66 )..vaOl SS3N Isno llOf Of . 1 , 1{1'"~j(I,)S

(-lOS

sd!I!4d AOfUS lSYl

CASE STUDY Philips

t

In April 2010, such as Samsung and LG started eat­when Philips ing into the market share of older Electronics India Ltd players such as OnidCl, Videocon and

announced its plan to Philips. Philips decided lo stick to its ou tsource its TV busi­ usual strategy: relying on technology ness to Videocon rather than strengthening distribu­

Industries, the decision lion and marketing. It didn't WcUlt to came as no surprise. compete \"lith the Koreans on pricing,

The five-year pact, un­ and thought the superior technology der which Videocon is handling Philips ' s TV manufacturing, distribu­

tion and sales in India. is ~

aimed at restoring the prof­itability or the TV busi­

ness. Philips was once a dominant player in the seg­ment, with a market

share of around 15 per cent in the early 1990s. but business eroded as Korean and Indian brands grabbed market share. As volumes fell. the The downfall of Philips's company struggled to run its TV fac­ consumer business ­tory in Pune emciently. It took the especially TV - beganthird-party route to manufClcture in late 1990s CRTs and imported LCO screens, but

111 ,1111 111 11111 11111111 11 1111 1111111 1 111111111 11 1111 1111 11 1111this didn't help. Then the compClny licensed the unit to Videocon.

Through the arrangement, of its products, be it picture or sound Philips will get royalty income based quality, would stand out. "We took a on turnover. Videocon's economies conscious decision not to cut prices," of scale in manufacluring and its says Kris Ramachandran. former CEO strong distribution network will help of Philips Electronics India. the Philips brand reach more outlets In no t'ime, the strategy nopped. and reduce the cost per unit. The slow-moving Philips couldn't

The downrClIl of Philips's con­ sustain its top position and its mar ­sumer business - especially TV - be­ kel share fell to some 3.5 per cent by gan in late 1990s. The reasons were 1999. Arter losing its relevance in beyond the control of the manage­ the consumer business, Philips did ment. The entry of Korean chaebols take some steps to address the situa-

1'HE PROBLEM The company's brand image

LOW-VOLTAGE has declined over the years, and has very little recall valueBRAND among youth

100 BUSINESS TOUI\ Y Sepl'·IIII,,·/' 30 2012

tion. In early 2000, it roped in PwC to revClmp its consumer products portlolio. set up new processes and overhaul the supply chain. After this, it launched a new range of CRT TVs under the brand name EyeQ. "The idea was to Indianise products to suit local t'astes," says Rajeev KClrwal, who headed Philips's con­sumer electronics division in 1999.

The new sets had 300 channels, as opposed to 60 channels in older ones. High-end plasma TVs were also­inlroduced. "The earlier TVs were more suited for Europeans, who like subtle colours. Indians, on the other hnnd, have a fondness for saturation and bright colours. The later versions of our TVs focllsed on targeting this issue," says S. Venkataramani , Non­Executive Director. Philips India.

"Philips was strong in innova­tion, but lacked aggressive market­ing," says Karwal. "When I joined Philips, I brought in fresh blood to challenge internal systems. A coun­try like India requires go-to-market strategies. We tied up with dealers and proved that the technologies of our Korean cOllnterparts are no su­perior to ours."

Philips also rejigged its skills port­folio. Its workforce went from more than 11.000 in the early 1990s to around 3,500 by 2005. From six le­gal enlities, it became one legal entily. "The focus was on reshaping the company to ensure sustainable, prof­itable growth," says Ram,]chandran.

!\ 2001 survey by ad agency JWT further helped Philips improve its

'rIm CAUSE Despite its technological strengths, the company failed to market its products well, which hurt its brand perception

- - -- --------­

brand image. Although the brand was iconic in India for several decades with customers associating the tran­sistor radio and incandescent bulbs with the Philips name. the survey found that people did not associate the brand with high-end technology. So from 2001 on. mostofPhilips's ad campaigns emphasised the advanced features of its products. Gradually. the company reclaimed some lost ground. The TV marlcet share went up to eight per cent in 2002.

Although Philips sustained its TV market share at around six per cent in the following years. it lost the way when it shlfted locus from TVs to low­margin products such as DVD players. MP3 players and headphones.

When the consumer electronics and appliances market exploded - il went from ~20.000 crore in 2005 to ~33 . 000 crore in 2010 - Philips's revenues from the consumer busi­ness declined -It"om nearly U.091 crore in 2005 to ~659 crore in 2010. The revenue mix got overhauled.•. From over 42 per cent of turnover in 2005. the consumer business fell to some 28 per centin 2010.

According to some senior execu­lives. this was partly because the CRT division was given less importance at a time when the CRT market was growing in India. "Since the parent company exited the CRT induslTY in 2006. the Indian arm. too. showed little interest in the business. and it affected growth momenlum." says A.DA Ratnam. President of Philips India's consumer lifestyle division.

~--

Philips is Ilrst a technology company and then a market­ing company. The reverse is true of Sam sung and LG

(though they enormously improved their products in the last decade). Philips should emulate the marketing aggres­siveness of the Korean majors. Here's how. The one thing that sets the Koreans apart from not just Philips but all other competitors is their speed of execution. Even tried and tested players like Nokia are not able to take the heat. The Korean majors brought their best products globally with lit­tle or no time lag to India. They managed to put up manu­facturing plants in record time. They showcased their good products through savvy marketing ("Golden Eye" TV and umbrella "health" branding by LG). They recruited dealers at an astonishing pace in the early years. In the 1990s, it was Video con that headed the table for dealer promotions. In the new millennium, the Korean duo launched a promo­tion broadside that left little to chance. It touched all stake­holders - dealers, customers and even shop boys. All these are object lessons in marketing for competitors like Philips. Besides, there is a certain law of gravity in electronic hard­ware. Prices of electric goods always fall, be they laptops, VCRs, audio gadgets or mobiles. A company that doesn't prepare itself for constant product upgrades and a simulta­neous price squeeze will fall by the wayside. The Koreans excelled at this balancing act to lead the charts.

That said, all is not lost for Philips. At one point of time it was the benchmark of innovation in audio. Also, inspired leadership intermittently did boost market share in categories like DVD players for them. There are also bright spots like the lighting business and the acquisition ofPreethi. Though a multinational. Philips is seen as a home-grown brand like Bata, Surf' or Lifebuoy. Strangely, they never quite leveraged this strength. Thus the mantra for Philips' rejuvenation is more relevant products, better price points, aggressive mar­keting and the will to fight. Maybe we can encapsulate the Philips story in just one line: past imperfect, future tense.

"The mantra for Philips's rejuvenation is more

relevant products, better price points,and

the will to fight" Y.L.R. MOORTHI.

Professor (Marketing), 11M Bangalore

SqJ/(',,,h('/' 30 2Ul2 BUSINESS TODAY 101

.,

CASE STUDY Philips

A s a brand, Philips was very strong in India till the end of 1990s. A 1997 survey showed that brand awareness

was higher for Philips than Coca-Cola. Today, the Philips brand has little significance among youth - the most important market. Its brand dilution happened globally, at a diJIerenl pace in diJIerent regions. Although it started as a lighting company, consumer electronics became its face. It was R&D, not marketing, that gave the brand its slTength. Inventions such as the cassette tape, CD and 100Hz TV kept Philips in a leading position in consumer perception.

As the market became competitive and margins razor­thin, Philips started losing money in consumer electronics. Philips CE tried to revive its sagging profitability by neglecting its strength: it focused on the bottom line and marketing without strengthening innovation. Its consumer electronics patent pool steadily eroded over the last decade. It tried one strategy after another but failed.

Many of its divisions were connected with consumer electronics, such as semiconductors and components. Philips got rid of these as they did not fit into its new game plan. The last nail in the co/11n is the licenSing of the TV brand to its lesser competitors. The strategy of "milking a dying cow" does not augur well with consumers.

Philips's slTategy today is to become a leader in health care, and retain its top position in lighting with new technologies such as LED. Managing LED will bring back challenges similar to those of the semiconductor division.

Philips used its global strategy in the Indian market scenario where the dynamics are different. While Korean brands invested in manufacturing in India, Philips closed its plants. While the Koreans developed India-specific models, Philips tried to introduce expensive models with a bit of tinkering, ruining a once vibrant brand. The brand lTansformation of Philips is a lesson for all marketers.

"Philips tried to revive its profitability by

-f focusing on the bottom line and neglecting its strength: innovation" AN-KAN BISWAS, Chairman. Digital Broadcast Council. Consumer Electronics and Appliances

nufacturers Association

102 BUSIN ESS TOD f\ Y Scp£elIl/><'1 30 2U 12

In lighting, Philips has historically been the segment Jeader in India, with a market

~~~":i share of around 30 percent

1111 11 '1111111111111111111111111111 11 11111111111111 1111111

While the consumer business hit a brick wall , exponential growth in the Ijghling and health care segments kept Philips going. In lighting , the company has historically been the leader, vvi.th a market share 0[' more than 30 per cent - more than twice that 0[' its nearest competitors, Bajaj Electricals, Havells, Wipro Conswner Care and Lighling, and Surya Roshni. "Whether it's CPL or LED technology, Philips is a pioneer in bringing light­

• ing solutions to India," says Nirupam Sahay, President of Philips's lighting division. "We have a big distribution network and reach out to one mii]jon electrical and non-electrical outlets." For professiona l lighting, Philips's client portfoljo includes corporate and government customers such as Asicill Paints, McDonalds India, Cognizant Technologies and Kolkata Munlcipal Corporation. In 2005, lighting ac­counted for sljghtly over 34 per cent ol'revenues. In the past five years, the company's dependence on this seg­ment has grown - it now accounts for 51 per cent ofPhiljps's revenues.

But even the Ijghting business has seen plenty or ups and downs . To slreamline this segment, the com­pany had to shut dovvn a factory each in Kolkata and Mumbai in the late 19 90s. Later, the dumping of Chinese lighting products anected its market share. Timely government interven­tion in the /orm of anti-dumping laws helped CPL manufacturers.

Today. Philips gets a big chunk of its revenues from audio video multimedia (AVM). which includes DVDs and home theatre systems. In fact, it leads the DVD market with a share of over 24 per cent. This, though, could be shortlived. Sector experts say changes in the AVM in­

1II!III1I!!~!III!III!""I!11'" BT receives scores of responses to its case studies.

Iform the market - again.

segment. Philips is trying to redefine the market," says Rajeev Chopra, Philips India's Managing Director and CEO.

Philips's record inspires little conndence in its comeback attempt. Philips lacks a clearcLlt strategy for India, says Karwal, the former MD.

"They are like a bull in a China shop." Will the current stra tegies work? Does Philips lack a clear vi­sion in India? Does it need to fOCLlS more on marketing elTorlS? •

Write to us at /11 t'nseslluiies(<!)!n rada!!.('11/11 or post

your COl1l1ncllts at 1\I\\I\V. /IIIsiIIl'S5tO­

tilllJ.in/mseslllllll-P/llllps, Your views will be published in our olllille edition,

and the best COll1mellt will will a Harvard Business School Press pocket

melitoI'. Prel!iollScnse studies are at \\!\\IIV.!ilIS;W'Ssllltlfllj, illl I'ases/tldy

n 2001, Volvo Buses India sold 20 coaches, By December 2011, 5,000 of them were running on Indian roads. Volvo did not achieve this by toning

down its products or cutting prices as multinational companies often do. Now, as the competition closes in, it is preparing to launch products that could trans­

the Indian players like Volvo did.There was atime when many foreign brands claimed that they could sooner bUild acastle on the moon than succeed in India. Volvo broke this jinx. Today, people have started asking for Volvo routes to their destination. Such is the cult of Volvo that you see autorickshaws and Jeeps even in small towns displaying the word 'Volvo'! In fact, many transporters, especially in small towns, who run Tata and Leyland buses, do the same. If this is not the result of the virtue called

Nimesh Singhania wins aHarvard Business School Press pocket mentor for his views

CASE STUDY Philips

dustry will keep Philips's consumer To revive its past glory, electronics business under threat. Philips's product offerings have "The DVD market is dying," Suys undergone a sea change Deepa Doraiswumy, Industry

11111111111111111111111111111111111111/11111111111111111111IlIi111111111111l11illlllllllllll'lllllilllllllllManager for electronics und securit~y at frost & Sullivan South Asiu & Middle East. "The transition to store don't want to hold on to a product movies and music on a pen drive is for 10 years." a lready occurring at a fast clip." Philips has revamped its personal

Still. Philips is doing all it can to care portfolio , and introduced revive its past glory. Product offer­ shavers, body groomers and epilators. ings across all three categories - It roped in John Abraham and consumer lifestyle, lighting and Kareena Kapoor as brand heallh care - have undergone a sea arnbassudors. This is the lirst lime the change. Starting with the launch of Philips brand has been promoted by MP3 players in 2009. Philips has celebrities in India . come out with new producls, many Since 2009, Philips has opened or which target youth. 75 exclusive 'light lounges' in 40 cit­

"India has a huge young popula­ ies. They sell decoralive home light­tion, so we decided our target cus­ ing products priced between 't575 tomers should be 15 to 30 years old, and ~45,000. Besides, Philips has because that's where buying is going 750 'light shoppes' - shop-in-shops to happen," says Ratnam. "We have in stores such as the Future Group's to get into the lifecycle of consumers HomeTown and Lifestyle earlier." It has launched devices International's Home Centre. priced as low as U 50. "The focus is In 2011, Philips acquired lead­to make products that are not over­ ing a ppliances maker Maya engineered and are easy to replen­ Appliances, which owns the Preethi ish," says Ratnam. "Youngsters brand of kitchenware . "For each

Below is the best one on Volvo (July 8, 2012)

Nimesh Singhania (nimeshJnfo@yahoo.com) wrote:

If you have aworld-class product. an excellent business strategy to back it up, and aclear understanding of the market where you invest, the only thing you require is virtue called patience, and then you are bound to succeed. Acase in point is the dominant position of the two leading commercial vehicle manufacturers iii India - Tata Motors and Ashok Leyland - since decades. Many foreign brands

paNence, then what is?entered t~e Indian market in the past, through joint ven­tures ori on their own, but none could effectively challenge

104 BUSINESS '('ODA Y .)('1'1('111111'1" W 20l 2