LG Marketing Case Study
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Case of LG entering into North American Market with its new model of washing machine
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LG Marketing Case Study
- 1. LG ELECTRONICS INC: NORTH AMERICAN WASHING MACHINE MARKET GROUP D7 AISHWARYA USGAONKAR ALANKRITA MISHRA ANKIT SEN JOSHUA DESOUZA SHUBHAM GHOSH SHOBHINI RAI
- 2. • Entered the North American market with a front-load model TROMM (carried ENERGY STAR label) (2002) • Launched LG Brand (renamed in 1995 from Goldstar) in North America in 2002 • Business Strategy as described by LGE:“fast innovation, fast growth” • Four values underlying LG brand identity: Trust, Innovation, People & Passion • Immediate challenges faced: • American consumer perception of foreign brands • Meeting expectations of American consumers of fit, feel and finish • Building a brand
- 3. STRENGTHS Innovation and Design Forward Invention Product Adaptation Consistently successful in introducing new and innovative products WEAKNESSES Lack of trained salesmen Inability to tap into Sears’ customer base OPPORTUNITIES Targeting high growth segment Patented Steam technology THREATS High level of competition in the front loading machine category Acceptance of Steam Technology
- 4. MAJOR ISSUES • Finalizing Washing Machine’s Design (Front load/Top load, Transparent door/Opaque Door, Front/Top/Rear Control Panel etc.) • Introducing a single model (catering to single segment) or more than one model (catering to different segments) • Introducing one of the two new technological concepts: Washer-Dryer Combination or Steam Technology • Pricing and Marketing of the new model • Budget allocation to marketing communication
- 5. Based on the product, we aim to Segment, Target and Position the product, • Environment Conscious (22%) • Fashion Conscious (29%) • Homemakers (20%) • Convenience & Budget Conscious (24%) SEGMENTATION •Environment Conscious – ensured increased energy and water efficiency •Fashion Conscious – premium, front-loading, transparent door design, stainless steel body providing high aesthetic value. •Homemaker- preferred cleanliness, large capacity & ease of loading and unloading TARGETING • Highly efficient product from a premium brand incorporating a patented and sophisticated steam technology. • High aesthetic value along with high performance POSITIONING
- 6. MARKETING MIX Product Design (One Model): • Capacity: 3.8 cu ft. • Speed: 1200 rpm • Stainless Steel • Top Control Panel (LED) • Noise: Around 60 dB • Technology: Steam & Washer Dryer Combination Retail Channels: • Best Buy • Home Depot • Sears • Regional retailers like P.C. Richards, hhgregg etc. Pricing of the Model: • Willingness to Pay ~$1421. With the patented steam technology price would be around $1400. • Added advantages for consumers (due to ENERGY STAR label) • Rebate of around $100 would add to the margins of the manufacturer • Training sales force (to change consumer perception & build brand value) • In retail outlets with no salesmen, display the product where it is clearly visible. • Providing discounts and specific advertising, especially, in festive seasons. • Sponsorships and promotional events.
- 7. BEST PRACTICES • Understanding Consumer behaviour by conducting Market Research • Aligning with the goals of the company (Strategic Fit) • Consistent and continuous developments in R&D and launching new products every two years keeping in line with the company’s business strategy, “Fast Innovation, Fast Growth.” • Through market research, LG could effectively segment the consumers and position their brand as a ‘premium’ category thereby gaining a 10.8% market share within 3 years. • Product adaptation suiting the needs of the American consumers (especially with TROMM in 2002). • Forward Invention through the launch of innovative products with new technology.
- 8. REFERENCE S • LG Electronics Inc.: Making waves in the North American washing machine market; INSEAD Case Study, Lajos J., Chattopadhyay A., 2007. • http://www.lg.com/ae/images/washing- machines/f1252rd7/gallery/medium01.jpg • http://www.lg.com/nz/images/washing-machines/wd14070sd6/gallery/copy- medium01.jpg • http://www.clipartkid.com/images/613/how-to-ensure-your-washing- machine-smells-as-fresh-as-the-day-it-was-XQ1LNv-clipart.jpg • http://www.conversationalmarketinglabs.com/wp- content/uploads/2012/09/cartoon-lifting.jpg • http://www.daniellopezdo.com/wp-content/uploads/2013/12/Cartoon-Man- Trying-To-Lift-Weights.jpg • https://upload.wikimedia.org/wikipedia/commons/2/29/North_America_satelli
- 10. ANNEXURE -1 Projected Market Share Growth in Washing Machine (in 000’s) Machine 2002 2005 2006 2007 2008 2009 2010 Market Share in 2010 Front Loading Machines 1379 2438 2948 3565 4310 5212 6302 49%CAGR 21% Top Loading Machines 6386 6494 6530 6567 6604 6641 6678 51%CAGR 1% Total 7765 8932 9478 10132 10914 11853 12980
Editor's Notes
- Based at Seoul, South Korea, LG was a part of Lucky Goldstar conglomerate. Founded in 1958, Goldstar Corporation Ltd. Always prided themselves as “Korea’s first”. By 1982, they decided to venture into American electronics market and by 1982, they had set up manufacturing plant and US’s headquarters by 1989. LGE business strategy was “fast innovation, fast growth” and core values included Trust, Innovation, People & Passion. LGE also focussed on faster innovation and had heavily invested in RnD. This enabled them to have faster cycle times and introduce a new and innovative product every 2 years. By 2002, LGE decided to enter the North American washing machine market. North American washing machine market was already filled with major players like Kenmore, Maytag, Whirlpool and various minor players. Although the existing market volume was majorly dominated by the cheaper, top loading machines; this trend was gradually changing. There was a growth of around 21.3% annually in the demand for front-load machines in 2005. LGE, driven by its goals of introducing innovative product and gain market share in the premium category, launched a front-load model named TROMM in 2002. There were several advantages of the product like low power consumption, low water consumption and less noisy (due to incorporation of a patented direct-drive technology). TROMM was a European style, controls on the front face model which basically tried to position LG Brand as sophisticated and premium. This was because, consumers in US perceived Asian brands as low in quality and efficiency. LGE aimed at changing the consumer perception through this move. They also launched different models of the brand at different prices to offer a variety in fit, feel and finish of the product. As a new entrant in the market, faced several challenges: Demands of American consumers in terms of aesthetics and build of the product Building a brand as a premium category brand Entry of European competition in 2003 By 2005, however, LGE’s market share LGE had increased to 10.8%.
- Strengths Innovation and Design The R&D team comprised of a cross function team that contributed to the design Additionally increased focus of R&D through the development of R&D centers in the USA Forward Invention The development of the steam technology which was new to the market and patenting the same Product Adaptation While entering into the USA markets, LGE adapted the product to ensure consumer satisfaction. Through the introduction of a front loading machine called ‘Tromm’ and aligning it to the consumer perception of European technology being superior. Consistently successful in introducing a new washing machine every two years LGE consistently introduced a new machine once every two years and successfully captured increased market share in the front loading machine industry. Weakness Lack of trained salesmen The agreement with Best Buy for the retail of the LGE machines. Best Buy as an organization possessed sales personnel with low skills and training. In addition with the agreement with Home Depot did not have any sales personnel to provide any product information to the prospective customers Absence of product in Sears Sears largely catered to the targeted consumers (premium segment) of LGE. LGE, trying to shift to a premium brand should have aimed to have presence in Sears. However its inability to have presence in Sears was a source of concern. Opportunities Targeting high growth segment LGE, present in the front loading machine category is growing at a CAGR of 21% from 2002 to 2005 while the top loading category had grown at 1% in the same period. LGE’s presence in this high growth category would enable it to receive higher market share. New technology With the introduction of the Steam technology which LGE had patented could revolutionize the washing machine industry. This in turn would result in LGE increasing sales as well as improving the brand image. Threats High level of competition in the front loading machine category Presence of large number of competitors including American companies (GE), European companies (Bosch) and Asian companies (Samsung) in the space. Acceptance of Steam Technology Based on the consumer perception, steam technology had quite a few negative aspects such as potential safety hazards and acceptance by older generation consumers.
- Major Issues that the North American Product Planning (NAPP) faced: Finalizing the design of the washing machine: Front load/Top Load machine: Decision has to be taken whether to design a front loading model, keeping in mind the company’s primary goal of maintaining a premium brand image, or cater to the low priced segment of top loading. (low priced segment, i.e. top loading models were priced only at $299 compared to front loading model were priced around $999 and above) Transparent/Opaque doors: If going along with front load machines, decision has to be taken on whether to go ahead with transparent/opaque doors based on the consumer preferences (referring to the results of the qualitative and quantitative studies conducted on the study group) Front/Top/Rear Control Panel: This decision has to be made after weighing the advantages and disadvantages of the position of the control panel like ease of accessibility, reach of children, complexity of the panel etc. Other factors such as Capacity, RPM, LCD/LED panel must be decided to suit and satisfy consumers’ needs. Based on the consumer feedback, they have to decide whether to go ahead with a single model catering to one specific segment or multiple models for different segments. LGE had perfected and patented the Steam technology by 2005. However, consumer knowledge about the technology was limited and many consumers doubted its safety and efficiency. The other technology that LGE wanted to introduce was a washer-dryer combination in a single machine. There were certain disadvantages cited by the consumers such as decreased capacity of the combination compared to a single unit of the washing machine. LGE’s two primary goals were: Introduce innovative products & become one of the world’s top three electronic firms in the next three years. Keeping in mind the positioning of the brand as a premium category, pricing of the models is important and decision has to be taken how to price the model to be introduced to match the market standards and prices of the competitors. Additionally, since the technology introduced by LGE is going to be a new one, marketing of the product would be imperative to position themselves as the premium category. Another decision was to effectively allocate $40 million for marketing communication
- Segmentation: Based on the market research conducted by LGE, four different segments were identified: The environment conscious whose major preferences were conserving water and energy. The fashion conscious who were young, educated and well-to-do. They valued style and aesthetics of the product (fit, feel and finish) and considered themselves as trend setters. The homemaker segment who were more inclined towards the well-being of the family and were ambitious. Although slightly price-sensitive, they were ready to spend on quality product. Moreover, they were more concerned about the cleaning ability of the machine, safety, ease of operation and capacity. The convenience and budget conscious were the group which were more tech-savvy but were highly price-sensitive. Targeting Environment conscious – Through the introduction a patented steam technology which is more energy efficient and lower water consumption, LG should target this segment with the benefits of the same. Fashion Conscious – LGE’s aesthetic design of the machine would cater to their requirements of a premium product with a good fit feel finish. This would be achieved with the design structure and the features of the washing machine. Homemaker – LG should target this segment as it has incorporated features such as high capacity and good performance that would cater to the requirements of this segment. Positioning LGE always focussed on building a premium brand value among the consumers. In the American market, Asian brands did not appeal well to the consumers, being often perceived as having low quality and efficiency. Through marketing innovative and premium products, LGE aimed at changing the consumer perception about the brand and build brand value.
- The Marketing Mix criteria for the model to be introduced would be: Product: Since LGE strongly believes in maintaining its reputation of introducing a new and innovative product every two years, product design of the new Washing Machine (One flagship model to be introduced) could be as follows: Capacity: 3.8 cu ft. would be within the existing market range Speed: 1200 rpm (at par with market range). Additional benefits would be energy efficiency of the machine and higher rpm than the mean rpm speed of the competitors. Body: Stainless steel to maintain a premium image Control panel: A top panel could be preferred, as LGE Market research had revealed that consumers liked the top panel better than a front one. Also it would appeal to the consumers concerned about children tampering with the panel when placed in the front. Noise: LG had incorporated a patented direct drive technology which was 20% less noisy, due to lesser vibration. This were added advantages as noise levels was around 60 dB, which was lesser compared to most competitors (Except Bosch, which was same as that of LG) who used belt-drive technology. Also the technology was less power consuming. Technology: With a patented technology, we feel LG should go ahead with a model which incorporates the Steam Technology. This is also in line with the primary goals of the company as being innovative in its new products. Price: According to our calculations (Refer to Exhibit 17), for the model having a superior and efficient technology as the steam technology, price of the model should be kept around $1400. This is in line with the ‘willingness to pay’ of the consumers (~$1421, inferred from adding the cost of steam generator and including costs of other features such as 3.8 cu ft., 1200 rpm and stainless steel body). Additionally, LGE products come with a ENERGY STAR label on it, which would enable consumers of certain geographic areas to avail discounts on their utility bills. From a seller’s perspective $100 rebate can be obtained from the government per unit sold. Also since, LGE had manufacturing unit located in Mexico, cost of transportation would be significantly reduced. Place: Having already partnered with Best Buy, Home Depot and regional retailers like P.C. Richards and hhgregg etc, LGE should now plan to partner with Sears. The reason for this move is that Sears is the largest appliance retailer in North America and caters to our target customers (i.e. mid to high). The reason for not choosing to partner with Lowe’s was a slow growth rate and not catering to LGE’s target customers. Promotion: Keeping in mind LGE’s strong goals in achieving a premium brand value, the promotional strategies should be: Training the sales force in the retail outlets about the benefits, efficiency and safety of steam technology. Consumers had misconceptions about the safety of the same and training the salesmen who would be in direct contact with the customers is the first step to bring about that change. In outlets such as Home Depot, where were no salesmen, proper display of the product so that it appeals to the customers should be done in order to promote the new product. Another promotional move would be to provide an additional discounts to the customers, especially in the festive seasons. Also, advertisements could be aimed at specific festive occasions such as Christmas, Halloween, New Year etc. (Incorporating their core values into their advertisements). LG could also promote their brand through sponsorships of soaps and primetime TV shows. It could also conduct promotional events for its products and aim to establish a better brand value through these events. With regards to the budget allocation of $40 million, we will not be able to comment on its allocation due to insufficient information relating to the costs of various promotion related activities, e.g. advertisements, brochures, training of sales staff etc.