LG's Growth Strategies in IndiaThe case discusses the entry and expansion strategies of LG in India and describes the measures taken by the company to emerge as the market leader in the Indian consumer electronics industry. The case describes in detail the marketing mix of LG including its product, distribution, pricing and promotional strategies. It also puts forth the opportunities in the near future for LG and the challenge faced by the company.On September 06, 2005, India's largest consumer electronics and home appliance company - LG Electronics India Private Ltd. (LG), announced that it would invest Rs. 9 billion3 by 2008 to expand its manufacturing plant in Ranjangaon, Pune.

Of the total investment, Rs. 4 billion would be invested in setting up a DVD4 writer manufacturing facility. This facility will be first of its kind in India and the second largest in Asia.

The remaining amount would be used for expanding the Pune plant which produced most of LG's product range (Refer Exhibit I for LG's product range).

According to LG, the plant would start producing DVD writers by mid 2006. The company planned to make India a major export hub of DVD writers to European countries by 2010. By 2008, production of DVD writers was expected to reach 33 million units.

Commenting on the major investment being made in India, Kwang-RO Kim (Kim), Managing Director of LG said, "Prompted by our success in India, we have announced a major expansion at the second production unit at Rajangaon. It will give us an edge over other players in terms of production and subsequent market share."5

After its entry in India in January 1997, LG established its first manufacturing plant in Greater Noida, Uttar Pradesh in 1998 with an investment of Rs. 5 billion. In its first year, LG recorded a turnover of Rs. 1.25 billion, and by 1999, its turnover increased to Rs. 10.56 billion (Refer Table I for LG's turnover between the years 1997 and 2004).Big Plans for India Contd...

By 2001, LG became India's fastest growing electronics, home appliances and computer peripherals company. By the end of 2003, LG emerged as the market leader in consumer electronics and home appliances. Innovative and customer friendly products, along with competitive pricing and vast distribution network enabled LG to become market leader in its business.

To meet the growing demand for its products, LG started its second manufacturing plant in Pune in October 2004 (Refer Table II for LG's market share as of 2004).

By the end of 2004, LG had more than 50 million customers and its turnover was more than Rs. 65 billion. LG started manufacturing GSM6 mobile phones in early 2005 in its Pune plant. In December 2005, LG announced that it would also start producing CDMA7 mobile phones.

The company planned to invest Rs. 1.3 billion into R&D in India by 2010. LG aimed to increase its revenues from US$ 2 billion (approximately) in 2004 to US$ 10 billion by 2010.

According to Francis Xavier, Managing Director, Francis Kanoi Marketing Planning Services8, "LG has taken a share from everyone to be the number one in virtually all the consumer electronics and appliances fields." 9

LG's history dates back to 1947 when Lucky Chemical Industrial Company (LCIC), the first chemical company in South Korea, was established. In 1958, LCIC started Goldstar Company to manufacture consumer durables. Within a year of its inception, Goldstar manufactured Korea's first radio called A 501.

In the 1960s, it started exporting radios to the US and Hong Kong and manufactured Korea's first telephone, refrigerator and black & white television. With the consumer durables business picking-up, LCIC changed its name to Lucky Goldstar.

Since South Korea was a small market, Lucky Goldstar expanded its operations to foreign countries and established its first overseas branch in New York in 1968. In the same year, it manufactured Korea's first air conditioner. By the 1970s, Lucky Goldstar became the first Korean consumer electronics company to get listed on the Korean stock exchange and in 1977 its sales reached 100 billion Won.10...LG's Product Line

Since its initial years in India, LG has focused on bringing out new models regularly in its product range. In its first year of operation in India, LG launched 70 models across a range of products. In 1997, it introduced its Golden Eye Technology TV, which had a light sensitive natural algorithm 'eye.'

The 'eye' responded to the changes in lighting in the room, accordingly and adjusted color sharpness, brightness, contrast, tint and balanced them automatically.

Thus, LG showed that it cared for customers' health through its products. LG's concern for health of customers was its unique selling proposition (USP) in the Indian consumer durables market.

Similarly, LG positioned its refrigerators as the 'preserve nutrition system' refrigerators. In 1998, the company launched air conditioners as Health Air ACs...Computers and Mobile Phones

In September 2002, LG announced that it would launched Linux based PCs named 'My-PC' for the home segment. Industry analysts expressed concern that LG was taking a huge risk by opting for the lesser known Linux operating system. They said that even though Linux was being promoted by bigger companies aggressively, it was relatively less known than Windows in the desktop market...

Distribution

In its initial years in India, LG realized that it was important to have a good distribution network to reach far-flung towns and the semi-urban markets.

To increase brand awareness among consumers, LG sent vans across India covering a distance of 5000 km every month. The company focused on building a strong dealer network.

In the late 1990s, when the trend was to give a credit period of 45 to 90 days to dealers, LG did not offer any such schemes to attract dealers.

It instead asked them to pay in advance for its products. This ensured that the dealers pushed the brand in the market to keep their own cash from being blocked. At the retail and trade level, as the volumes grew faster, LG pushed its dealers towards selling products at lower margins and focusing on quick rotation of stocks...

Questions for Discussions-

1 Study the marketing mix of LG in India.

2Understand the importance of localization of products and studying customer behavior.

Maruti Udyog Limited - The Pricing Dilemma

The case highlights the pricing strategy of Maruti Udyog Limited (MUL), the market leader in the Indian

passenger car industry. MUL has launched various models catering to all market segments at various price

points.The case provides a brief note on the various models of MUL, their prices and their features. It

specifically focuses on the competition between two of MUL's best selling models - the M800 and Alto.MUL

reduced the price difference between these two models positioning them on an almost equal platform, which

resulted in confusion in the minds of consumers and industry analysts.M800 had ruled the passenger car

market as the only car in the entry-level segment in the Indian automobile industry and was now facing the

danger of cannibalization from one of its own family members, Alto. The case highlights the pricing dilemma

faced by MUL and leads to a debate on the right pricing strategy for the company and the future of its

flagship product M800.

The Competition

Since 1985, Maruti Udyog Limited (MUL) has been the market leader in the passenger car industry in India.

Its flagship product - M800 had the distinction of being the largest selling car model in India since its launch

in December 1983.Positioned as people's car, M800 ruled the Indian passenger car market and remained

unchallenged ever since it occupied the top slot, five months after its introduction.In March 2003, MUL sold

20,687 units of M800, the highest ever sales by any single model in a month. It was also the highest sales

since M800 debuted, surpassing its previous monthly high of 18,735 units in August 1999.For the first few

months of 2004, M800 performed well, selling 15,301 units in January, 13,518 units in February and 15,540

in March. But gradually Alto, another MUL product, began eating into M800's share. Alto reported sales of

8,399 units, 8,324 and 9,011 units in January, February and March respectively.

In April, its sales increased to 9,350 units and in May 2004, Alto took over M800's position as the largest

selling car with sale of 10,373 units, slightly over M800's sales of 10,016 units. Analysts felt that Alto had

taken the top spot because of its price reduction in September 2003 by Rs. 23,000 followed by the launch of

the non-AC Alto for Rs. 0.23 mn in the first week of April 2004. On reducing the gap between its bread and

butter model M800 and its compact car Alto, MUL said it had "long term" plans for M800. Commenting on

Alto's pricing strategy, Jagdish Khattar (Khattar), managing director of MUL, said, "The new price positioning

of the Alto would cannibalize existing A1 segment product the M800 which is also considered an old model.

But, the cannibalization will remain within the Maruti family and the bigger numbers will help Maruti

depreciate Alto faster. Net M800 sales may be less but we would be pushing more Alto and the more we sell

the Alto the faster it will depreciate."3 Though industry analysts said this move would boost MUL's profits,

they also expressed their views that MUL's long-term plan might be to discontinue M800 and replace the

entry segment with Alto.

However, Khattar clarified that MUL's pricing strategy was not meant to replace M800 with Alto. He said,

"Now, we have two cars in entry-level. Maruti 800 is still a dream of Indians, how can I replace it?In its efforts

to fulfill the growing demand for personal transport vehicles, the Government of India (GoI) established MUL

in February 1981 through an Act of Parliament. It was incorporated to take over the assets of the erstwhile

Maruti Limited set up in June 1971 and wound up by High Court order in 1978. In October 1982, the GoI

signed a joint venture agreement with Suzuki Motor Corporation (SMC) of Japan.

MUL received technology support from SMC. On the other hand, SMC got support from the Indian

government, which helped it get import clearances for manufacturing equipment and obtain land for its

factory.At the time of its establishment, the objectives of MUL were:

• Modernization of the Indian automobile industry.

• Production of fuel-efficient vehicles to conserve scarce resources.

• Production of large number of motor vehicles, which was necessary for growth.

In an era when owning a car was a distant dream for a vast majority of Indians, MUL rolled out its first car,

the M800. The company labeled it a people's car, with a 796cc 3-cylinder engine that delivered 39.5bhp at

an affordable price of Rs. 65,000. The first vehicle was released for sale in December 1983. Initially, the car

was criticized for its diminutive size, but it proved to be spacious The Product Line

The Indian passenger car market was divided into various segments and sub-segments on the basis of

price, size (i.e. length of the model and its weight) and other factors (including engine capacity). MUL had a

presence in all the segments and sub-segments...

The Pricing Strategy

Due to the fierce competition in the Indian passenger car industry, price emerged as an important factor

affecting the purchasing decisions of customers. Since it had been in the industry for more than two

decades, and as a market leader, MUL adopted aggressive pricing strategies.The company had products at

various price points (Refer Exhibit IV for a comprehensive list of MUL's products, their variants and prices).

In the early 2000s, when the passenger car industry was witnessing stagnation, MUL slashed the prices of

its various models, to revive the industry...

Promotion and Distribution

In the early 2000s, MUL also focused on promotion and distribution to face intense competition. The

company devised various innovative promotional strategies. With interest rates declining from 12% to as low

as 8% in automobile finance, MUL used financing as a major tool to drive up its car sales. The overall

percentage of cars being financed through automobile loans increased from 65% in 1998 to over 85% in

2003...

The Result

By 2004, the competition in the Indian passenger car industry had further intensified. However, MUL

retained its leadership position mainly due to its aggressive pricing strategy. In December 2004, MUL

reported an 18% rise in vehicle sales helped by a sharp increase in exports and rising demand in the

domestic market.Domestic sales increased by 11.4 percent amounting to 37,153 units, while exports jumped

78 percent to 6,675 units. After the price reductions and aggressive promotion, M800 and Alto sold in huge

volumes in India...enough to carry four adults...

Questions for Discussions:-

1• Examine how MUL's aggressive pricing strategy helped the company to retain its leadership position

amidst fierce competition by foreign players in India.

2• Critically analyze the pricing strategy of MUL and determine the rationale of having several product

models at various price points.

3• Arrive at possible solutions for the current pricing dilemma of MUL.

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