Wednesday, July 06, 2005

Aiming low

Two acquisitions over the last two weeks or thereabouts. Videocon acquired the CPT business of Thomson. Videocon also acquired the manufacturing facilities of Electrolux. It has taken over the Kelvinator brand on a 25 year lease.

I am not sure what the big idea is. Kelvinator is an old brand that had brand equity once upon a time. Then its chief competitor was (only) Godrej, a brand which is struggling today. Today it is the Samsungs, LG's that rule the roost. Does Videocon/Electrolux really think that Kelvinator will sell like hot cakes? That people at the lower end of the market will take to Kelvinator like Penguins to Antartic water? There have been attempts to revive the Kelvinator brand (see this piece of circa 2003) and nothing has come of it. With the explosion of cable TV, ruralites are as likely to buy the same brands (in consumer durables) that urbanites buy(this is my theory based on my experience with the rural people I know. Rural (or low income groups) people dont buy a brand just because it is available, they do a fair amount of peer research, especially when they are buying something like a consumer durable). Electrolux reportedly is looking at using India as its base for its global requirements.

Heres a snip

...Videocon is pushing its brand flanking strategy, which will help the group increase its volume in the market by marketing several brands. European companies have begun vacating the low end of the durables market owing to falling profit margins. Most of them are focusing on the high end of the market where the margins are much higher. Globally, durables companies are focusing on futuristic technology where there are higher profit margins....

This is not an isolated report. If I remove the brand name, there are many such stories. Two questions arise. Does this signal the movement of low end manufacturing slowly from China to India? This was what happened from manufacturing moved from Japan to China, notably of electronic goods. I think not. Acquisitions like these are deliberately aimed at the lower end of the market, where margins are lower. While there may be money there, selling at the low end will be difficult for a brand who caters only to that end, unless one is a supplier to any of the bigger brands which sell at lower price points too.

The other question that I often ask is "Why are we aiming for the lower end of the market?". The answer that I often get is that, we have to start somewhere. But in the case of televisions, there is no real similarity between high end televisions and low end televisions. Other appliances probably share the same core, but I am pretty sure that knowing how to craft a Maruti 800 will get us nowhere near creating a Merc.

This perhaps has a parallel with the direction our software industry is taking, but thats another story and is perhaps not as uni dimensional as it appears to be. Neither are all manufacturers aiming low (Bharat Forge for instance) and are actually thinking big. That is perhaps a better direction to take.

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