LG's Growth Strategies in India

The 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.