly, cross-selling will allow air-conditioners to reach the larger number ofcustomers who have purchased other white goods. Many AC players also manufactureother consumer durables, therefore they can use these existing sales and servicenetworks to identify the need for an AC and recommend a suitable product to thecustomer.To successfully implement all of these strategies AC manufacturers must have astrong understanding of their customer segments. The AC market is becoming moreheterogeneous as new customer segments emerge. Industry players need to be awareof these segments and their specific needs and wants, and they need to tailor their
  9. 9. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketstrategies in financing, innovation, communication and sales accordingly. In additionto the established customer segments of ‘price conscious’ and ‘efficiency seeker’, wehave identified two new segments of ‘aesthetic design’ and ‘health conscious’customers that are beginning to shape the market.
  10. 10. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketThe low penetration of AC in India
  11. 11. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketThe paradigm shift in the room air-conditioningmarketThe Indian air-conditioning market reached Rs. 17,600 crore in 2011-12, rising fromRs. 11,000 crore in 2008-09 at a CAGR of 17%3 . The room air-conditioning marketrepresents approximately 50% of the total market, with the other 50% comprised ofcentral and specialist air-conditioning systems. The room AC market can again bedivided into two sub-segments. On the one hand the residential segment which nowconstitutes a majority 60% market share and on the other hand the commercialsegment which represents a smaller 40%4 (Exhibit 1).3 AIACRA, Kanvic analysis4 Francis Kanoi
  12. 12. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketThe commercial segment consists of retail shops, hospitals, hotels, restaurants,commercial offices and educational institutes, while the residential segment includesthose using air-conditioners for their houses and apartments. The commercialsegment formerly represented the lion’s share of the market for room ACmanufacturers but over the last decade demand has shifted toward the residentialsegment. (Exhibit 2)The faster rate of growth in the residential segment has been propelled by three keygrowth drivers. Firstly, rapid growth in the stock of residential housing in India,particularly the supply of multi-storey apartments and modern homes that hasdramatically increased the exploitable market for room ACs. In urban India around3.85 crore new houses have come up in last 10 years from 2001 to 2011. Secondly,increasing household income has brought a range of consumer durables including ACwithin the reach of more consumers. India’s monthly household income has increasedby 14.7% in 2011 to Rs. 20,555 from Rs. 17,918 in the previous year6. Thirdly a5Housing, Household Amenities and Assets - Census of India6 MarketLine, Kanvic analysis
  13. 13. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketprogressive shift in consumers’ perception of air-conditioners from that of a luxury toa necessity is underway, as consumers become increasingly accustomed to air-conditioned environments at the workplace and in their cars.Meanwhile in the commercial segment the smaller amount of potential space to be airconditioned and the increasing preference for central air-conditioning systems overroom air-conditioners has resulted in a lower growth rate. Thus, the market share ofthe commercial segment halved from roughly 80% to 40% in 15 years, while theresidential segment has trebled from only 20% in 1995-96 to 60% in 20117.7 Francis Kanoi, OEM update, Kanvic analysis
  14. 14. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketA huge market remains largely untappedIn spite of the growing importance of the residential market, the overwhelmingmajority of Indian homes are still untouched by air-conditioning with the overallpenetration rate standing at a mere 3.8% in 2010-11. This situation compares veryunfavourably with the scenario in other developing Asian economies. The penetrationof room air-conditioners is 8% in Indonesia, 50% in Korea, 53% in China, 72% inSingapore and 89% in Taiwan8 (Exhibit 3).8 Euromonitor, RAMA, Francis Kanoi, MarketLine, Kanvic analysis
  15. 15. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketCloser to home, the wider Indian consumer durable sector is one of the country’sfastest growing industries with a CAGR of about 15%. The industry is expected totouch Rs.52,000 crore by 2015 9, fuelled by rising household incomes and increasingurbanisation.However, in spite of this high growth trajectory, the penetration of air-conditioning willstill be significantly lower than the level of penetration other white goods have alreadyachieved today. Presently more than 77% of households in urban India have a TV,33% have refrigerators, 17% have an air cooler and 13% own a washing machine 10(Exhibit 4).Despite fierce competition and a sizeable market turnover in the room AC industry,the fact that 97% of Indian households are still untouched by room air-conditioners -while the adoption of comparable products have surged ahead - indicates thatindustry players need to adapt their strategies to fully realise this opportunity.9 ASSOCHAM “Emerging trends in consumer electronics and durable industry”10 Businessworld - The Marketing Whitebook 2010-11
  16. 16. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketStrategies for accelerating growth
  17. 17. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketStrategies for accelerating growthTo address the low level of room AC penetration in India, industry players shouldadopt comprehensive strategies. Based on our research, we have identified fivepromising axes of improvement (Exhibit 5) for the room air-conditioning industry. Byadopting effective strategies along these lines, the industry can reach out to targetcustomers to influence and strengthen their purchasing desire.
  18. 18. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market1. Develop and communicate easy financing optionsThe average price of an air-conditioner in India is Rs 30,000. This is still substantiallymore than the average monthly household income which currently stands at just Rs20,555 (Exhibit 6). As a result air-conditioners remain unaffordable for a large part ofthe population.
  19. 19. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketFurthermore, the availability of cheaper substitutes like air-coolers renders air-conditioners less attractive for the mass market. The price of an air cooler starts fromas low as Rs. 4,00011, far less than the average price of an air-conditioner. Thepenetration rate of air-coolers reached 17% in 2011 12, pointing out the high priceelasticity in the Indian consumer durables market.Providing easy financing options can help address the issue of affordability. Byeffectively boosting the purchasing power of a vast segment of consumers for whomair-conditioning is currently out of reach, the industry can unleash a wave of untappeddemand. Realising this, most AC companies have recently introduced some easyfinancing options for consumers, offering a specific low interest rate and an easypayment process. For example, some manufacturers break the ticket price down intoeasy monthly instalments (EMI) for credit card holders over a period of 10 to 12months.However, simply introducing such payment options is no longer sufficient. They needto be conveyed to consumers through effective communication mediums. At outletsand in advertising campaigns brands are not effectively communicating the availablefinancing options and consumers often have difficulty in obtaining the relevantinformation.The low level of sales finance is a challenge across the consumer durables sector, withfinancing contributing a mere 5-7% of total revenues 13. By contrast, the automotiveindustry has understood the leverage of financing options and it has quickly offeredthem to customers in order to expand their market. In 2011 around 72%14 (Exhibit 7)of cars purchased in India were bought on credit. Today, the possibility of buying a caron credit is ingrained in the minds of consumers. Air-conditioning players shouldfollow this path, highlighting their financing options in their advertising campaigns toappeal to the large number of consumers for whom the high up-front cost of an AC isa major barrier to adoption.11 Symphony Corporate Presentation12 Businessworld - The Marketing Whitebook, 2010-1113 Press clippings14 Kotak Mahindra Prime
  20. 20. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketIndeed, such financing options can effectively target the burgeoning middle andupper-middle class consumer segments, which represent around 14%15 of the 242million households in India (some 34 million households). These segments have thegrowing desire and increasing means to improve their quality of life. Products like air-conditioners that are designed to provide greater comfort appeal to the emergingaspirations of these consumers and easy financing options will be an effective way toconvert these desires into actions.15 NCAER, India census
  21. 21. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market2. Innovate to reduce costs and satisfy customerneedsUse technology to reduce the running costs of ACFinancing options will reduce the cost of the initial investment for consumers but theoperating costs of air-conditioners are a significant deterrent to purchasing. Manycustomers prefer familiar substitutes like the air-cooler that have substantially loweroperating costs. The energy bill for an air-cooler with its simple fan and water pumpamounts to approximately Rs. 196 per month compared to Rs. 2,610 for an air-conditioner (Exhibit 8). Nonetheless, new technology and innovation have thepotential to allow manufacturers to reduce costs and market affordable products to alarger segment of the population.
  22. 22. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketDue to the high price of energy in India, the operating costs of an AC represent asignificant ‘hidden’ expense for households. To better inform consumers about ACrunning costs, the Bureau of Energy Efficiency (BEE) has introduced a star ratingsystem for air-conditioners, highlighting the efficiency of products in terms of energyconsumption. Regulation and innovation: the star rating system This labelling programme classifies air-conditioners according to their energy consumption. The Bureau of Energy Efficiency (BEE) attributes between one and five stars to products according to their Energy Efficiency Ratio (EER). This star labelling enables consumers to understand the consumption of each product. The five star AC consumes the least energy while the one star consumes the most. According to BEE, a one star air-conditioner consumes roughly 31% more than a five-star product. Mandatory since January 2010, the star rating system influences the purchasing process of consumers who are willing to increase their initial investment in order to reduce their electricity bill. This labelling system also shapes the manufacturers’ strategies as they strive to offer a competitive range of products with high star ratings.Driven by both regulation and market forces manufacturers are developing andmarketing technologies that decrease the consumption of electricity. For instance,inverter technology avoids peaks of electricity consumption and significantly reducesthe running costs of the air-conditioner. But this existing technology is not sufficient tocompete with the energy consumption of the substitute products in India. Thereforemanufacturers should continue to prioritise energy efficiency and integrating newrenewable energy technology (see below) in their research and development.
  23. 23. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market Innovation at a glance: Solar AC Solar powered air-conditioners could represent an efficient solution to reducing AC running costs, especially in India. Most parts of the country have about 250-300 sunny days per year and regions such as Rajasthan are endowed with some of the highest levels of solar radiance in the world. With major shortfalls in power generation and poor grid connectivity, the forecast economic and demographic growth will result in higher electricity prices. As a result international developments in solar AC technology could have great potential for the Indian market. In this regard Ludivine Solar, a French company, markets a hybrid solar air-conditioner named Ultimate Blu Sun. The company claims it cuts electricity costs by 60% during operation, uses a non-polluting refrigerant, and decreases emissions of carbon dioxide by as much as 20 kg per year. Furthermore, in China, solar technology has been applied to produce a fully autonomous AC. Gree Electric Appliances recently developed the world’s first off-grid solar powered air-conditioning unit, running without any emissions or mains power supply.Develop products that deliver convenience to customersOnly a few brands have developed convenient technology with clear and explicitbenefits for the customer. For instance, Onida, an Indian company, has recentlymarketed the first air-conditioner which can be operated from outside the home. Theuser sends an SMS from their phone and the AC gets switched on, ensuring theirhome is cool from the minute they enter. This innovation caters to the real problemscustomers face and provides them with a clear benefit. Manufacturers have to developthis convenience angle further by offering simple to use technology with clearimprovements for the customer. Furthermore, the technology used needs to matchthe expectations of specific customer segments.
  24. 24. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketAddress seasonality concerns through year-round featuresIn addition to regarding air-conditioners as an expensive or luxury purchase, manyconsumers consider AC as a highly seasonal product, pointing out the sizeable initialinvestment for what may be a relatively brief benefit over two or three months of highsummer. India’s diverse climactic regions and the seasonal extremes within theseregions demand adapted technologies to extend the benefits of AC year-round. Byfocusing on their products as an air-conditioning solution rather than a cooling device,manufacturers can change the current perception of the product as a seasonalpurchase and overcome a limiting factor on industry growth.In this vein LG has developed a line of reversible spilt ACs which include a heatingoption. This technology allows consumers to use their air-conditioner during summerand the winter. Other manufacturers have also included a de-humidifier function foruse during the monsoon season. Furthermore increasing health concerns aroundpollution, allergens and airborne bacteria offer yet further opportunities for players toincrease the benefits of their product and diminish the seasonality factor.While year-round functionality offers clear advantages to the customer, manufacturersneed to ensure that their efforts in innovation are equally focused on delivering thesenew products at an acceptable price-performance ratio for the target customers.
  25. 25. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market3. Develop customer-friendly communicationRemove the jargonRoom air-conditioners are now primarily aimed at ordinary consumers rather thanbusinesses, but many manufacturers are still using technical language to explain theirfeatures (Exhibit 9). Indeed the information about AC products is not provided interms of benefits for the consumer but often in technical jargon that isincomprehensible for the larger part of the population.
  26. 26. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketFor instance, one company’s brochure - which is typical for the industry - refers to ‘theMCC option’, the ‘BLDC compressor’ and ‘UTR technology’. None of these terms enablethe consumer to clearly understand the benefits embedded within the product. Plus, ifthe customer decides to seek information directly online or in a brick-and-mortarstore, they will have to compare the available products. However, the complextechnical charts that are habitually used to highlight obscure performance data andtechnical characteristics that make comparison difficult and time consuming.AC manufacturers should assume the perspective of their target customer rather thanthe perspective of their engineering teams to produce informative but jargon-freemarketing material. For example, when referring to the noise level they couldcompare it to everyday products the consumer will be familiar and comfortable with -like a ceiling fan - rather than in decibels.Focus on benefits not featuresManufacturers should market their products keeping in mind the language and theexpectations of their consumers. Consumers do not seek a long list of features butconcrete benefits which bring them solutions to improve their quality of life. Instead ofhighlighting numerous features, AC players should clearly define the benefits theproduct provides for the customer.For instance, grouping a company’s offering of air-conditioners into a few simpleranges according to their main benefits to the customer could considerably simplifythe purchasing process. Currently, it is difficult for a customer to identify the mostsuitable purchase according to their requirements because the range of products arenot clearly defined and communicated to customers. Simplifying the product offeringand aligning each product group with distinct customer segments according to theproducts’ benefits would make the decision-making process significantly easier.
  27. 27. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market4. Improve the selling approachThe selling approach adopted by a company is the cornerstone of its performance. Inthe air-conditioning industry the technicality of the product emphasises the need for aclear strategy in the selling approach. We have identified three points of improvementwhich AC players could work on to unlock the market’s potential. These are: customereducation, solution selling and cross-selling (Exhibit 10).
  28. 28. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketCustomer educationThe technical nature of air-conditioners and their perception as high-cost are the twogreatest factors standing in the way of raising customer awareness about theirbenefits. To deal with this situation customer education appears to be an effectivesolution. By educating customers, the air-conditioning manufacturer helps them gaininsights about how their product better meets customers’ needs and expectations overa competitor’s product or a substitute. Companies can train their own sales staff andthose of their retail partners to educate potential customers about their products andtheir uses. However, other employees who come into contact with the customer - suchas service staff - can also play an important role. Manufacturers should re-educateand re-orientate all their customer facing staff to understand their role in marketingthe brand and its products.In addition to staff training and orientation, providing employees with simple tools canhelp them to diagnose a customer’s problem and provide the best solution. Thesetools can also be targeted directly at the customer. For instance BEE has introduced amobile phone based application called “AC Power Saver” that enables consumers tocalculate energy consumption and savings on their mobile devices. They have alsocreated a dedicated web site – www.SaveEnergy.co.in – with all the necessaryinformation including an energy calculator.Focus on solutions not productsThe days of simple selling are over, in the past decade the selling environment bothglobally and in India has radically shifted. The focus is more on solutions rather thanproducts. In this shifting environment companies should adopt an innovative solution-selling approach to first stimulate consumers’ desire for ACs and then convert it into afinal purchase.For example, sales staff could conduct a home survey before suggesting a newproduct to a customer. They could first visit a customer’s home and conduct an in-depth analysis of the size of the space, the amount of sunlight and other relevantfactors before suggesting the right product. While carrying out this process the salesperson will have the opportunity to engage customers and build their trust in both theproduct and the brand.
  29. 29. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketImplement cross-sellingCross-selling is a powerful and well-established selling approach. It is a proactive,ongoing sales process which seeks to provide customers with a full range of productsand services. Most of the AC manufactures in India also produce other white goods orelectronic items and these products are sold through the same distribution network orby dedicated sales and service teams. Companies can use their existing infrastructureto cross-sell air-conditioners.For instance, a service person for products with higher levels of ownership - likewashing machines or televisions - could identify the necessity for an AC whileservicing or installing these products in the customer’s home. Their knowledge aboutcustomer’s other purchases would also indicate customer’s ability to afford an AC.Based on theses observations they can then suggest a suitable AC product andfinancing option to the homeowner.
  30. 30. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market5. Target new customer segmentsThere is often a mismatch between consumers’ needs and wants and the areas inwhich companies focus their efforts in product development, distribution andmarketing. An organisation cannot create value for customers unless it identifies andsatisfies their needs. In a competitive market, customer segmentation has become acornerstone for successful companies. Those companies that fail to satisfy theircustomers’ needs often do so because they don’t have a clear picture of their targetcustomers. Understanding the customer is equally vital for AC players if they are toincrease the adoption of room air-conditioners.Think beyond large citiesThe presence of air-conditioning companies in India is concentrated in the country’smetros and other large cities. Over the last decade the major players have built astrong distribution network in these locations but have neglected smaller towns whichthey deemed less profitable. With India’s extraordinary level of development thesituation is shifting and companies cannot overlook the tremendous opportunities inthese emerging segments.Indeed, the percentage of households in peri-urban16 areas in each income category isalmost similar to that in urban areas. 57.6 million households in peri-urban India havean income above 3 lakh rupees per annum, making it an attractive target for airconditioner manufacturers. (Exhibit 11).16 Towns with a population less than 1,00,000
  31. 31. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketIncreasing incomes and changing mindsets outside urban India offer air-conditioningplayers a huge opportunity to leverage their current turnover and achieve abreakthrough level of adoption. By focusing on small cities and towns now, players arelikely to catch the next wave of growth and promote their brands in a new anduntapped market. Nonetheless, the specific characteristics of these consumers have tobe completely grasped and the universe of potential customers needs to be accuratelysegmented.The shift from a twofold to a fourfold customer segmentationThe Indian air-conditioning sector is undergoing a shift from a simple twofoldsegmentation of its customers to a more complex fourfold segmentation. Earlier ACmanufacturers were presuming a more homogenous market landscape with only twomajor customer segments - focused on price and running costs. But the air-conditioning market - like many other markets - has become more heterogeneouswith the emergence of new customer profiles. To achieve the next level of industry
  32. 32. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketgrowth companies will have to design their products and services around these newcustomer segments by catering to their exact needs and expectations. This willrequire not only the correct identification of their profile but a deep understanding oftheir behaviour. We have identified the four major customer segments that arecurrently shaping the market (Exhibit 12). However, industry players should be alertto the emergence of new segments as the Indian consumer evolves.
  33. 33. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market1. Price consciousConsumers in this segment are attracted by low prices. Innovation and technologyplay a fundamental role in offering affordable air-conditioners by lowering the cost ofproduction which can then be passed on to the customer through a lower ticket price.Currently, Haier and Onida are among the cheapest brands in the Indian market,focusing their research on providing affordable air-conditioners. Tapping this segmentrequires a strategy towards economies of scale with a focus on obtaining cheapercomponents and materials. However, the competition for this segment has intensifiedwith the arrival of Korean and Chinese players with their global production chains andportfolio of low-priced products.2. Efficiency seekerIn recent years a focus on high energy costs and ecological issues has drivenconsumers toward more energy efficient products. Many companies have introducedair-conditioners endowed with inverter technology that has shorter motor run-timeand therefore consumes less electricity. Although energy efficient products arerelatively more expensive than standard variants, a large number of consumers arechoosing them to reduce long-term costs. The choice of these consumers will beshaped by the published energy consumption of the product and its star-rating labelgiven by the BEE. Alongside clearly displaying the running costs, manufacturerstargeting this group could compare their products with those of less efficient oldermodels to demonstrate the falling running costs to wary consumers.3. Aesthetic designThis segment of consumers is seeking aesthetic and customisable products. Aestheticsplay an increasingly important role in Indians’ choice of products as they becomeincreasingly conscious of interior design. The decorative paint segment for examplehas recorded an 8% average growth rate over the last five years17. With this aesthetictrend, consumers are increasingly choosing air conditioners which suit their homeinteriors. In order to tap this growing segment, manufacturers should offer widerranges of colours and more discrete designs that help the product blend in with theirhome decor. Whirlpool for example has developed an innovative digital tool thatenables the user to recreate their interior online in order to find the model of AC thatmost suits their aesthetic preferences.17 Snapshot of Indian coatings industry 2011, Indian mirror
  34. 34. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning market4. Health sensitiveAnother trend that offers many opportunities for the AC industry is the increasingfocus on health and well-being. Indian consumers are becoming more and moreaware of safeguarding the health of their families and are seeking items which provideconcrete solutions. Hitachi has quickly recognised this trend by introducing the i-Cleansystem. This technology automatically removes the dust accumulated on the AC filterthat would otherwise be disbursed into the room.Along similar lines Samsung markets a range of air-conditioners with «Virus Doctor»technology which eliminates air-floating particles such as bacteria and viruses. This isincreasingly relevant with the recent H1N1 epidemic and the increase in allergy casesdue to increased air pollution. To be credible however, this technology must havecertifications and labels. For example, Samsung is working with academic researchcentres in order to prove the efficiency of its technology. Manufacturers could take thisapproach further by seeking endorsements from panels of doctors and other expertsin respiratory diseases.
  35. 35. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketConclusionIndia’s room air-conditioning market with its current low penetration rate offers hugeopportunities if the industry understand and cater to the shifting needs and wants ofIndian consumers. The penetration of other white goods at comparable prices issubstantially higher, pointing out several shortcomings in the current strategies of themajor AC players.Through working along the five axes of improvement we have highlighted,manufacturers have the opportunity to turn-up growth in the coming years. Betterfinancing options, well-directed innovation, new approaches to selling and moreeffective communication can all be developed and effectively implemented through abetter understanding of established and emerging customer segments.Manufacturers should not rely only on the strategies and customer segments thatwere sufficient to drive growth in the past. As Indian customers become moreheterogeneous, persisting with the old approach runs the risk of neglecting the needsof an ever larger number of consumers, and thus hindering overall industry growth.
  36. 36. TURNING UP THE COOLRealising untapped potential in India’s room air-conditioning marketkanvic.comBangaloreRavindra BeleyurM: +91 94481 46963E: ravi@kanvic.comJaipurDeepak SharmaM: +91 99283 77800E: deepak@kanvic.comLondonBharat VagadiaM: +44 7711 898089E: bharat@kanvic.comCopyright 2012 Kanvic Consulting Private Limited. All rights reserved.

×