voltas growth

Product Strategy & Management – Term 6 Group 5: Project Report

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TATA VOLTAS AIR CONDITIONERS: A ROAD

LESS TRAVELLED


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Date: 13th

February 2013

Contents The Room Air-Conditioning (RAC) Market: Demand Conditions ....................................................................... 4

Background: From Verge of Bankruptcy to Revival ........................................................................................... 5

Restructuring the Old Organization ............................................................................................................... 5

The Voltas Decline in the Room Air-Conditioning (RAC) ............................................................................... 6

The Big Bang Strategy (2001 -2005) .................................................................................................................. 7

New Products ................................................................................................................................................ 7

Brand-Building ............................................................................................................................................... 8

Channel and Service ...................................................................................................................................... 9

Outcome of Big Bang ................................................................................................................................... 11

Rise to the Top (2005-2012) ............................................................................................................................ 11

Megavol: A Grand vision .............................................................................................................................. 12

Competitors – LG & Samsung ...................................................................................................................... 12

The SWIFT Mantra ....................................................................................................................................... 13

The Way Forward ............................................................................................................................................ 14

Concluding ................................................................................................................................................... 16

Learning ........................................................................................................................................................... 16

References ....................................................................................................................................................... 18

Exhibit 1 ........................................................................................................................................................... 19

Exhibit 2 ........................................................................................................................................................... 20

Exhibit 3 ........................................................................................................................................................... 21

Exhibit 4 ........................................................................................................................................................... 22

Exhibit 5 ........................................................................................................................................................... 23

Exhibit 6 ........................................................................................................................................................... 24

Exhibit 7 ........................................................................................................................................................... 25

Exhibit 8 ........................................................................................................................................................... 26

Exhibit 9 ........................................................................................................................................................... 27

Exhibit 10 ......................................................................................................................................................... 28

Exhibit 11 ......................................................................................................................................................... 29

Exhibit 12 ......................................................................................................................................................... 30


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Mr. Sanjay Johri, MD, Tata Voltas Ltd. was a satisfied man as he glanced through the pages of the

Business Standard on 25 October, 2012. The headline of the article, “Voltas pips LG, Samsung in

Domestic AC Market”, was followed by a sub-heading that quite simply read, “Market Leader with

20.6% share in the Air Conditioner segment”1. The two words, “Market Leader” alone gave him a

sense of achievement as he leaned back to reflect on the difficult journey the company had to

traverse from the time it was on the verge of shutting down fifteen years ago (in 1997).

It was in 1997 that the company found itself in the deepest shade of red having mounted a massive

annual loss of INR 168 million2. The primary focus back then was to shed non-performing

businesses, make the company lean and stabilize a few core activities. Three such core activities

were chosen: electromechanical products and services, unitary cooling products and engineering

products & services.

It took eight long years for these three businesses to stabilize and provide a reliable turnover. The

electromechanical products & services division established itself as the biggest in the company

accounting for over 70% of overall revenues. In 2005, Ashok Soni, Johri’s predecessor, took the

brave decision of launching his grand vision Megavol — a business plan that aimed to achieve INR

10,000 Crore turnover with 10 per cent profitability by FY2011.

He knew only too well that the electromechanical products & services division saw only marginal

increases in revenue year on year (Exhibit 1). Clearly, he had to shift focus to other divisions –

particularly the Unitary Cooling Products segment of which Room Air Conditioner products was a

significant part. Achieving the grand Megavol vision meant more than organizational restructuring;

it meant that the company had to come out with really good products that communicated value to

the customer.

Meanwhile, the Koreans had flooded the Air Conditioner market, making it a territory completely

their own. LG, in particular, had established itself as the leading player in the domestic AC market.

If Voltas had to reach the position of market leader in the room air conditioner (RAC) market, it had

to come out with product innovations that could beat the Koreans. Could Voltas make the best use

of its understanding of the Indian weather conditions, being a home-grown firm? But more

importantly, could Voltas convince customers of the relevance of its products?

Sanjay Johri’s mind switched back to the present when he realized that his company had definitely

succeeded in reaching the No. 1 status in the AC market. However, with regard to his grand plan

Megavol, work was still to be done. In FY2012, the revenues of Voltas stood at INR 5,177 Crore

(only half of the target) with a net profit of barely 3%3.

“Yes, Voltas is the Market Leader”, Johri told himself, “and yet, a lot remains to be achieved”. Johri

pondered the bumpy road which the Voltas RAC segment had gone through over the past few years.

1 From the Business Standard article dated 25 Oct, 2012: http://www.business-standard.com/india/news/voltas-pips-

lg-samsung-in-domestic-ac-market/490640/ 2 “Mega Change at Voltas”, January 2010: http://www.tata.com/media/articles/inside.aspx?artid=2y+c9u+HkZo=

3 Voltas Consolidated Financial Results 2011-12:

http://www.voltas.com/media_centre/pdf/voltas_Q4Press24_may_2012.pdf

http://www.business-standard.com/india/news/voltas-pips-lg-samsung-in-domestic-ac-market/490640/

http://www.business-standard.com/india/news/voltas-pips-lg-samsung-in-domestic-ac-market/490640/

http://www.tata.com/media/articles/inside.aspx?artid=2y+c9u+HkZo

http://www.voltas.com/media_centre/pdf/voltas_Q4Press24_may_2012.pdf


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The Room Air-Conditioning (RAC) Market: Demand Conditions

The total RAC market in India is around Rs 9,000 crores. The overwhelming majority of Indian

homes are as yet untouched by air-conditioning. The penetration rate figure for 2010 – 11 was 3.8%

(in Urban India, rural India the figure is estimated at 2%). This is an extremely low figure compared

to other household goods: TV has a 77% penetration, refrigerator 33%, Air coolers 17% and

washing machines can be found in 13% of the urban homes. Compared to other developing

economies in Asia AC penetration rate is also low (Exhibit 2).

The primary reason for this has been the historical problem of affordability, lack of convincing

need and the availability of other alternatives. Though India is a hot tropical country, many parts of

the country see the peak temperatures (higher than 38 deg. C) only for two to three months in the

year. Most homes believe they can get by during these months using the room cooler that runs on

water rather than the expensive air conditioner that also requires more electricity. Hence, the

prospect of paying high amounts to install an air conditioner is augmented by the unwelcome

prospect of operational costs.

Clearly, there are two distinct purchase barriers for the domestic consumer: high initial costs & high

recurring costs. This has resulted in the air conditioner being viewed as a luxury product highly

aspirational in nature.

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 that industry players need to adapt their

strategies to fully realise this opportunity. However, with modernization of workplaces and cities,

Indians are gradually getting used to air conditioners. Statistics of penetration were even more

dismal a decade ago.

This is illustrated by the fact that the residential segment makes up around 60% of the total air

conditioning market in India (Rs 18,000 crores in 2011 – 12). This has steadily risen from 22% in

1995 – 96. The faster growth rate has been due to three primary factors:

The rapid growth in the stock of residential housing in India, particularly the supply of multi-

storey apartments and modern homes has dramatically increased the exploitable market for

room ACs.

Increasing household income has brought a range of consumer durables including AC within the

reach of more consumers.

A progressive shift in consumers’ perception of air-conditioners from that of a luxury to a

necessity is underway, as consumers become increasingly accustomed to air-conditioned

environments at the workplace and in their cars.

The wider Indian consumer durable sector is one of the country’s fastest growing industries with a

CAGR of about 15%. The industry is expected to touch Rs. 52,000 crores by 2020, fuelled by rising

household incomes and increasing urbanisation. The statistics for AC markets for the recent years

are given in Exhibit 3.


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The decline in sales in 2011 was due to pleasant summer and early monsoons – seasonality, a

common factor that affects the sales of air conditioners. A recent report by Nomura in December

2012 notes that AC market is suffering from declining orders and intensifying competition. An

interesting statistic about the Indian market is that the split AC segment's share increased to 55% in

2011 - 12 from 41% in 2006 - 07.

When Voltas hit its historically low trough in 1997, the air conditioner market had potential in

terms of offices and commercial buildings. A decade later, in 2006, the company realized that there

was high potential in domestic markets which can be tapped with the right product at the right

price point. This became the company’s mantra – keep the product costs low and at the same time,

keep the product relevant.

Background: From Verge of Bankruptcy to Revival

Voltas was setup in 1954 in Bombay as a joint venture between M/s Volkart Brothers and Tata Sons

Ltd. This venture took over Volkart’s import and engineering business. Up till 1961, Voltas

marketed imported products and acted as an indenting agent. In 1963, Voltas established its first

factory at Chinchpokli in Bombay to manufacture Air Conditioners and refrigeration equipment. In

1964, Voltas setup a plant in Thane to manufacture compressors, chillers and ancillaries. In 1985,

Voltas setup a compressor and refrigerator manufacturing unit at Warora in Nagpur. Over the years,

Voltas tied up with several global players like US-based Dunham-Bush and Standard Refrigeration

Co, and Japan based Hitachi limited to secure access to new technologies in air-conditioning and

refrigeration.

Until 1990s, Voltas was a major player in Indian refrigerator market. Voltas invested heavily in the

refrigerator business in the 90s to capture more market share in the post-liberalization era, but the

demand for refrigerators fell sharply in 1997, and Voltas suffered serious losses. The company’s

credit ratings fell and banks refused to reschedule and stagger interest payments.

Restructuring the Old Organization In April 1997, a core management team was formed to analyze the viability of each of the

company’s business. Voltas evaluated its various businesses on market size, growth potential, and

strength of the competition. Voltas identified air-conditioning and engineering as its core

competencies.

The refrigeration business was proving to be a drain on the company’s resources and in 2000,

Voltas sold three of its four refrigerator manufacturing facilitates, with the brand rights for Allwyn,

to Electrolux. It also sold off its agro-chemical manufacturing business to Rallis India. It also sold

several of its subsidiaries like premium granites, perfect moulds, Voltas switchgear, and Voltas Air

International.

Voltas grouped its remaining business into three segments:

International operations (primarily electro-mechanical projects & HVAC projects)

Unitary cooling products: room air-conditioners, water coolers, commercial and retail

refrigeration (b2b refrigerators)

Engineering products and services; other services (chemical trading)


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Each business segment was made a profit centre and chief operating officers were appointed for

each.

In 1998, Voltas reduced its workforce by 1500 employees. Over the years it significantly brought

down its employees number and staff costs. To change the old style of functioning and the laid back

attitude of employees, Voltas adopted a more progressive corporate human resources policies

focussing on training and development, rewarding high-performing employees and linking salaries

to performance.

In 2000, Voltas shifted air-conditioner production from its Old Thane Plant, to a more cost effective

facility in Dadra, which offered several advantages like financial concessions and low cost of

labour. The company even closed down offices which were not giving satisfactory results and

changed the old branch network.

This restructuring effort bore fruit and in three years Voltas was back to profits. In 2001, there was

another change in management, with Ashok Soni taking over as MD of the company. Under his

leadership the company identified electro-mechanical business and unitary cooling products

business as future growth engines for the company. The unitary cooling products consisted of

commercial refrigerator business, water cooling business, retail refrigerator, and most importantly

the room air-conditioning business.

The Voltas Decline in the Room Air-Conditioning (RAC) Since its inception in 1954 to the early 1990s Voltas had dominated the Indian AC market with a

market share of close to 40%. The unorganized sector accounted for another 50%. However, in the

early 1990s, the retail AC market was minuscule with most of the AC sales being in the institutional

segment (government & corporate) (refer Exhibit 4). But through the 1990s the scenario changed

drastically. In 1993, the excise duty on ACs was reduced from 110% to 60%, which made the

unorganized sector lose its price advantage. Carrier (the American giant) launched a new range of

new generation ACs, which knocked off Voltas from its leadership position. Between 1993 and

1997, with the entry of the Korean, Japanese and other global giants - LG, Samsung, National,

Electrolux, Whirlpool and so on - Voltas' market eroded further. With their marketing efforts on one

hand and increasing prosperity levels among Indians on other, the retail AC segment started

showing healthy growth. However, amid its restructuring efforts, Voltas failed to capitalize on these

changes.

By 2001, Voltas was reduced to being a marginal player in the retail AC market with a mere 6.8%

market share and 7th

position in the market with 17 players (refer Exhibit 5). Mr K.J. Jawa, VP

Cooling Appliances, said in 2005, “We made the mistake of not taking the retail AC market

seriously. The MNCs had opened up this market and made deeper inroads.” Also market sources

indicated that Voltas was not customer friendly and its products were technologically weak and un-

competitively priced.

This prompted the top management in the Tata Group to serve an ultimatum to Voltas in 2001:

shape up or ship out – enter the top 3 in the AC market or shut down business.


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The Big Bang Strategy (2001 -2005)

Based on the recommendations of the Tata Strategic Management Group (the management

consultancy of the Tata Group), Voltas began an internal regeneration drive. A detailed study was

made on how the market would shape up, the competitors, their offerings, strategies, market spread

- everything related to the Indian AC market. The recommended solution: transform Voltas from

engineering to a marketing company.

To effect that transformation, Voltas planned a Big Bang strategy that spelled out ways to revive

every facet of the company - product, channel, systems, service, costs and brand. While in the old

days, Voltas had earned profits keeping its margins high, the MNCs had changed the rules.

They had unleashed a price war - slashed prices and cut margins - with the result that getting ahead

in the AC market now depended on volume generation. "Volumes became critical for survival,"

said Mr. Java. The key objectives of the "Big Bang" were, therefore, to increase revenues from sales

achievements, and make Voltas the lowest-cost manufacturer. "Economies of scale were critical".

The Big Bang strategy aimed to revitalize every facet of the AC business – product, channel,

system, services, cost and brand. The objective was to increase revenue through higher sales and to

make Voltas the lowest cost manufacturer.

The “Big Bang” strategy thus involved three initiatives – introduction of new products, brand

building and establishment of a widespread service network.

To begin with, Voltas commissioned a consumer survey to understand public perception of the

Voltas brand and Voltas ACs. The survey showed that the Voltas brand was perceived as an old,

out-dated brand. Also, Voltas ACs were perceived to be inferior to MNC products in terms of

technology, aesthetics and price. Essentially, the value of the product was questioned.

New Products

To gain a larger market share, Voltas had to revitalize its product line-up. However, it realized that

it wouldn’t be able to address the drawbacks of its products on its own, owing to time and capital

constraints. So, in June 2001, it entered into a joint venture with Fedders International, a leading

player in the US room AC market with a worldwide presence. The joint venture, called Universal

Comfort Products Private Limited (UCPL), was formed to manufacture a wide range of room air-

conditioners. Voltas transferred its existing manufacturing facility at Dadra to this joint venture,

which was later upgraded with a combined investment of Rs. 400 million.

Fedders provided its expertise in manufacturing, product development, and design to the joint

venture. The R&D inputs came from Fedders’ US and Singapore units. Later the designs were

developed and customized at the joint venture’s facility. The products manufactured through the

joint venture were marketed separately by Voltas and Fedders.

Voltas also gained access to Fedders’ global supplier network through the joint Venture. Owing to

its size and clout, Fedders extracted competitive rates from manufacturers around the world for its

component requirements. The sourcing arrangement with Fedders made Voltas one of the lowest

cost manufacturers’ in India. Dadra being a sales tax-exempt zone, Voltas also saved on taxes.


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The ACs manufactured by the joint venture were marketed by Voltas under the Vertis brand

(Exhibit 6). The brand was launched in October 2001, with a range of energy-saving models at

competitive prices. Vertis was promoted with a massive ad campaign in various media and was

positioned as a value-for-money brand. The low sourcing and production costs served as a major

competitive advantage in this regard.

The launch of Vertis was followed by the re-launch of Voltas’ other sub-brands - Vectra and

Verdant. While Vectra targeted the middle end of the retail segment, priced around Rs. 20,000,

Verdant targeted the premium segment.

Even though Vertis was well-accepted by the market, Voltas realized that the Indian retail AC

market, even with its decent growth rate, could be expanded still further if prices were drastically

reduced. The high initial cost together with heavy recurring costs (electricity charges) deterred most

Indians from buying ACs. The penetration level of ACs was very low in India at that time, less than

0.5%, owing to the low earnings capacity of the population. Also, the Indian retail AC market at

that time had no model catering to the mass market. To expand the retail AC market, Voltas

planned to bring out AC models that would be affordable to the common man.

In 2003, Voltas launched a 0.6 tonne Vertis window AC priced under Rs. 10,000. This range

promised both affordability and low recurring costs (the company claimed that at an average usage

of four hours per day, a 0.6 ton AC would cost less than Rs. 500 per month to operate). The product

was seen as just right for the Indian middle class family, most of which lived in houses and flats

with small rooms. The product was a huge success with sales exceeding expectations. Buoyed by

the success, Voltas launched more products in the same year including a sub-1 ton split AC, and

variants - Vertis Deluxe (mid-priced models) and Vertis Gold (premium models). The introduction

of sub-one ton ACs also increased awareness of the Voltas brand and had a positive impact on the

sales of other Voltas models as well.

Voltas also introduced several products for the institutional AC market in 2003-04. Voltas

aggressively targeted the telecom and banking segments as major banks were setting up ATMs and

telecom shelters were becoming an important point of interface with customers for the telecom

biggies. It introduced a new range of ACs called ‘Venture’ for the corporate segment and

‘Visionaire’ for the government segment. Voltas also entered into a distribution tie-up with Italian

AC major Uniflair, which specialized in the design, production, and supply of precision air

conditioning and cooling solutions for telecom and internet service providers.

Through its focus on revamping product portfolio, Voltas launched 74 new products (including

variants) between 2001 and 2004.

Brand-Building With consumer research indicating that the Voltas brand was perceived as ‘staid’ and ‘outdated’, it

became clear to Voltas’ management that the brand needed an image overhaul. So, while the

company introduced new products, a simultaneous effort was made to revive the brand. For this, the

company embarked on a Rs. 500 million brand-building exercise in 2002, which was to be

implemented over the next three years. This was a considerable increase over its usual ad spends.

For example, it spent only Rs. 80 million on advertising in 2001. (Refer Exhibit 7 for ad spends of

Voltas between 2001 and 2006).


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Voltas’ initial advertising campaign targeted young couples, with the essence of the message being

– “Buy American technology at Chinese prices”. This campaign consisted of two television

commercials, advertisement on radio, and direct marketing initiatives like exhibitions, dealer and

customer meets, and other PR efforts. In 2003, Voltas also advertised extensively through outdoor

media such as hoardings, kiosks, bus shelters, and bus panels. To achieve more visibility, a

promotional force consisting of a few hundred human banners were ‘placed’ at high-traffic areas

like traffic signals, cinema halls, shopping malls, outside high profile residential complexes. To

encourage customers to buy Voltas products in the off-season, innovative promotions like the

Special Voltas Weekend Carnival Offers were introduced in Mumbai in July 2003. The company

also entered into a two year co-branding strategic tie-up with Citibank, HSBC, and Westside

showrooms.

In 2003, Voltas came up with a new advertising tagline - “ACs with IQ”, for the Vertis range of

ACs. This tagline was featured in an ad campaign, which had children endorsing the brand. This

was later extended to the entire range of Voltas ACs. A series of print ads explained what was

‘intelligent’ about the ACs. The ads suggested that Voltas ACs provided 12% to 15% more cooling

because of its efficient compressor and energy-saving features. It also had a timer, air filters, etc.

In 2004, Voltas aimed to further penetrate the mass market, identify demand-supply gaps and

develop indigenous products to fill them. In this direction, it decided to alter its communication

message. The new ad campaign focused on the new Rs. 9,900 Vertis AC.

In April 2004, Voltas unveiled its nationwide marketing campaign - “Ab har koi le sake AC ka

maza” (now everyone can enjoy ACs), for its Vertis ACs. Through this campaign, Voltas

communicated the message that it had broken the price barrier and had made the dream of buying

an AC a reality for every Indian consumer. The new commercial was woven around the slogan

“Aapka aur koi sapna poora ho na ho - AC ka sapna poora ho gaya na” (your other dreams may or

may not be fulfilled, but your dream of owning an AC has been fulfilled, hasn’t it?). With this ad

campaign, Voltas emphasized the fact that its ACs were within the reach of the common man.

Channel and Service Before 2001, Voltas’ retail network had included only exclusive dealers. As part of the Big Bang,

Voltas changed its policy and started working with multiple brand dealers.

Voltas signed MoUs with each dealer, clearly specifying the operational procedures and norms to

be followed, and the division of responsibilities between the dealer and the company. Voltas also

invested in improving dealer infrastructure, manpower training (with certification programs for all

dealers’ employees), sharing the costs of mobile vans, and cooperative advertising with dealers.

Voltas spent about Rs. 10 million in 2002-03 for training and development of its various channel

partners.

Even as it doled out incentives and shared costs with dealers, Voltas raised the bar for dealer

performance. In 2001, 300 of its 650 dealers who were identified as non-performers were given

deadlines to improve their performance. The dealers who failed to conform to the new standards

were replaced.

To increase volumes in the retail segment, Voltas increased the number of its retailers over the

years. In 2002, to widen its retail network, Voltas set up 20 exclusive outlets known as ‘Voltas


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Domes’. By 2003, it increased the number of ‘Voltas Domes’ to 70. Voltas Domes helped increase

overall company sales turnover by 10 to 15% in 2003.

The company also established relationships with architects and interior designers to promote its

range of split and window air conditioners in both the institutional and retail segments. As of 2004,

Voltas sold through 1,400 multi-brand outlets and 450 sales and service dealers, up from 300

dealers and 600 retail outlets in 2001.

In June 2003, Voltas introduced several of its products in the Middle East, SAARC, and African

nations. These products were marketed and sold under the Voltas brand as well as other established

local brands.

Apart from strengthening its distribution network in the Indian and overseas markets, Voltas also

attempted to improve its service network in India. Earlier, Voltas’ service network operated in a

haphazard manner. Spares were generally not available or were too expensive; customer databases

were not maintained properly and follow-up was poor. Moreover, Voltas had to compete with

private repair service centres who generally charged lower rates.

The importance of an efficient service network that could bring in additional revenues was clear to

the top management at Voltas, especially when margins were shrinking because of intense

competition. Knowing that after-sales service also influenced the buying decision for ACs. Voltas

set out to improve its performance in the area. It started offering life-long service through its nation-

wide network of service centres called ‘Crystal Care Service’. Trained engineers, technicians and a

fully computerized network response system supported each centre. Customers were offered

intelligent options from Voltas’ in the form of a wide range of pre-sales and after-sales packages.

Access was also provided to easy finance schemes for customers.

Though Voltas mostly offered customer service through its own service centres, at a few places, it

made the dealers responsible for customer care. This helped it reduce its workforce and cut costs.

Voltas provided the dealers with strict guidelines on interacting with customers and responding to

complaints. Everything was clearly specified - the number of service personnel to be hired, the

servicing kits to be used, the kind and number of spare parts to be stored, the dress code for the

service personnel, etc. Time targets (under four hours in the metros) were also set for responding to

customer calls.

As of 2003, 85% of Voltas’ business came from 16 cities. The company set up call centres to

address customer queries and complaints in these cities. All the major cities had 24-hour call centres

while the smaller cities had 12-hour call centres. The company also framed policies for after sales

service - a complaint would have to be addressed on the very same day the phone at its call centre

should be picked up within 11 seconds of ringing, etc. Voltas also set up a website called to better

serve its customers. This newly developed ability to provide fast and reliable service was also used

in rebuilding the brand. In March 2003, Voltas engaged the services Tata Consultancy Services to

implement a project valued at Rs. 180 million to improve the flexibility and accountability of its

sales and distribution team and improve the accounting processes to reduce working capital

requirements and enhance customer service through a comprehensive, centralized database.


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Outcome of Big Bang

Going by market shares, the ‘Big Bang’ strategy was a success. Within a year of its implementation

the company’s ranking in the retail AC market leapfrogged from No.7 to No.2. Between 2002 and

2006, the company was able to maintain its position in the market (Refer Exhibit 7).

In 2005, Voltas continued to make inroads into the retail AC market even. In 2005, when industry

grew by 22%, Voltas grew 50%. The market leader LG Electronics India lost 2% market share. In

2005, Voltas had a market share of 16%, LG Electronics 33%, Samsung India 13%, while Carrier,

Hitachi and others shared the balance.

“Big Bang” resulted in one important problem for the company: on one hand, Voltas was gaining

share in the RAC market and yet, its RAC business was not profitable. This can be seen in Exhibit

8. The company needed a fresh thrust now to propel itself forward. In its quest for No. 1, Voltas had

to guard its profitability.

Rise to the Top (2005-2012)

Mr. Pradeep Bakshi, Executive VP & COO of the Unitary Cooling Products at Business, points to

2006 as the critical year in the path to the No. 1 position4. The company initiated multiple moves in

operations, branding, distribution as well as product portfolio to differentiate itself from

competitors.

On the manufacturing front, Voltas built a new plant in Uttarakhand at an investment of Rs. 1.20

billion, to manufacture central air-conditioners, commercial refrigerators, and room air-

conditioners. The joint venture facility at Dadra was shifted to the new AC unit, as the tax benefits

offered at Dadra had been withdrawn by the local government. Also, Uttaranchal being excise-free,

Voltas was expected to save 5-6 % in manufacturing costs.

On the distribution front, the company carried out a meticulous market mapping exercise in AC

distribution resulting in extensive nationwide coverage. In the years from 2006-11, the retail

footprint of Voltas has grown significantly in the past 4-5 years, from over 1000 consumer touch

points to more than 5800 today.

As part of its renewed thrust on marketing, Voltas launched a new aggressive ad campaign in

March 2006 with the tag line - “India Ka Dil, India Ka AC, Korea Ka Nahin” (“India’s heart,

India’s AC, not Korea’s”). The campaign suggested that Voltas was an Indian AC manufacturer and

not a Korean one, taking direct aim at its main competitors LG and Samsung - both Korean

multinationals. Pradeep Bakshi described this campaign as “pride in being and buying Indian,

giving the brand an identity to which the emerging AC market in India could easily relate”

Voltas pioneered the concept of energy-efficiency in air conditioners, later an industry norm. This

paid dividends in terms of sales. This was followed by a more tangible hook of ‘energy efficiency’.

The “Save karo India” campaign highlighted the brand's premium offering of star-rated ACs and

low operating costs.

4 “Keeping the Nation Cool”, Jul 2012, http://www.tata.com/article.aspx?artid=aLZ1Syd3dFs=

http://www.tata.com/article.aspx?artid=aLZ1Syd3dFs


12

The company then shifted its positioning to “sensible cooling” – a transition to ‘responsible usage’

when savings and energy-efficiency became an industry-wide platform in the late 2000s.

The recent 2012 summer campaign of an ‘all-weather AC’ was introduced after extensive research

revealed that consumers across the country wanted their ACs to do much more than mere cooling.

In response, Voltas introduced the unique concept of climate control, combining it with the brand’s

established strength of being trustworthy. The campaign injected novelty into a somewhat

predictable category, and Voltas seized not only market share, but also consumer mind-share, with

over 90 percent brand recall. (Exhibit 9)

The fact that Voltas is primarily a single-product company in consumer durables while others are

multi-product implies that the recall value of other brands might be higher. However, Voltas hopes

to use superior technology as its own way of differentiating itself and capturing customer

mindshare. The company launched an innovative ad campaign with the aim of enhancing customer

recall about the All-Weather A.C. concept. It now aims to make weather conditions irrelevant in the

customer’s purchase decision for air conditioners. This would be a huge step that can eliminate the

factor of seasonality in the air conditioner market.

Megavol: A Grand vision The company also embarked upon an ambitious programme, Megavol

5, setting itself a target of Rs

100 billion turnover by 2010-11, including inorganic acquisitions, with a 10 per cent profit margin.

In November 2005, with a turnover of Rs14.41 billion, these were definitely aggressive targets, but

the top management was clear that only an aspirational goal could galvanise the employees and

change the mindset of the nineties.

Unlike other Tata companies, though, Voltas did not carry out any large international acquisitions,

and hence a shortfall in turnover against its ambitious target is likely: Rs30 billion was to have

come in 2010-11 from such acquired businesses. This could perhaps be a blessing in disguise today,

given that the acquisition would probably have been in the Middle East, a region which faced a

fairly severe downturn in the recent global turmoil.

However, Voltas is on track with their organic growth. They closed 2009-10 with revenues of over

Rs. 5000 crore and Profit before Tax of Rs. 500 crore. Effectively, Megavol allowed the company

to break out of its cycle of low profitability. Interestingly, the unitary cooling products division has

shown increase in its percentage contribution to overall revenues at Voltas, going up from 22% to

35% in a period of two years. This has turned out to be extremely important as the other divisions

have marginal Y-o-Y growth.

Competitors – LG & Samsung LG captured the Indian air conditioner market through a three-pronged strategy: technology,

distribution & price. Not only was LG priced competitively, it also carried strong associations of

technical superiority and made a strong push into the market through its distribution channel. The

fact that it had been present in multiple products helped its brand recall and its marketing campaigns

also brought forth the product’s technical superiority as well as greater customer acceptance.

5 “Good to Great”, March 2008, http://www.tata.com/media/articles/inside.aspx?artid=LW4CPzChORU=

http://www.tata.com/media/articles/inside.aspx?artid=LW4CPzChORU


13

Samsung also made an entry on the same grounds and together, these Korean brands dominated the

air conditioner market.

However, in recent times, they have seen strong resistance from Japanese brands. In 2011, LG and

Samsung together lost almost 5% of market share between January and May. It was the Japanese

air-conditioner makers Daikin, Hitachi and Panasonic who ate into the market share of Korean

firms, thanks to aggressive pricing and launch of entry-level ACs. The Japanese firms increased

their share to 11% from just over 9% during the period

Daikin and Hitachi launched low priced models to cut the price gap with the Korean brands to 10-

15% from about 50% a year ago, and supported it with high-decibel marketing initiatives. Daikin

launched 14 AC models this year with a starting price of Rs 26,000.

LG was the market leader in 2011 but lost the rank last year as it shifted focus to production rather

than sales and distribution, its strong points. According to LG’s business head for ACs, LG’s

market share dropped since it is focussing more on high-energy efficient products and not on high

volume window ACs.

Samsung retained its third slot in room ACs but its market share has plunged from 14.5% in July

2011 to 10% in May 2012. The drop was a result of it vacating the window AC segment this year.

These competitors represent a threat to Voltas especially because they compete on claims of

superior technology as well as strong marketing campaigns that communicate the same. If Voltas is

to protect itself against these foreign players, it would have to continue its product focus.

The SWIFT Mantra As he looks ahead to what the company needs to do, Sanjay Johri cannot help but recall the SWIFT

Mantra6 (Exhibit 10). This was formed in 2006 with the aim of guiding Voltas toward its vision of

achieving the INR 10,000 crore Megavol objectives:

Smart Thinking: This calls for critical insights into customer behaviour through relevant

research. This was instrumental in the company identifying in 2006 that many consumers might

be willing to pay a premium to buy energy-saving air conditioners.

Winning Attitude: This has been a guiding mantra in the company’s recruitment policies as well

as decision-making with regard to introduction of products

Innovation & Initiative: The unitary air conditioning business too, in its own way, has innovated

within an old product category, by creating a new value proposition and driving it forcefully in

the market. This is demonstrated in the Rogers’ model analysis in Exhibit 11

Flexibility: In 2001, multinational competitors were sourcing cheaper air conditioners from

suppliers across the world and Voltas was out-priced. Instead of manufacturing everything,

Voltas then changed its sourcing model significantly. Voltas then developed a new make-

versus-buy model for selectively sourcing raw materials, components and even full products

from different vendors, including reputable partners in China

Teamwork: Voltas remembers what cost it in the past and is cautious of developing a

bureaucratic mindset with individuals taking precedence.

6 “Re-engineering Voltas”, October 2010, http://www.tata.com/media/articles/inside.aspx?artid=cBA/oKjGKgo=

http://www.tata.com/media/articles/inside.aspx?artid=cBA/oKjGKgo


14

Voltas has steadily enhanced realisations from its product portfolio (as illustrated in Exhibit 12).

The sales of split A.C have been focused upon primarily due to the higher per unit realisation from

the product range. Incidentally, the premium market has also focused upon this product range thus

implying a correspondence between consumer demand and the company’s own strategy.

Clearly, Voltas has transitioned from a company that fought for survival to one that is now battling

to keep its recently earned market domination – all in the space of 15 years. Sanjay Johri knows that

the burden of legacy he carries from Ashok Soni is simply humongous. After all, Ashok Soni was

much praised for his leadership and was nominated by Forbes and Business World as one of India’s

Top 20 business leaders.

Today, there are clear opportunities that Voltas would need to capitalize on:

Increasing presence of Nuclear Families in urban areas and consequent housing demand

Expand its leadership position to South & West India. It currently dominates the Northern &

Eastern parts of the country and still remains to surmount the Koreans in other regions

Promoting low life-cycle costs of Voltas A.C. & benefits of its ‘star’ product range

Bringing in Easy Finance options

Maintaining customer mind-share through its “all-weather” concept – something that other

multi-product sellers (such as LG, Samsung) have not been able to reproduce – thus bringing in

the idea of being a specialized single-product player

The Way Forward

Apart from the more obvious product ideas which can be ascertained through market research,

Sanjay Johri & Pradeep Soni can look at following process to realize the full product potential and

retain a dominant position in this highly competitive market:

1. Financing of AC purchase and lifecycle cost: The average yearly household income in India is Rs

20,000. As compared to this an average AC can cost Rs 30,000. This trend is consistently on its

way up due to inflation. Providing easy financing options can help address the issue of affordability.

In the consumer durables industry financing contributes about 5% of total revenue. In contrast

around 72% of cars are bought on credit. Air-conditioning players should highlight the financing

options in their advertising campaigns to appeal to the large number of consumers for whom the

high up-front cost of an AC is a major barrier to adoption. Voltas having the Tata lineage can create

products in conjunction with Tata Capital such as buy now, pay later. While this is a high risk

strategy due to possibility of loan defaults and low value of the AC as a collateral (unlike a car), the

advantages of having the first mover advantage and possibility to earn through interest is something

which Voltas can bet on.

The operating costs of ACs are significantly higher than other cooling options (like a cooler). The

BEE rating indicates to end user the amount of potential saving from the number of stars given to

the unit. These ratings are frequently revised and the challenge is to be ahead of the market in terms

of cost saving features which form an important marketing tool.


15

2. Improved Selling: Given that the AC market is dominated by cut throat competition a further

scope of differentiation lies in the realm of sales. Companies like Asian Paints have transformed

what is essentially a B2B product into a consumer product by offering a colour consultancy for the

painting process. Selecting the right air conditioner for the home requires a proper assessment of

room sizes, window size and sunlight direction. Voltas can look at creating a team of experts who

can help home owners make the right decision. By educating customers, this would also help them

gain insights about how their product better meets customers’ needs and expectations over a

competitor’s product or a substitute.

Voltas can innovate in producing informative but jargon-free marketing material. For example,

when referring to the noise level they could compare it to everyday products the consumer will be

familiar and comfortable with - like a ceiling fan - rather than in decibels.

3. Innovative Marketing: In a fragmented market, Voltas had created campaigns such as the one

focusing on the Indian nature of product which is not the most effective strategy. Voltas can use

instead use techniques such as morphological analysis for campaign creation and marketing

methods. This involves listing of issues to a problem and then within each of these issues considers

an array of alternatives to be considered. One can develop new ideas combining different alternative

cross the column of issues, taking something from the first column and then from the second and so

on. An example:

Information

Transmission Medium

Source of Information Purpose Cost/ Budget

Online – Mass sources,

like website

Opinion Leaders Providing detailed

information

Minimal

Online – Peer to peer Celebrity Generating curiosity Substantial funds

available

TV Co-Workers

Radio Transactional

Relations*

Newspapers &

Magazines

Family Members

Talks/ Seminars Friends

Personal

Communication

Experts

*Transactional Relations imply shopkeepers, bus conductors, taxi drivers etc.

An innovative method to drive curiousity could be to incentivise sellers of white goods to talk about

Voltas products when customers are purchasing other products.

In the current scenario, renting could be an option and a new business model for Voltas. The

analysis of viability of this revolutionary method is beyond the scope of our study.

4. The Rural Market: This segment is often ignored due to the fact that rural markets often suffer

from poor electricity supply and lower purchasing power. The only way out here would be to tie up

with some existing Tata group companies like Tata Chemicals (which sell directly to farmers),

create low cost strictly functional products and build in electronics which automatically adjusts for

poor electricity quality.


16

Concluding

Voltas has to keep abreast with market trends. Over the years, window ACs have significantly lost

market share to split mainly due to the decreasing price difference between the two and also

because of the aesthetic look and high energy efficiency of split AC. There is fear among

consumers over the safety aspect of fixing the window ACs which provides easy access point for

burglary.

A challenge for Voltas is to maintain margins in a production environment where costs are

incessantly rising. Being a market leader has come at a heavy cost. After improving since FY07 and

reaching a peak of 10.6 per cent in FY10, the profit before interest and tax (PBIT) margin of the

UCP division slipped to 8.5 per cent in FY12 and further down to 8.2 per cent in the first half of

FY13, despite 14-15 per cent price hikes in the March 2012 quarter and 5 per cent in the June 2012

quarter. The Bureau of Energy Efficiency has consistently revised its norms and cost of components

for energy efficient ACs are much higher. A significant amount of AC components are imported

and with the rupee depreciation in recent years as well as increase in cost of copper and tin,

seasonal price hikes are common. Interestingly, Japanese companies are able to offer competitive

price because they import AC as CBUs (completely built units) from countries like Thailand with

which India has an FTA (Free Trade Agreement). As the pact does not include sourcing of

components hence companies that import components do not get any benefit in such scenario.

Finally, continuous product innovation is a given for any player in this sector. Voltas itself has been

a leader in such products as the all weather ACs. As such Voltas has to continue to combine

features into its ACs, making intelligent products of the future. In the future intelligent products

which can be operated remotely, products which improve the overall air quality at homes and

energy efficient products, products which are not constrained by sudden power-cuts due to inbuilt

batteries etc. will be introduced.

Case Study Concluded

Learning There are quite a few important lessons with regard to product strategy and maximizing customer

value from Tata Voltas:

Customer Focus: Voltas conducted rigorous research to judge what is it that the customer is

willing to pay for. When they positioned the air-conditioners as energy efficient, they ended up

setting a market convention that other companies had to adopt

Importance of Product Concept: Every time Voltas developed a new product, they started out

with a clear concept in mind – be it the sub-1 ton Vertis or the latest all-weather A.C. There has

been a definite purpose behind launch of product aimed at a pre-determined target market

Opportunity to add customer value by tightening costs: Voltas did not hesitate to partner with

Fedders at a critical juncture when they needed to rein in their costs and make the supply chain

efficient. This went against their entire culture and thought processes till then which had relied

upon in-house manufacture. However, tough times call for tough measures and this is exactly

what Voltas did

Set Ambitious targets: Voltas has used ambitious targets as a motivating force that convinces

people in the organization to put in their best efforts. For a company that was perceived as


17

outdated and backward in technology, Voltas made valuable progress by turning around the

thinking in the organization.

Product Leadership may not translate to margin leadership: Despite gaining market share,

Voltas ACs have never really been money spinners. The sector is fragmented and as such most

of the competitors seek to drive down costs despite being in an inflationary scenario.

Evolving Brand Strategies: Unlike FMCG products, ACs come up with a new campaign every

season. Voltas first established an image of an innovative product in 2003 via the ACs with IQ

campaign. It was important to communicate to the market that Voltas was no longer a laggard to

the MNCs and that it was ready to take the market head on. After establishing product image, it

next moved onto penetration through its Vertis AC ads where it communicated that ACs were

now within reach of everyone. From 2006 onwards Voltas tried to put in pride into the buying

of a product that was showcased as Indian. With the increasing market shift on savings, Voltas

moved onto sensible cooling and savings. In 2012 when Voltas came out with its blockbuster

all-weather AC product it came out with a set of ads showing a South Indian employee being

frequently transferred across India but easily settling down thanks to the all weather capabilities

of the Voltas AC. Thus for each product line depending on segment and seasonal trends, the

branding has to be revamped frequently.


18

References 1. How Voltas turned around successfully, Amit Ranjan Rai, April 05, 2006, www.rediff com

2. Marketers all out to get that AC in to your house, April 14, 2004, www.magindia.com

3. Voltas surges on fundamentals strength, Deeptha Rajkumar, November 07, 2003,

www.blonnet.com

4. Voltas — engineered growth through globalization, August 30, 2003, www.wav2wealth.com

5. Voltas’ big bang theory, Neha Kaushik, August 07, 2003, www.blonnet.com

6. Born-Again stars, Vishal Chhabria, May 15, 2003, www.outlookmoney.com

7. Voltas mantra: You name it, we cool it, Julie Singh, February 12, 2002, www.domain-b.com.

8. Steamy India discovers joys of air conditioning, Shailendra Bhatnagar, October 17, 2002,

www.planetark. com

9. No time to chill out, April 29, 2002, www.eprodz.com

10. Organized segment increases share in AC’ market, Ramnath Subbu, April 02, 2001, www .

thehinduonnet.com

11. Cool off while it blazes outdoors, Upasana Pande, March 27, 2001, www.indianexpress.com

12. Shishir Prasad and T. Surendar. Becoming Bechtel? September 27. 1999.

13. Finally, Voltas is rationalizing, Kiron Kasbekar, March 04, 1999, www.domain-b.com

14. www.voltas.com

15. www.tata.com

16. Turning Up the Cool - Realising Untapped Potential in India’s Room Air-Conditioning Market,

Study Report by the Kanvic Consulting Firm

17. CRISIL Research

18. Voltas Annual Reports – 2008-09 to 2011-12

http://www.rediff/

http://www.magindia.com/

http://www.blonnet.com/

http://www.wav2wealth.com/

http://www.blonnet.com/

http://www.outlookmoney.com/

http://www.domain-b.com/

http://www.planetark/

http://www.eprodz.com/

http://www.indianexpress.com/

http://www.domain-b.com/

http://www.voltas.com/

http://www.tata.com/


19

Exhibit 1

The Unitary Cooling segment has been the fastest growing of all of Voltas’ segments. The Unitary

Products Business Group (UPBG) deals with ACs , commercial refrigeration and water coolers and

dispensers. The AC sales of Voltas in 2011 – 12 were around Rs 1200 crores.

Electro-mech Engg. Services Unitary Cooling

2008-09 2539 542 912

2009-10 2762 468 1312

2010-11 2776 564 1797

2011-12 2957 412 1794

2539

542

912

2762

468

1312

2776

564

1797

2957

412

1794

0

500

1000

1500

2000

2500

3000

3500

Segm

en

t R

eve

nu

es

(IN

R C

rore

)

Contribution of Voltas business segments


20

Exhibit 2

89

72

53 50

8 3.8

Taiwan Singapore China Korea Indonesia India

Household Penetration of ACs, percent


21

Exhibit 3


22

Exhibit 4


23

Exhibit 5


24

Exhibit 6


25

Exhibit 7

Year Ad Spend

(in million Rs.)

Market Share Rank

2001 80 6.80% 7

2002 200 9.70% 2

2003 180 11% 2

2004 170 12% 2

2005 170 16% 2

2006 200 20% 2


26

Exhibit 8

Segmental Profit of Voltas(in million Rs.)

Electro-Mechanical Projects and Services

Engineering Agency and Services

Unitary Cooling Products

Others Total

31-03-2002 412 158.7 28.3 40.8 639.8

31-03-2003 313.7 215.9 -12.5 77.3 594.4

31-03-2004 206.4 274.7 60.2 52.9 594.2

31-03-2005 519.7 409.6 -70.9 54.5 912.9

31-03-2006 694.9 697.7 -10.2 118.1 1500.5


27

Exhibit 9


28

Exhibit 10


29

Exhibit 11

Rogers’ framework for new products as applied to Vertis line of Air Conditioners

Relative Advantage

•Lower initial costs (less than Rs. 10,000)

• Lower recurring costs (Monthly costs<Rs. 500)

Compatibility

• Technology in line with market expectations

• Many star-rated products from Voltas

Complexity

• Model simple to operate - focus on energy efficiency

Divisibility

• Low risk of trial - guaranteed performance

Communicability

• The benefits are well-communicated

•Relevant benefit chosen


30

Exhibit 12

Exhibit 9

voltas growth

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