Marketing

Management - II
Smile for a good reason bring home for all seasons

Group 7

3/8/14

Final Project
Abhinav Jain (221008)
Anik Sanwal (221020)
Ankit Nagrath (221027)
Gaurav Maheshwari (221049)
Itika Aggarwal (221056)

Acknowledgement
We take this opportunity to express our profound gratitude and deep regards to Prof.
Bhalender Singh Nayyar(FORE School of Management, New Delhi) for his exemplary
guidance, monitoring and constant encouragement throughout the course of this project..
Prof Nayyar helped us understand the technical aspects of the science and art of Marketing
Management which helped us immensely while making this project.
We would also like to thank our friends for their support and cooperation. Our appreciation
also goes to the FORE School Of Management for allowing us access to various resources,
and to the College Library.
Without the support of the aforementioned people and institutions, we would have never
been able to give this project its present shape.

COMPANY PROFILE
Blue Star Limited was founded by Mohan T. Advani in 1943. Today it is India's largest central air
conditioning company with an annual turnover of Rs 2800 crores, a network of 30 offices, 7 modern
manufacturing facilities, over 1800 dealers and around 2700 employees . It primarily focuses on the
corporate and commercial markets. These include institutional, industrial and government
organizations as well as commercial establishments. The Company has started pursuing the
residential segment with its wide range of sleek and contemporary Room ACs.

The Corporate Purpose

We are leading engineering company with substantial competence in, and revenues from 3
streams of businesses: Air conditioning, Commercial refrigeration, Professional Electronics and
Industrial systems.
We are customer focused organisation, deliberately tuned to deliver a world class experience to
corporate and commercial customers with differentiated products and expert solutions and value
added services. Delivering a world class experience and adhering to our corporate values
constitute the two pillars of the Blue Star way.

Guiding Values and Beliefs

To deliver a world class experience.

Focus on profitable company growth.

Be a company that is pleasure to do business with

Work in boundary less manner between divisions to provide best solutions to.

Win our peoples hearts and minds.

Place the companys interest above ones own.

Encourage innovation, creativity and experimentation in what we do.

Build an extended organization of committed business partners.

Be a good corporate citizen.

Honour all personal and corporate commitments.

Maintain personal integrity.

Ensure high standards of corporate governance.

The present strategy of company is very much aligned with its corporate purpose and guiding
values. The corporate strategy has displayed purpose and values are visible in dividend policy,
profitability etc. Blue Star is aggressively targeting the residential segment with stylish and more
energy efficient air conditioners. Manufacturing facilities/Factories of Blue star has won various
accolades for environmental sustainability. Further more aggressive approach with technologically
advanced product can increase market share of Blue Star.
We are launching new all-weather air conditioner, which is well aligned with corporate purpose
and guiding values of Bluestar. We intend to deliver world class experience to customers by
delivering high quality and high standard product. The product is being launched for commercial
customers and with its competitive price, creativity and high quality will win peoples heart and
mind.

Market Analysis
Segmentation
Bluestar segments its target users by Geographical location, Income & benefit segmentation.
Geographical Location: Bluestar segments its end users by segmenting it into regions which have
extreme weather conditions, since the product would perform the role of both an air conditioner
and a heater. Therefore, the primary location would be North India & a few states in Eastern India.
Income: Bluestar segments its target consumers /users by their income level as the new product
would target premium segment & upper middle class.
Benefit Segmentation - Bluestar segments its consumers on the basis of their expectations from the
product which in this case shall be an air conditioner which provides them humidified heating.

Targeting
Bluestar is adopting a multi segment approach in which they would be targeting upper class & upper
middle class customers in all the age groups. Their product would focus on the following features:
Active humidified heating along with cooling
Air filter for health conscious customers
4 and 5 star rating for saving electricity
Attractive designs appealing to fashion savvy people
People in transferable jobs dont need to get rid of their air conditioners or heaters as they
can carry the same even if they travel from North to South.

Positioning
Bluestars brand positioning is Bluestar provides office like cooling at home.
The new product aims at positioning the company as a two in one provider of air conditioning
services which provides consistent cooling/heating in a healthier environment & also being cost
efficient by saving electricity.

Air Conditioning
& Heating

Perceptual Mapping for Air Conditioners

LG

Voltas

Bluestar *

Daikin

High Energy Efficiency

Low Energy Efficiency

Air
Conditioning

Samsung

Hitachi

Bluestar

PESTLE Analysis
Political and Legal factors

Bureau of Energy Efficiency (BEE) laws are applicable for air conditioning industry.
Laws regulating businesses e.g. The Sales of Goods Act 1974 stating all products must be fit
for the purpose they are intended. A air conditioner must therefore work.
Laws regarding emission and usage of CFCs in AC. are legally binding and have to be
followed by the manufacturers.
High Energy Efficiency
FDI in retail. Government has allowed 100% FDI in single brand retail and 51% FDI in
multiband retail. This will boost the sales of consumer durables and help in increasing the
penetration level.
National Electronic Policy 2012 has led to boost in investment in this sector. Electronics
sector ends 2013 on high with Rs 62,000 crore investment proposals (Firstpost.com, Dec
31 2013)
Apart from industry specific laws, general laws like labor law, Government Acts (Ex:
Environmental Protection Act, 1986), BIS etc are also applicable.
Duty relaxation schemes such as EPCG and EHTP provide the companies in this sector with
tax sops.

Economic Factors

The spending habits of Indians are changing. Expenditure on appliances now has 6% share
of total expenditure (FY12) as compared to only 3% share almost a decade back (FY01).
India is spending 70 percent more than it was spending a decade ago.
Indias population base by income is transforming from large low income base into a large
middle class population. The disposable income of people is increasing. Per capita income
is expected to expand at a CAGR of 6.5 per cent for the period 2010-18.
Along with the income growth, urban migration has fuelled consumption demand. By 2025
cities will command more than 60 percent of Indias consumption market. Hence the focus
will shift to urban markets.
Another driving force is the growing employment. According to latest NSSO data the
employment in Urban India has grown from 123 million in 2010 to 137 million in 2012 at
rate of 11.37%.
All these signs of economy indicate that the industry will grow as the demand of consumer
durable goods will increase.

Social Factors

Changing lifestyle and perceptions are increasing demand in air conditioner industry.
Increase in the number of nuclear families in India also increasing the demand in the
consumer durable industry.
Increase in disposable income is also contributing in increase in demand for consumer
durable goods.
People are ready to pay more for energy efficient and technologically more advanced
product.

Environmental Factors

Companies are maintaining high environmental standards by designing and producing

products that are safe for consumers and using environment friendly materials and packing
stuff.
There is a constant pressure on companies to save and preserve environment. Companies
are constantly working to reduce their carbon footprints. Companies are constantly
developing green technology and are coming up with green home solutions.
Even the consumers have become responsible and prefer to buy those products which are
least harmful to the environment.
Electrical appliances with 5 star rating are becoming popular as saving electricity helps in
preserving environment and also leads to low electricity bill for the consumers.
Air Conditioners emit Chloflurocarbons (CFCs) and other greenhouse gases which is
dangerous for environment. All governments will ban usage of CFCs by 2020.

Technological Factors

Innovation in air-conditioning technologies continues, with much recent emphasis placed

on energy efficiency and on improving indoor air quality. Reducing climate-change impact
is an important area of innovation because, in addition to greenhouse-gas emissions
associated with energy use, CFCs, HCFCs, and HFCs are themselves, potent greenhouse
gases when leaked to the atmosphere.
Degree of automation in manufacturing of air-conditioners has increased significantly.
Availability of electricity in the rural areas has been an important factor in increasing the
demand for electrical appliances.
Companies spend lots of money in Research and development to perfect their product and
increase their efficiency in the consumer durable market. Intellectual properties and
patented technologies are becoming the most important resources for a company.
Consumer durable market undergoes constant innovation and the air conditioning industry
is no different. New emerging technologies include all weather air conditioners, smart air
conditioners ( which can be controlled by smart phones)
In addition to using technology to improve product designs, IT is being used to strengthen
the supply chain by the companies and social media is being used extensively for
promoting products.

Industry/Competitive Analysis
The Consumer electronics and durables market in India is divided into three segments namely:

Brown Goods - TVs, CD/DVD players, radio, still camera

Grey Goods - IT and Telecom equipment used in offices such as Fax machines, computers,
printers, etc.
White Goods - Air-conditioners, refrigerators, washing machines and other domestic
appliances

The market's compounded annual growth rate (CAGR) has run at 17% over the last three years. In
2011-12 air-conditioning sales reached around Rs.17, 600 crore. However despite this rapid growth
air-conditioners have still only reached a mere 3.8% of Indian households. This low penetration rate
illustrates the huge opportunity the AC industry in India is yet to seize.
In recent years the Indian air-conditioning industry has seen a fundamental shift in the demand for
room air-conditioners. From the traditionally dominant commercial sector the shift has been
towards the residential sector, which now comprises 60% of the market. The air-conditioning

industry in India has so far failed to fully grasp the more complex needs and expectations of this
newer, larger and more diverse customer segment. This lack of understanding has led to the airconditioning industry lagging behind the curve in areas from customer communication to easy
financing. As a result, AC penetration in India lags behind other developing markets as well as other
categories of consumer durables in India.
Industry Performance for last 5 years and projection for next three years

#Source - CEAMA

The above chart shows the past trends of the consumer durables industry and how its production
has been mapped to GDP of India. we can see that in 2005 production of consumer durables was just
1.8% of GDP of the country and how with increase in GDP of the country the production of
consumer durables has also increased if we take the time period of 2008 to 2013 in 2008 the
production was around 3.5 % of countrys GDP . In 2013 the same figure grew up to 8.4 % of GDP of
the country. CEAMA the source of this graph based on the industry analysis projects the consumer
durable industry to grow to 10 % of GDP in 2014 and 12 % of GDP in 2015. This showcases high
promise in the consumer durable industry and presents a good picture for companies in this
segment. AC sold in 2012 stands at 3.2 million units sold.
Approximate Market size for Consumer Durables based as percentage of GDP:
Year

GDP (Rs. 000 crore)

Consumer Durables (Rs. 000

crores)

Growth Rate (%)

2005
2006
2007
2008
2009
2010
2011
2012
2013
2014(est.)
2015(est.)

3242
3693
4280
5007
5620
6474
7798
10471
11223
11761
12349

58.36
84.95
119.85
165.2
224.8
310.75
452.3
722.5
931.5
1176.1
1481.9

39.07
45.56
41.08
37.84
36.08
38.23
45.55
59.74
28.93
26.26
26.00
41.38

CAGR(Till 2013)

Expected CAGR (Till 2014)

Expected CAGR (Till 2015)

39.61
38.19

Sources: TradingEconomics, IRS

Market Share of Organised and Unorganised
According to the most recent figures by IBEF in 2006 organised and unorganized market for ACs in
India stood as follows , for windows AC unorganized sector had a market share of 25% and for split
Ac the share stood at 15% . In the organized sector the share for windows AC was 75 % and for split
Ac was 85 %.
Year

No. Of Units
Sold(In Millions)

Average Price In
Year

2008
2009
2010
2011
2012
2013
2014(Projected)
2015(Projected)

2.2
2.8
3.6
3.14
3.3
3.4
3.7
4.0

20,160
21,000
22,118.4
23,040
24,000
25,000
26,000
27,560

Total
Sales(Thousand
Crores)
4435.2
5880
7962.4
7234.6
7920
8500
9620
11024

Growth/ Decline

NA
32.57
35.4%
9%
9%
3%
13%
14.59%

If we look at the market figures of the past and projected figures for the future we can see that
barring 2011 which saw a decline in AC industry of 9 % due to reduction in number of units sold AC
Industry had showed great growth in the year 2009 and 2010 and then declined by 9% and then
picked up growth again. The decline in that particular year was because of cooler summers in that
season. In 2013 the Industry expects a growth of 10 % in sales in following year due to introduction
of efficient ACs in Industry. Thus we use that projected growth of 10 % in our projection of next 2
years. The price for each year has been calculated by keeping in mind the average price of a
premium AC in current year and then adjusting it for Inflation of 4 % in subsequent years. The
projected growth for 2014 and 2015 stands at 13 % and 14.59% which is a pretty healthy figure.

Market Growth Rate

Growth Rate
-15

-10

-5

0
2015

5
2014

10
2013

15
2012

20
2011

25
2010

30

35

40

2009

Market Size
Value
In 2011-12, the estimated total market size for air-conditioning in India was around Rs.17, 600
crores, riding from Rs.11, 000 crores from 2008-09. The room air-conditioning market represents
approximately 50% of the total market, with the other 50% comprised of central and specialist airconditioning systems. The room AC market can again be divided into two sub-segments. On the one
hand the residential segment which now constitutes a majority 60% market share and on the other
hand the commercial segment which represents a smaller 40%.
Volume
The Indian AC market estimated in 2011 was at 3.14 million units a 19% decline YoY. The market is
3.5 million units in 2012, still lower than the 2010 figure of 3.5 million units. LG and Voltas dominate
the market with a combined market share of 41%. Samsung contributed 12% of the market, and
Hitachi 11%. Other aggressive brands such as Daikin, Panasonic, Blue Star, Godrej, Onida, Videocon,
Whirlpool, and carrier were each in the 4-6% sales vicinity. Haier, Sharp and Electrolux are also some
presence.
Market Penetration
India's consumer durable industry has witnessed fast growth in recent years and it is expected to
grow at a similarly rapid rate for some time to come. However, India's air-conditioning industry has
been something of a laggard compared to its peers. Despite seemingly impressive headline growth
rates, the penetration of room air-conditioners remains strikingly low compared to other white
goods, with a mere 3.8%of households having adopted this product category.

The wider Indian Consumer Durable industry sector is one of the country's fastest growing industries
with a CAGR of about 15%. According to ASSOCHAM, the industry is expected to touch Rs.52, 000
crore by 2015, fuelled by rising household incomes and increasing urbanisation. However, in spite of
a high growth trajectory the penetration (urban India) of air-conditioning is significantly lower
compared to other white goods such as TV 77%, refrigerators 33%, air cooler 17%, and 13% washing
machine.
Technology innovation, the key growth driver
Innovation will also play a central role and act as a catalyst in the industry growth, if it focuses on
reducing the running cost of AC and increasing its benefits. Advances in technology will help improve
energy efficiency and therefore lower the currently high running costs. This is particularly important
in India where the traditional air-cooler offers a cheaper substitute for households at a time when
energy prices are rising. Recent example is the launch of DC inverter ACs. This latest technology
invention provides powerful cooling with surprisingly low electricity usage. These air conditioners
are equipped with variable speed DC compressor technology and hence consumer low energy. The
current price range for invertor AC is higher compared to the traditional window and split ACs,
however with increased sales the prices may come down. In addition to regarding air-conditioners as
a highly seasonal product, pointing out the sizeable initial investment for what may be a relatively
brief benefit over two or three months of high summer. In this vein LG has developed a reversible
split ACs which include heating option, thus allowing the consumer to use it in both summer and
winter.
Regulatory environment
With effect from January 2012, the Bureau of Energy Efficiency (BEE) has upgraded the energy
standards of split air-conditioners to a higher level in line with the energy conservation program. All
star-rated split units will have a higher energy-efficiency ratio as compared to the same star units
last year. Under the upgraded BEE labelling norms, air conditioners that were 5-star rated in 2011
will be marked as 4-star rated in 2011, will be marked as 4-star rated this year and 3-star rated in
2013. So the 1 start ACs will be off-market in 2012-13.
The cost of air-conditioners and refrigerators could go up considerably starting next summer if the
US and other rich countries force a decision at the UN climate talks in November at Doha, to order a
global ban on existing refrigerant gases and replace them with costly though relatively more climatefriendly alternatives.
Demand scenario
Air conditioning demand declined by 15% in 2011-2012 after recording impressive 31% spike in
2010-2011. The industry players attribute the fall in demand for room air conditioners in FY 2011-12
due to a relatively mild summer coupled with intermittent rains and by the generally negative
market sentiments due to reduced consumer spending. Rise in interest rates and inflationary
pressures also impacted demand during this period.
The average price of an air-conditioner in India is Rs. 30,000. This is still substantially more than the
average monthly household income which currently stands at just Rs.20, 555. As a result airconditioners remain unaffordable for a large part of the population. Gradual increase in the Indian
middle class and thus a gradual increase in the monthly household income will lead to a spurt in
demand for air-conditioners.

The consumer durables and electronics market in rural and semi-urban areas account for about 40%
of the overall market and is growing at about 30% CAGR.
Raw Material cost
Non-ferrous metals like Aluminium, Copper play a very important role in the composition of raw
material basket. Non-ferrous metal prices have flared up in the recent times, especially after
monetary measures to boost liquidity by EU and US. Between 31st August 2012 and 15th September
2012, the international Copper prices rose by almost 7%, and the domestic price growth was even
higher due to rupee depreciation, while that of Aluminium sizzled by 9% MoM in Sept 2012.
Aluminium prices were lower on YoY basis for 10 months in succession from January to October
2012. Except a rally in September, the prices have remained flat with a negative bias YoY based on
data available through December 2012. Copper prices recorded single digit growth to negative
growth between September 2011 and October 2012. But the massive rally in September, October,
and November 2012 helped it to record 10% growth in November 2012 on YoY, based on the latest
data available for November 2012.
The spike in non-ferrous metal prices is forcing players to increase product prices. WPI of
refrigerators and Air conditioners have increased from 110.1 in March 2012 to 113.5 in October
2012, despite this being an off-season. We can expect further rise in WPI of AC's and refrigerators in
the rest of calendar year 2012, despite sluggish demand and increasing competition from China.
The consumer durables sector raked in revenues worth US$ 7.3 billion in FY12. Growth has been
healthy over the years, recording a compounded annual growth rate (CAGR) of 10.8 per cent over
FY03-12. The consumer durables market is expected to double at 14.8 per cent CAGR to reach US$
12.5 billion in FY15 from US$ 6.3 billion in FY10.*1
Demand for consumer durables in India has been growing on the back of rising incomes. This trend is
set to continue even as other factors like rising rural incomes, increasing urbanisation, a growing
middle class, and changing lifestyles changes aid demand growth in the sector. Consequently,
industry analysts expect the sector to post a CAGR of 15 per cent over 2010-15. Increasing
electrification of rural areas and wide usability of online sales would also aid growth in demand.
Demand from rural and semi-urban areas is expected to expand at a CAGR of 25 per cent to reach
US$ 6.4 billion in FY15 from US$ 2.1 billion in FY10. By FY15, rural and semi-urban markets are likely
to contribute a majority of consumer durables sales.
The Government of India (GOI) has allowed 100 per cent foreign direct investment (FDI) in
electronics hardware-manufacturing under the automatic route.

Review of Detailed Market Strategy of Competitors (With all elements of marketing mix)
VOLTAS
Voltas Limited is an engineering, air conditioning and refrigeration company based in Mumbai, India.
It makes equipments for industries in areas such as heating, ventilation and air conditioning,
refrigeration, construction equipment, materials handling, water management, building
management systems, indoor air quality and chemicals. Voltas growth spurt in AC sales results from
its marketing strategy. The key features are

Product: Cooling Domain encompasses several categories, Voltas is active, efficient and
dominant in all the categories

Voltas offers Split, Window, Cassette and Slimline ACs.A strong product line-up with 63
variants of split ACs
An extended 5- and 3-Star product range
An evolution of the 'all-weather' proposition, supported by product features like InstaCool compressor, Super Dust Guard, Active Dehumidifier and Intelligent Heating.
Voltas is approaching its promotional programmes from three directions advertising and
communication, distribution and customer relationship support.
The offering of numerous easy-finance options
Improved distribution footprint in key markets
Voltas attributes its strong performance to price competitiveness.
A strong position in the window AC market and only one company selling all weather air
conditioner

This is not a passing phenomenon. The Voltas brand has gained a lasting advantage in the market.

LG
LG Electronics, Inc. is a global leader and technology innovator in consumer electronics, mobile
communications and home appliances. LG comprises five business units - Home Entertainment,
Mobile Communications, Home Appliance, Air Conditioning & Energy Solutions and Vehicle
Components - and is one of the worlds leading producers of flat panel TVs, mobile devices, air
conditioners, washing machines and refrigerators. LG Electronics is a 2013 ENERGY STAR Partner of
the Year.

Product: LG provides air conditioners in two segments Residential (Split and Window)
and System AC (Multi, cassette, ducted, VRF, HRV.)
LG has differentiated its products using technology and health benefits - air-conditioners
have the Health Air System
LG promote its product s through Newspaper, T.V., Radio, hording and taking part in
events etc.
LG product available in LG retail showroom, malls ,private retail shop.
LG has adopted the regional distribution model in India. All the distributors work
directly with the company.
This has resulted in quicker rotation of stocks, and better penetration into the B, C, and
D class markets
Air Conditioners LG is the dominant player in the market Closer user perception shared
with Voltas LG rated low on Technological aspects like Noise Levels Hitachi was
positioned high for producing low Noise Levels
LG had set its focus on key buying factors and was therefore working to provide the right
value proposition to the customer including good payback options
Wide variety of air conditioners like split ac, window ac, etc.

SAMSUNG
Samsung enjoys the widest range of product portfolio which includes Mobile phones, tablets,
camera, laptops, air conditioners, etc. Well diversified and differentiated product line to meet
changing customer needs .Samsung electronics has 4business areas to cover customer electronics
needs. Competitive advantage Samsung enjoys:

Samsung offers Split and Window air conditioner.

Less expensive brand as compared to its competitors
Technologically driven niche products

Strong infrastructure with high investment for R&D

Wide range of products available in two categories.
High brand value and higher economic scale and economic scope
Horizontal and vertical integration (i.e. Samsungs own stores, SRAM for their own
mobile phones)
Michael Porters 5-Force, Samsung is a large buyer and can use that towards their
advantage
Higher yield than competitors and R&D facility located at one single site
Untraditional Human Resource practices based on meritocracy not on seniority
Attractive pay, bonuses and incentives
Financially strong, large resources at disposal

Break-up of demand from urban and rural for your product group to see changing
patterns.
Urban areas are defined by faster lifestyle, increased technology and high population density while
Rural areas are defined by small-tight knit community, with lack of technology and resources.
Urban areas are characterized by luxurious lifestyle and advance technology, so there is more
consumption of air conditioners. Air conditioners itself is a luxurious durable good so its hard to find
many consumers in rural area. Rural areas are more dependent on natural resources and organic
materials.
So its clearly visible that air conditioners market share in rural areas is minimal as compared to
urban.

Market share of Top Five players in the last two year

Brand
Voltas
LG
Samsung
Panasonic
Hitachi
Bluestar
Others

2013-2012 (%)
19.8
17.7
11.4
5.1
7.3
6
32.7

2012-2011 (%)
18.4
22
12
4.8
5.2
5.4
32.2

Market share for 2013-2012 (Pie chart 1)

AC Market share in % (2013-2012)

Voltas
LG

19.8
32.7

Samsung
Panasonic
17.7

Hitachi
Bluestar

6
7.3

Others
5.1

11.4

Source: Voltas.com, Economictimes.indiatimes.com

GFK Retail Audit Report
The Voltas AC has ridden the wave of excitement and popular appeal of its 'All-Weather AC' offering,
to reach a high point of 19.8% market share in May 2013 (according to GFK Retail Audit Report). It
goes without saying that the brand has sustained its national No. 1 position established in FY12-13 in
a highly competitive market.
By thus widening its lead, the brand has made a significant advance over its overall market share of
18.4% in FY12-13. .
By contrast, the No 2 AC brand LG presently stands at 17.7%, representing flat year-on-year growth.
At No 3 Samsung lags behind at 11.4%.

Voltas' strong performance this May is reflected in various regional achievements as

well. This includes an undisputed 36.1% share as the No 1 brand in Delhi, one of India's
largest markets for room ACs, followed by Punjab and Haryana.

The brand also holds the No 1 ranking in UP, Rajasthan, MP, Bihar, Jharkhand and, most
significantly, Mumbai
After a decade of dominance in white goods, Korean giant LG abdicated its leadership
position in India in May when it was relegated to No 2 position by Voltas in the 7,000crore room air-conditioner market.
According to latest data from market researcher GfK-Nielsen India, LG's volume market
share in multi-brand outlets-a key sales channel that accounts for almost 90% of AC
dealerships-stood at 17.7% in May against 18.3% of Voltas.
Others comprise of unorganised sector and organised small market share holders.

Market share for 2012-2011 (Pie chart 2)

AC Market Share in % (2012-11)

18.4
32.2

Voltas
LG
22

5.4
5.2

Samsung
Panasonic
Hitachi

4.8

12

Bluestar
Others

A year ago, in July 2011, LG was the leader, with a share of 22.6%, as shown in the pie chart.
Samsung retained its third slot in room ACs but its market share has plunged from 12% in July 2011
to 11.4% in May 2012. The drop was a result of it vacating the window AC segment this year; now it
is not far behind Japanese brand Panasonic, which has doubled market share to 9.9% in the last 10
months. Even Hitachi increased its market share from 5.2% to 7.3% in the period. Others comprise of
unorganised sector and organised small market share holders.Other aggressive brands such as
Daikin, Panasonic, Blue Star, Godrej, Onida, Videocon, Whirlpool, and carrier were each in the 4-6%
sales vicinity.

The Industrys Five Competitive Forces

1. Threat of new entrants (LOW)
Capital Requirements
The initial investment that goes into setting a plant is considerably high as there needs to be
sufficient investment in providing quality components and also in R&D to meet the changing
technology. Thus there is a low threat of entry into this sector.
Economies of Scale
Manufacturers in HVAC industry need to build economies of scale due to high fixed costs and meet
the demands. Due to this there is a low threat of entry into this sector.
Customized Products
In the central and packaged AC system level of customization is high and it is not possible for new
player to do that customization. Due to customization, the threat of new entrants is low.

Switching costs
It is not easy to switch to the new players in the field due to high initial investment & also a number
of collaborations & contracts exist among the players of the world who are into the same line of
business. There is thus a high switching cost and thus a low threat to entry.
Distribution Channels
The existing players have strong distribution channels and thus difficult to match proving to be a
high barrier of entry.
2. Bargaining power of suppliers(MODERATE)
Supplier Concentration
There is comparatively higher number of suppliers. So the bargaining power of suppliers is low.
Importance of volume to suppliers
The industry is dependent on volume sales and hence facilitates bulk buying. This reduces the
bargaining power of the suppliers.
Presence of substitute inputs
In the current scenario there is little substitution that is possible to the raw materials that go into the
manufacturing of air conditioning products. This increases the bargaining power of suppliers.
3. Bargaining power of buyers(HIGH)
Quality vs Performance
There are large numbers of players in the market. So quality and performance is the most important
factor while selecting the product. It gives high bargaining power to buyers.
Backward Integration
Backward integration to make the air conditioners means a high investment and also expertise in the
manufacturing would be required. Bargaining power would be less since the probability that the
companies would integrate backward would be less.
4. Competitive Rivalry
Size of Industry
The industry is not concentrated & there are large number of Indian companies and MNCs, hence
there is a high degree of rivalry.
Industry Growth rate
As long as the entire economy is in a growth face and real estate sector is in boom there will be a
huge growth in the industry
Fixed Cost
The manufacturers of air conditioners and refrigeration products have high fixed costs as there is
heavy investment in plant and the development of new technologies thus decreasing the degree of
rivalry amongst them.
Product Differentiation
Product differentiation is very less hence high degree of rivalry.

Brand Identity / Client loyalty

This plays a very important role in the market of HVAC industry. Generally it is seen once a client go
for some brand he stick to the same brand in the future also.
5. Threat of Substitution (MODERATE)
The product can be substituted by simple air conditioners not having the feature of heating as an
extra feature of heating would increase the cost of the equipment by 15-20%.
Energy consumption is higher in coolers and fans, so middle level income groups can switch to the
same. Additionally, the cost of maintenance would be marginally higher as maintenance would be
required in winters (for heating device).

SWOT Analysis for Bluestar

STRENGTHS

Only Blue Star manufactures open-type centrifugal chillers with ozone friendly refrigerant
HCFC 123
Only Blue Star manufactures variable air volume systems for economic localized cooling
control
Only Blue Star manufactures air handling units with dependable ratings to factory precision
and the widest choice with single skin, double skin, horizontal, vertical, ceiling suspended
and unitary.
Air-conditioning of the largest number of synthetic fiber plants in India exceeding 25,000
Tons and 36 customers
Largest Industrial air-conditioning contracts in India - RBI Note Mudran Private Limited:
Rs.40 crores.
First to manufacture semi hermetic reciprocating compressors in India to international
standards
First air-conditioning company to introduce the concept of a Comfort Shop.
It has a strong setup, Willis Carrier Engineering Center, to provide technological support to
develop new products and upgrade existing ones.
It has successfully introduced finance schemes that have taken air-conditioners out of the
luxury category and made it affordable for the homebuyer.

WEAKNESSES

Considered as premium brand so middle class people think it is unaffordable.

Although BLUE STAR protects its Position in Domestic AC market but is regularly losing
market share.
Market penetration is still very low.
Low qualities resulting in exports prices being non-competitive.

OPPORTUNITIES

Confederation of Indian Industry (CII) has urged the government to reduce special excise
duty (SED) on air-conditioners from 16% to 8% in the forthcoming budget.
Opportunity to influence Growing Indian middle class in influencing their decisions with
regard to the products offered by Blue Star through comparatively lower prices.
Advent of Internet provides an excellent opportunity to reach to a large base of customers
and cut costs.

The increasing presence of multinationals in India for manufacturing be it Samsung, LG,

Carrier, Hitachi, thus providing an opportunity for upgrading the quality of manufacture in
the country.

THREATS

Likely to face fierce competition from domestic companies as they have well acknowledged
brands, an extensive distribution network and better insights about the local market
conditions.
Increased threat from cheaper imports, especially from China
MNCs like Samsung, Carrier, LG and Voltas are continuously raising their share while Blue
Star despite of increasing sales is losing its market share.

Past Performance of the Product

During a survey done by Voltas they found out that consumers wanted more from their AC than just
cooling this is an excerpt from interview of Pradeep Bakshi CEO of Voltas In India, the AC is still the
most expensive among durables (like refrigerators and washing machines). So Voltas took the
opportunity further and introduced climate control. This strategy of their paid rich dividends for the
company as it helped company regain its market leader position. In a recent comment Pradip Bakshi
he has stated that Voltas shall now only be making all weather ACs from summer of April 2013.This
showcases the potential all weather AC command in the market.

Marketing Mix Element

BLUESTAR
PRODUCT
We plan to introduce an all-weather Ac from blue star. Currently such a product is offered by really
few companies in India namely Voltas, Daikin and LG. The product shall be available in various
cooling capacity and sizes from 1 ton to 2.5 tons for small to big rooms. The Acs shall be housing
anti dust air filters as well to perform the role of air filter as well .The ACs shall have a humidifier as
well in the heating unit so as to encounter the problem of drying of skin in winters . This is a unique
product as most of the all-weather Acs in the market come only with a dry heater which leads to
drying of skin. The inclusion of humidifier with our AC shall give it a distinct edge in the market and
also a unique feature. The product shall also come with a 5 year warranty on compressor and one
year on product which is pretty much at par with industry standard.

PRICE
Since our product offers a unique feature of humidifier heating. The product shall be priced
marginally higher than the competition but that pricing shall not affect the sales too much owing to
the uniqueness of our product and the brand value of blue star. The team is committed to keeping
the pricing as low as possible in order to give maximum benefit to the consumers.

Place
Blue star already has one of the most extensive dealership and service network in the country and
those shall be used to maximum extent in order to ensure the maximum coverage for our products
on the shelf. Besides that the company shall be showcasing our products in retails chains like
Chroma and electrical bazaar as well to help us gain more shelf visibility.

Promotion
The company intends to launch the product by March next year which shall be right around onset of
summers. The company intends to start the promotions by showcasing our products initially in
stores like Chroma and holding promotional events in malls. The company intends to focus its
promotional events initially in tier1 and tier2 cities primarily in north as the market for all weather
AC shall be in regions of north (Delhi, UP, Punjab) which have both summers and winters on an
extreme sides. Moreover these region come under affluent regions in the country and hence shall
prove to be a conducive market for an expensive product.

VOLTAS
PRODUCT
All weather AC was first introduced by Voltas in the Indian market and was a major success following
its unique concept. The AC was 5 star rated thus saving on electricity and also could perform the role
of heater as well . Voltas received and encouraging response for the product and has currently
regained its lost position of market leader with the help of this product.

PRICE
The product by Voltas is priced on higher side since it caters to a premium segment The product is
priced on the higher side of the range the 1.5 ton all weather AC by Voltas is priced around 28,000
and it happens to be one of the most expensive product offered by them.

Place
Voltas has one of the most extensive dealership and sub dealership network in the country and is
highly benefited by this. The service and distribution network of Voltas is also one of the best in the
country.

Promotion
The company has an elaborate promotion campaign in place which showcases worth of all-weather
ACs by a manner of extremely innovative Ads. The company runs the Ad campaign round the year
through summers and winters since the AC performs the function of both cooling and heating .

OBJECTIVE

The air conditioning market is increasing by 8-9%. Blue Star already being very good name in
corporate and residential air conditioning, it can leverage its already existing brand in launching a
new all weather air conditioner
By launching a new product it can increase the sales volume, profitability, customer satisfaction,
customer loyalty, market share, and visibility and brand equity.
As the market share of Voltas is increasing at a rate of 7.6% in yr 2012-2013 as compared to previous
year, so with the launch of new variant, all weather ac (with differentiated qualities) in the air
conditioner market it is expected to maintain the growth rate and increase our market share and
sales volume for next coming years.

PROJECTED SALES
Total air conditioners industry size in 2012-2013 = Rs.19, 000 crores
Room air conditioner market= 50% of Rs. 19000 = Rs.9500
Total air conditioning market share of Bluestar = 6 % of Rs. 19, 000 crores
= Rs. 1140 Crores
Bluestar expected growth rate as per past details = 11%
Air conditioners market is increasing by 8-9%
So therefore,
Expected room air conditioning market share and sales volume of Bluestar in next year = 6.6 % of
Rs.20520 crores = Rs.1337 crores (approx)
Projected Market Share = 6.66 % of Air Conditioners Market
So fundamental objective for launching a new all weather ac is so cater to growing needs of
customer, provide quality services that exceed our customer's expectation and maintain good
relationship with customers by providing required services.

1. Analysis for Positioning Statement

Segmentation
Bluestar segments its target users by Geographical location, Income & benefit segmentation.
Geographical Location: It segments its end users by segmenting it into regions which have extreme
weather conditions, since the product would perform the role of both an air conditioner and a
heater. Therefore, the primary location would be North India & a few states in Eastern India.
Income: Bluestar segments its target consumers /users by their income level as the new product
would target premium segment & upper middle class.
Benefit Segmentation - Bluestar segments its consumers on the basis of their expectations from the
product which in this case shall be an air conditioner which provides them humidified heating.

Targeting
Bluestar is adopting a multi segment approach in which they would be targeting upper class & upper
middle class customers in all the age groups. Their product would focus on the following features:
Active humidified heating along with cooling
Air filter for health conscious customers
Five star rating for saving electricity
Attractive designs appealing to fashion savvy people
People in transferable jobs dont need to get rid of their air conditioners or heaters as they
can carry the same even if they travel from North to South.

Positioning
Bluestars brand positioning is that it provides office like cooling at home. The new product aims at
positioning the company as a two in one provider of air conditioning services which provides
consistent cooling/heating in a healthier environment & also being cost efficient by saving electricity.

Air Conditioning
& Heating

Perceptual Mapping for Air Conditioners

LG

Voltas

Bluestar *

Daikin

High Energy Efficiency

Low Energy Efficiency

Air
Conditioning

Samsung

Hitachi

Bluestar

Positioning Statement
As the focus is on de-seasonalising air conditioning and heating, the message should target an all
seasons approach. Happiness or smile for a good reason signifies that the company wants the
consumer to have a trouble free experience by offering a 5 year warranty on its product and low
electricity consumption.

Bluestar All-Season AC - Smile for a good reason bring home for all seasons

2. Overall Marketing Strategy

The objective is to capture 7% of the air-conditioning market with the following things in mind:

Bluestar is a specialist in office cooling and is expanding its product line in home cooling by
positioning itself as a premium brand.
Pricing is kept high enough but not out of target consumers reach.
As Bluestar is a follower in this category (after Voltas and LG) it follows an aggressive
approach in promoting the brand.
Blue star has an extensive service and distribution network in the country with its product
available in 26 states of India through 1800 dealerships, therefore, no change is required in
distribution and selling to increase the penetration as it is already selling air conditioners and
adding a new variant will not burden the existing network.

3. Product Strategy
Blue Star is Indias largest central air-conditioning company with an experience of over six decades in
providing expert cooling solutions. Blue Star has been selling room air conditioners vide its sales and
service dealers mainly catering to the corporate and commercial segment such as offices,
restaurants, showrooms, boutiques and ATMs. Over the last few years, the Company has witnessed
significant demand from the residential segment. Despite the fact that Blue Star room air
conditioners were not available in retail channels, a considerable amount of Blue Stars sales came
from the residential segment, mainly from consumers who believe that a specialist is better than a
generalist and a conviction that if Blue Star is a leader in cooling large spaces, its room air
conditioners must be good.
Considering this trend, the Company forayed into the residential segment in year 2011, and made
significant changes to its marketing mix including a product line-up to appeal to the residential
segment, distribution through home appliance retail outlets and enhanced advertising budgets. This
foray met with resounding success and Blue Stars room air conditioners sales grew considerably
despite a decline in sales in the overall room air conditioners industry last year.
Now continuing with more launches in residential segment, we are launching new all season air
conditioners. Initially we plan to launch our product in 2 types each in 3 capacities. Further these air
conditioners will be available in different energy ratings (3 and 5).

The split All Weather AC will be available in 1.5 to 2 tons (3 star and 5 star variant). In Bluestar there
is only single outdoor unit for 1.5 - 2 tonnage. This is modified according to the size of rooms. The
window All weather ACs will be available in 1.5 tons capacity (Energy ratings - 3 and 5 star).
Further above launched air conditioners will be available in different colours.
PRODUCT Variant

CAPACITY

All Weather Split AC (Energy ratings - 3 and 5 star)

1.5-2 tons

All Weather Window AC (Energy ratings - 3 and 5 star)

1.5 tons

We are not launching all weather air conditioner in Tower types and cassette types due to
residential target segment.

4. Pricing Strategy
Objective
Product-quality leadership.
Pricing high enough but not out of target consumers reach.

Market Share
Year

No. Of Units Sold(In

Millions)

Average Price
In Year

Total
Sales(Thousand
Crores)

Growth/ Decline

2008

2.2

20,160

4435.2 NA

2009

2.8

21,000

5880

32.57

2010

22,118.40

7962.4

35.40%

2011

3.14

23,040

7234.6

9%

2012

3.3

24,000

7920

9%

2013

3.4

25,000

8500

3%

2014(Projected)

3.7

26,000

9620

13%

2015(Projected)

27,560

11024

14.59%

Table References# India Biz News, Business Standard, Times of India

If we look at the market figures of the past and projected figures for the future we can see that
barring 2011 which saw a decline in AC industry of 9 % due to reduction in no. of units sold AC
Industry had showed great growth in the year 2009 and 2010 and then declined by 9% and then

picked up growth again. The decline in that particular year was because of cooler summers in that
season.
In 2013 the Industry expects a growth of 10 % in sales in following year due to introduction of
efficient ACs in Industry. Thus we use that projected growth of 10 % in our projection of next 2 years.
The price for each year has been calculated by keeping in mind the average price of a premium AC in
current year and then adjusting it for Inflation of 4 % in subsequent years. The projected growth for
2014 and 2015 stands at 13 % and 14.59% which is a healthy figure.
The current market share of Bluestar in domestic segment is 6%. The Market penetration is
comparatively low which can be attributed to the fact that they entered the B2C in 2012. In the last
2 years, they have added 800 dealerships and currently stand at 1800 dealership across 26 states.
Therefore, adding a new product with competitive pricing would increase the market share by 1%
(pessimistic) to 3% (optimistic) by next year.

Analysing Competitors Pricing Mix

Brand
Name

1.5 Ton (Split) 3

Star Rating

1.5 Ton (Split) 5

Star Rating

1.5 Ton (Split) 5 Star

Rating - All Weather
AC

1.5 Ton (Split) 3 Star

Rating - All Weather
AC

Voltas

29000

35000

41000

NA

LG

31000

39000

40000

34000

Samsung

33000

37000

NA

NA

Daikin

33000

41000

65000

47200

Hitachi

35500

43000

NA

NA

The customers perceive Voltas as a brand with value for money, whereas Daikin is perceived as an
elite brand, hence the market share of Daikin is less (13%) as compared to Voltas (20%). The only
major players in an all-weather air conditioning technology are Voltas, LG & Daikin.

Pricing Method
The existing share of Bluestar is comparatively low (6%), in order to penetrate the market while
projecting itself as a premium brand, the pricing has to be competitive with Voltas but lesser than
Daikin. Since Bluestar has been a major player in institutional sales & is a market leader in office
cooling the perceived value by the target audience is higher in terms of the cooling efficiency &
customer service.
Therefore, we have used a mix of going-rate & perceived-value pricing methods.

Selecting the Final Price

Pricing of different Variants of All Season AC's

Type of AC
Price Band (INR)

All Weather Window AC

All Weather Split AC

27000 to 29000

40000 to 44000

28000

42000

Average Price (INR)

Detailed Analysis of Estimated revenues from All Weather ACs

Estimation of Market Share of Bluestar All Season AC (units)

2014 Projected Number of AC Units Sold (A)

3700000

Market Share of Bluestar in AC (2014) (B)

7%

Projected Number of Units Sold by Bluestar (C=A*B)

259000
12%

Estimated Share of All Season AC's of Bluestar in total units Sold in 2014 (D)
Estimated Bluestar All Season AC's No. of Units (E=D*C)

31080

Estimation of Market Share of Bluestar All Season AC (INR)

Split AC (S)
Ratio (References)

Window AC (W)
80%

20%

No. Of AC's (A)

24864

6216

Avg Market Price (B)

42000

28000

1044288000

174048000

Avg Market Share(C=A*B)

Total Market Share (C of Split+ C of Window)

1218336000

Division of Split AC and Window AC in different distribution strategy

1 Channel Distribution strategy

2 Channel Distribution strategy

Ratio (References)

10%

90%

Split AC (Units)

2486

22378

Window AC (Units)

622

5594

Total Revenue from 1 Channel Distribution Strategy

1 Channel Distribution Strategy

Split AC

Window AC

42000

28000

8%

8%

Cost Price for MBO's(INR)

38889

25926

Projected Units to be sold

2486

622

96677778

16125926

Avg. Market Price (INR)

Margin for MBO's(References)

Revenue from L1 strategy(INR)

Total revenue from L1 strategy (Split +Window Revenue)
(INR)

112803704

Total Revenue from 2 Channel Distribution Strategy

2 Channel Distribution strategy

Window AC

Split AC
42000

28000

8%

8%

38889

25926

5%

5%

Cost Price for Distributors (INR)

37037

24691

Projected Units to be sold

22378

5594

828814815

138123457

Avg. Market Price (INR)

Margin for Retailers(References)
Cost Price for Retailers (INR)
Margin for Distributors(References)

Revenue from L2 strategy (INR)

Total revenue from L2 strategy (Split +Window Revenue)

966938272

(INR)

Total Revenue from all Distribution Strategy

Total Revenue for all Weather AC = (Total revenue from L1 strategy) + (Total revenue from L2
strategy)
(INR)

= 1079741975

Key Assumptions and Approximations

Selected price range is due to variants and it is mix of competitive ( going rate ) pricing and
perceived value prices
Price Band is chosen to accommodate different variants in energy ratings and colours.
3.7 million estimated AC unit to be sold in 2014 is taken from Market share table
Estimated share of All Season AC's of Bluestar in total units Sold in 2014 is taken on
assumption that in initial years all weather AC s is in introduction phase and mainly
company will sell its other ACs and gradually this share will increase.
The ratio for Split and Window ACs is taken from the reference documents.
The ratio for 1 Channel and 2 channel distribution network ACs is taken from the reference
documents.
The delivery to MBOs, Dealers, and Retailers is primarily done by Bluestar Limited.
The margin for MBOs is higher than distributors as MBOs will have an extra expense of
sales force also.
The distributors and retailers margin is set up according to present industry standards.
Total revenue is sum total of revenues generated from both levels distribution network.

5. Distribution Network
Blue star has an extensive service and distribution network in the country with its product available
in 26 states of India through 1800 dealerships. The company follows dealership of two categories.
Exclusive dealers and multi brand dealers. Thus we can see the company is highly benefited by the
existing dealership network which is pretty vast and has the required number of coverage.
Therefore, the existing dealership network is adequate to handle a new product.

2 Level Distribution Strategy:

Bluestar has 6 factories majorly in Northern & Western region of India. These factories supply
directly to regional headquarters (4). From the regional distribution centres the air conditioners are

orth

distributed to 20 regional distributors located strategically in different parts of the country, which in
turn supply to 1800 dealers across India.
The Multi Brand Outlets (MBOs) like Chroma, Big Bazar, etc have the option of directly taking
supplies from the regional headquarters as they procure in bulk and this would increase their margin
by lowering the distribution cost.
The sale strategy applied by us shall be a mixture of both push and pull strategy since we shall be
initially manufacturing a number of units of and stock them in our stores and pull our customers to
buy them with the help of our unique and innovative advertising campaigns.

Manufacturing Units

West

East

South

nal Sales

Regional Sales

Regional Sales

Regional Sales

e & Large
MBOs

Centre & Large

MBOs

Centre & MBOs

Centre & MBOs

1800 Nation wide dealers

6. Promotional Strategy
Launch of any new product means we have to create a buzz around it so that the arrival of the
product may be well anticipated and the product gets good initial response. We plan to do so for our
product in the following ways: Promotion through TV advertisement as it is a powerful advertising medium because it
creates impact through sight, sound and having highest reach.
Creation Of Buzz by various press advertising or print media: - We plan to run extensive ad
campaigns primarily on Internet and print media like newspapers, magazines and journals
as press advertising is suitable for image building, information dissemination ,sales
campaigns and to create awareness about the product.
We also intend to launch a contest on radio wherein the winner will need to describe as
many creative uses of our all-weather AC in winters as much as he can in a minute and he
shall win our all-weather AC if he gives us the maximum number of uses in a minute and the
record stays put for entire contest duration of 2 weeks.
Besides this we also intend to launch teaser ads on our face book and twitter page to
generate excitement and 2 days before launch distribute pamphlets highlighting benefits of
AC.
We also plan to use PR extensively in order to garner as much news on mainstream media
during our launch time.
Road Side hoardings, banners may also be displayed about the product at critical road
junctures.
Preferential sales slot: The Company shall try and make an arrangement with multi brand
outlets to give our new product prominent displays at least during the first 2 weeks of
introduction.
Special Schemes For Bank/ Army Employee: - Since our market base shall include a lot of
people from Bank/Army background because of transferable jobs we also intend to
introduce special schemes for them in the initial phase.
Tie up with companies like movers and packers so they can advertise our product further
and recommend it to the customers.

Promotional cost
Total market size is Rs.19000 crores, and the room air conditioners market is half of it and Blue Star
targets to acquire 6.6% of total market share in room air conditioners and around 15%-20%(of its
market share) of 6.6% of market share is for new all weather AC . In India 46% of total
advertisement is done through print media.

Promotional cost break-up

(in
Crores)
107.97
10.8

Total Revenue generated

Advertisement budget

10%
Print
30%
3.24
Digital
25%
2.7
TV
40%
4.32
PR
5%
.54
Being a consumer durable huge advertising expenditure has to be incurred and maximum
advertising budget has to be given to TV advertisement not only because its expensive and require
huge funds but also it has wide reach and its appealing to large no. of consumers.
In case of print media ads will be given in commercial newspapers, magazines and non-commercial
ones too, so it can target both type of consumers.
Digital media works very well these days as a lot of the work is done online, so it create product
awareness and product knowledge to lots of consumers.

7. Sales force strategy

Account Class

No. of Accounts

A
B
C
TOTAL

400
600
800
1800

Frequency of
visits per month
per account
3
2
1

No. of visits in an
year per account

Total no. of visits

for all accounts

36
24
12

14400
14400
9600
38,400

No. of visits per person per day: 2

No. of working days per week: 6
Total no. of visits per sales person per year = 2 x 6 x 52 = 624
Total no. of sales person required for 38,400 visits = 38400/624 = 62
It is recommended to deploy existing workforce which we have calculated above. Currently, we
assume that 62 sales persons are deployed for 1800 retail centres. Additional training is
recommended for the existing sales force for the new products.
The costing figures can be assumed as 15 thousand per sales person.
Total training cost= 15,000 x 62 = Rs. 9,30,000.

Total sales force deployment cost (assuming Rs. 15,000 per sales person per month) = 15000 x 12 x
62 = Rs. 1,11, 60,000.

8. Profit & Loss Account

Profit and Loss Statement (For the period of FY 2013-2014)
(in Crores)
Year

2013-2014

Sales Turnover

107.97

Less Excise Duty

1.22

Net Sales

106.74

Total Income

106.74

COGS(@65%)(Raw Materials, Power and Fuel etc)

69.38

Gross Profit

37.36

Other Operating Expenses

Selling and Distribution Cost (@9%)

9.72

Advertisement cost (@10%)

10.80

Administration Expenses (@2%)

2.16

Miscellaneous Expenses(Attrition Cost, training Cost,

Employee Cost etc)

8.64

Net Profit

6.05

Key Assumptions and References

Sales turnover is total revenue from both level distribution network

Key source of information and approximation done from available Income Statement of
Bluestar Limited
Excise Duty is assumed as 1.13% of Net sales ( Approximated from P&L of Bluestar Limited)
COGS is high because air conditioners come in consumer durables and in this industry there
are high raw materials cost incurred by manufacturers( Approximated from P&L of Bluestar
Limited)
Miscellaneous Cost include cost of training of existing sales force, deployment cost of sales
force, employee cost (addition/attrition),

Administration cost is 2% of net sales ( Approximated from P&L of Bluestar Limited)

Selling and distribution Costs are high as manufacturer is directly distributing to MBOs,
Distributors and retailers. Further this expense is increased by 1% due to launch of new
product ( Approximated from P&L of Bluestar Limited)
High Advertisement Cost in introduction phase of Product. Further bifurcation of this cost is
explained and analysed in promotional strategy.
Net Profit is 5.60% which is expected to increase in coming years.

9. Monitoring and Control

Monitor the customer perception of the brand. It should match the positioning of the
product.
Monitor the impact of advertisements from different mediums by conducting surveys at the
point of purchase and asking relevant questions. The reach can also be monitored by
conducting random surveys in market places asking people if they have heard about the
campaigns or not.
Surveys can also monitor if the product is delivering the benefits proposed. This shall help in
retaining brand image.
Adequacy of sales force can be monitored by taking feedback from retailers and distributors
on different aspects like shortages or delays in ordering and delivering.
Long term gains from the product will depend on the ability of the product to retain its
customers. It becomes important to find out if the customer who has purchased the product
once makes a repurchase or not. This is easy to monitor in modern retail outlets but difficult
in traditional retail outlets.

Contingency Plan
In case the new product does not prove to be successful in the market post launch, a contingency
plan can be adopted for the betterment of the product. The contingency plan to be adopted can be
implemented based on the different risk parameters.
Initially, a market research should be carried out to identify the cause of failure and then try to
neutralize the negative effect due to the cause. Some of the possible risks that can occur are:
1. Pricing: If the costumers feel the prices to be unjustified and over-rated, then Bluestar can
try to reduce the price for customers. This can be implemented by either reducing the
manufacturing expenses or reducing profit margins for the company as well as the
distributors and dealers. Taking the low-price road for pricing, Bluestar can gain the sales
number in terms of volumes, thus increasing the market share eventually.
2. Market penetration: If the sales of the air conditioners is found to be lower in number but
the trend of sales matches the expectation, then low market penetration can be one of the
reasons for the results. Bluestar should implement a more rigorous promotional and
advertisements campaign and increase the distribution channels to cover more market and
thus create more customers to increase sales and market share.
3. Competitor price cut: Pricing the air conditioners in a competitive price band with other
brands can start a price war between the different brands. This can lead to an induced of
effect of reducing the prices by the other brands to increase the sales volume. This can

considerably reduce the sales for Bluestar and drop the market share. Following a price cut
by the competition, Bluestar can go for two options, listed as follows:
a. Price cut: Bluestar can itself reduce the prices of the new product range to match
the competition and maintain the equilibrium of sales.
b. Continue at the same price with more consumer benefits: Bluestar can offer more
benefits, instead of a price cut, such as extended warranties of the air conditioning
units, free installation, extra complimentary service check-ups. This will help to
increase the value proposition by the brand and will help improve the consumer
perception as a justification for higher pricing than the competition.
4. Introduction of new competitor: All the brands in air conditioning and refrigeration are a
threat to Bluestar and the new product range. If any of the brands enter the market with a
competitive product at similar or lesser price with same or added benefits to the consumers,
a major part of the prospective customers can shift to the new brand and thus causing a loss
in sales. Bluestar can work on innovating the product to match the trends in the industry or
cut down prices to offer better value for money than the competitors.
5. Wrong target area: All seasons air conditioners are majorly required in areas with extremes
of seasonal changes. In India, the northern, the North-Eastern and the Eastern regions of the
country are the major areas covered under this category. But if the response from the target
areas is different from the expected results, then the strategies need to be reconsidered.
The effect can be on the account of low awareness or the perception of the customers of air
conditioner being only a cooling unit. So the company must focus more on awareness of the
new product by increasing advertisements and promotion in those areas where the sales
have been lower than expected.