Report on LG' s entry in rural market & 4 A's adopted by LG.
Text of LG Rural Final
LG’s Project In Rural India(Rural Marketing)
Submitted To: Submitted By:Dr.R.K.D.Pattnayak Ashish Jain 07-II-711
“Words often fail to express one’s feelings of gratitude and indebtedness to one’s benefactors, but then it is the only readily available medium
through which the undersigned can express their sincere thanks to all those who are associated with
the work in one way or another.”
A project can never exist and thrive in solitude. Project work is never the work of an individual. It is
more a combination of use, suggestion and contributions and work involving many individuals. This project also bears the impact of many people. Thus, one of the most pleasant parts of writing this
report is the opportunity to thank all those who have been active part in it.
We are thankful to Dr. R.K.D. Pattnayak for his vital inputs and valuable suggestions and
continuous guidance, which have gone a long way in providing necessary impetus to our efforts in
consummating this report.
We are thankful to our professors from MARKETING department for their vital inputs
regarding the project work. We are also thankful to our friends who helped us in understanding of the
topic given to us in an easier way.
2 | P a g e
3 | P a g e
S.No. Particulars Pg. No.
1. Rural India 4
2. Corporate Overview Of LG 6
3. Lg Eyes Big Push Into Rural Markets 8
4. Rural Market Penetration 10
5. Marketing Strategy 12
6. Success Story 17
7. Challenges & Solution 18
8. Findings 19
9. Bibliography 20
4 | P a g e
The Indian rural consumer lives in over 600,000 villages across the country and they account for over 70% of the population of the country. For several product categories, rural markets account for well over 60 per cent of the national demand. While the rural consumer is generally seen as less affluent than his urban cousin, things are changing in rural India over the last ten years. While in 1998-99 over 83% of rural households fell in the lower and lower middle classes, the number has fallen to 70% in 2006-07; the comparative fall for urban India is from 53% to 27% [NCAER data]. And if experts are to be believed, the number is set to fall at a rapid rate over the next 20 years.
The consumer durables market in India was estimated to be around US$ 4.5 billion in 2006-07. The industry is set for sustained growth over a long term, fuelled by favorable consumer demographics, overall growth in services and industrial sectors. The rapid growth in this industry has made it an attractive investment option as the urban and rural markets in India continues to grow at an annual rate of 7 to 10 per cent and 25 per cent, respectively.
India is also emerging as a global base for handsets. India produced nearly 31 million mobile phones in 2006 worth about US$ 5 billion. This segment made the largest contribution to overall electronics production revenue and the total available market for semiconductors. Starting on an already strong base, over six million users are being added every month and are building a large local market for mobile manufacturers. Increased consumer demand is also expected to boost the white goods segment to achieve production levels of US$ 5.09 billion by the
5 | P a g e
end of 2007-08, against US$ 4.54 billion in 2006-07, with a growth rate of 12.5 per cent.
Television reach in rural India has moved up from 13% in 1993 to 26% in 2002; the urban reach of TV has moved up from 49% to 66% in the same period. The drivers for demand have been the improvement in life style and higher aspirations of urban middle class and an increase in disposable incomes. As a result, brands account for 10 per cent of the total consumer goods market in India, with organized retailing accounting for around two per cent of the total industry.
1973-74 1977-78 1983 1987-88 1993-94 1999-20000
Percentage of Population below poverty line
Rural Urban Total
6 | P a g e
Rural BPL Trend Over the Years
10 % improvement in 10 Yrs.
- Rural Fast Catching up with Urban- Has a rippling effect on the overall BPL of India- Rural overall faring better than Urban India
Established in 1997, LG Electronics India Pvt. Ltd., is a wholly owned subsidiary of LG Electronics, South Korea. In India for a decade now, LG is the market leader in consumer durables and recognised as a leading technology innovator in the information technology and mobile communications business . LG is the acknowledged trendsetter for the consumer durable industry in India with the fastest ever nationwide reach, latest global technology and product innovation.
One of the most formidable brands, LGEIL has an impressive portfolio of Consumer Electronics, Home Appliances, GSM mobile phones and IT products. LG Electronics India Pvt. Ltd., a wholly owned subsidiary of LG Electronics, South Korea was established in January, 1997 after clearance from the Foreign Investment Promotion Board (FIPB).
The trend of beating industry norms started with the fastest ever-nationwide launch by LG in a period of 4 and 1/2 months with the commencement of operations in May 1997. LG set up a state-of-the art manufacturing facility at Greater Noida, near Delhi, in 1998, with an investment of Rs 500 Crores. This facility manufactured Color Televisions, Washing Machines, Air-Conditioners and Microwave Ovens. During the year 2001, LG its assembly line for its PC Monitors at its Greater Noida manufacturing unit. The beginning of 2003 saw the roll out of the first locally manufactured Direct Cool Refrigerator from the plant at Greater Noida.
7 | P a g e
In 2004, LGEIL also up its second Greenfield manufacturing unit in Pune, Maharashtra that commences operations in October 2004. Covering over 50 acres, the facility manufactures LCD TV, GSM Phones, Color Televisions, Air Conditioners, Refrigerators, Microwave Ovens Color Monitors.
Both the Indian manufacturing units has been designed with the latest technologies at par with international standards at South Korea and are one of the most Eco-friendly units amongst all LG manufacturing plants in the world.
LG has been able to craft out in ten years, a premium brand positioning in the Indian market and is today the most preferred brand in the segment.
8 | P a g e
LG Eyes Big Push Into Rural Markets(Economic Times)
Realising that the next battle will be fought in the rural market, LG is spreading its network across the country.
LG has increased its branch numbers to 23 from 18 in recent months. To further penetrate the rural market, it has posted 93 area managers across the country.
“We are going closer to the consumers”, said Pradeep Tognatta, vice president, sales and marketing, LG Electronics in India. The spreading of the networks also helps in taking quick decisions.
According to him, the area managers have been delegated with more power to take fast decisions. LG has improved the interaction with the dealers.
“This makes the dealing with the dealers more transparent”, said LG’s Bhubaneswar branch manager, Vipul Shah. In its bid to enter the rural market in a big way, LG is planning to launch a massive campaign in rural areas. There would be road shows, society demonstrations, and localised shows in rural India in coming months.
The countryside campaign would be supported by a huge advertisement and promotion budget. The multinational company has increased its annual advertisement and promotion budget for consumer electronics by 60 per cent from Rs.25 crore in 2001 to Rs.40 crore this year (2002).
9 | P a g e
For the World Cup Football 2002 , LG is also kicking off a media promotional campaign of Rs.15 crore. Knowing that there is an opportunity to sell CTVs during the two months the world will be gripped by the World Cup Football fever, LG has launched a new CTV model, looking like a football, which according to it is the world?s first soccer TV in India.
“We plans to sell 6000 units of the Soccer TV exclusively in the eastern India where football is a popular game”, said Mr Tognatta.
LG expects that about 2.50 lakh. LG tv sets will be sold in the country during the two months. The foot ball season campaign coincides with the company’s birthday celebrations. The month- long birthday bash, which started on May 12, will showers prizes and gifts on the customers.
LG has recently achieved a cumulative turnover of Rs.5000 crore in its five years of operations in the country.
The consumer durable company is targetting to achieve a sales turnover of Rs.2700 crore this calendar year as against Rs.2200 crore achieved last year.
During the first quarter of this year, the turnover has already touched Rs.1000 crore , which is about 40 per cent of the total sales target for the year. In April, LG clocked Rs.350 crore turn over, a record achieved by any consumer durable company in a single month. There has been 35 per cent growth during the four months this year compared to the corresponding period last year.
LG aims at selling 1 million ctvs units this year. And by now, it has already sold 5.5 lakh units. LG, which is reigning the market as the leader in air-conditioners, frost free refrigerator and micro-woven segments with 28 per cent, 39 per cent and 32 per cent market shares respectively, is aiming to improve its market shares in ctv segment which is now about 12 per cent.
10 | P a g e
11 | P a g e
RURAL MARKET PENETRATION
It's a twin-pronged strategy that has worked brilliantly for LG Electronics, India. Two years ago the company's top brass was debating how to reach out to rural India.
At one level, the company figured it needed new cheaper products to lure the rural buyer. At another level, it figured that more offices in smaller towns and cities were the need of the hour.
LG moved quickly on both fronts. At one level, it has introduced cheaper products like it Sampoorna television range. At another it has gone on an office-opening spree in India's smaller towns. Currently, it has 40 branch offices. That will climb to 150 by year end.
The urban consumer durable market for products like color TVs, washing machines, refrigerators and air-conditioners is growing annually at between 7 per cent and 10 per cent. The rural market is growing faster than urban India now, The urban market is a replacement and up-gradation market today. Leading the way is LG. In 2002, 60 per cent of its turnover came from the urban market. Today, that's down to 40 per cent. The majority of LG's revenues are now coming from smaller towns like Hapur, Trichy, Jorhat and Asansol.
The company has also taken other initiatives like 65 Remote Area Offices under the branch offices that are empowered to directly link to the central billing system for orders, 230 service centres and 2,600 mobile authorized service personnel for villages having below 10,000 residents. All these moves are part of LG's efforts to push turnover to a whopping Rs 7,000 crore (Rs 70 billion) by year-end.
12 | P a g e
All this is great music for rural dealers. A city dealer will today sell a CTV by cutting into his margin, closer to the dealer price rather than the marked retail price. So while he makes 5 per cent to 7 per cent, rural dealers make 7 per cent to 10 per cent on a sale. "Volume makes up in the city whereas value makes up in the rural area," says an industry observer.
Also, the increased rural focus doesn't mean the urban market will suffer. Samsung, Onida and even LG are aggressively looking at the urban replacement market for their hi-end premium product range.
13 | P a g e
The 4A approach
The rural market may be appealing but it is not without its problems: Low per capita disposable incomes that is half the urban disposable income; large number of daily wage earners, acute dependence on the vagaries of the monsoon; seasonal consumption linked to harvests and festivals and special occasions; poor roads; power problems; and inaccessibility to conventional advertising media.
However, the rural consumer is not unlike his urban counterpart in many ways.
A). Availability - Place
The first challenge is to ensure availability of the product or service. India's 627,000 villages are spread over 3.2 million sq km; 700 million Indians may live in rural areas, finding them is not easy. However, given the poor state of roads, it is an even greater challenge to regularly reach products to the far-flung villages. Any serious marketer must strive to reach at least 13,113 villages with a population of more than 5,000. Marketers must trade off the distribution cost with incremental market saturation. Over the years, India's largest MNC, Hindustan Lever, a subsidiary of Unilever, has built a strong distribution system which helps its brands reach the interiors of the rural market.
14 | P a g e
LG Electronics defines all cities and towns other than the seven metros cities as rural and semi-urban market. To tap these unexplored country markets.
The company has also taken initiatives like
A) 65 Remote Area Offices under the branch offices that are empowered to directly link to the central billing system for orders.
B) 230 service centres.C) 2,600 mobile authorized service personnel for villages
having below 10,000 residents.
All these moves are part of LG's efforts to push turnover to a whopping Rs 7,000 crore (Rs 70 billion) by year-end.
15 | P a g e
B). Affordability- Price
The second challenge is to ensure affordability. With low disposable incomes, products need to be affordable to the rural consumers, most of whom are on daily wages. Some companies have addressed the affordability problem by introducing small unit packs. Fro ex. Godrej recently introduced three brands of Cinthol , Fair Glow and Godrej in 50 gm packs, priced at Rs.5 meant for specifically for Madhya Pradesh, Bihar and Uttar Pradesh.
LG India has taken full advantage of a booming demand for colour TVs in rural India by launching Sampoorna, a colour TV whose operations booklet was in the Devnagari script. For this model, LG also introduced technology that provided better a reception in low signal locations—which is a common problem in rural areas. Today, LG claims that Sampoorna series accounts for about 30 per cent of its colour TV volumes.
.In 1998, LG launched its first low priced TV for rural consumers
Sampoorna- Rs.3000 Cineplus- RS 4900
C). Acceptability - Product
The third challenge is to gain acceptability for the product or service. Therefore, there is a need to offer products that suit the rural market. One company which has reaped rich dividends by doing so is LG Electronics. In 1998, it developed a customized TV for the rural market and christened it Sampoorna. It was a runway hit selling 100,000 sets in the very first year.
1. Product localization is the key strategy used by the LG
16 | P a g e
2. LG came out with Hindi and regional language menus on its TVs.3. Introduced the low-priced “Cineplus” and “sampooma” for the ruralmarket.4. LG was the first brand to introduce gaming in TVs in continuations of itsassociation with cricket LG introduce cricket game in CTVs
Promotion of brands in rural markets requires the special measures. Due to the social and backward condition the personal selling efforts have a challenging role to play in this regard. The word of mouth is an important message carrier in rural areas. Infect the opinion leaders are the most influencing part of promotion strategy of rural promotion efforts. The experience of agricultural input industry can act as a guideline for the marketing efforts of consumer durable and non-durable companies. Relevance of Mass Media is also a very important factor.
Some Of their Promotional Campaign
Mobile Van at Kasargod Cookery Classes at
17 | P a g e
different locations forRural Housewives
Exhibition at Rajamundry Road Show at Satna
18 | P a g e
THE `Go rural' mantra seems to have worked for the consumer electronics and durables major LG Electronics India Pvt Ltd. The company, which recorded a turnover of Rs 2,310 crore — a 55 per cent growth — during the first half of this year, when compared to the same period last year, has been able to register this growth thanks to a little help from the semi-rural and rural markets.
"LG has succeeded in acquiring this growth more so because it moved its focus to the interior of India after establishing itself in the urban market,"
The contribution from the semi-rural and rural sector has been close to 48 per cent in the overall turnover of the company. The focus is to penetrate deeper into rural India which is an emerging market
LG has recorded a growth of 40 per cent in air conditioners selling almost 2 lakh units against 1.42 lakh units sold during the same period last year. In colour televisions (CTVs), it has registered a growth of 22 per cent selling 8.60 lakh units.
According to the company, it has recorded a growth of 66 per cent in the direct cool refrigerator category and 48 per cent in the frost-free category during the first half of the fiscal.
Talking about the washing machines segment, which had otherwise has experienced a depressed market, Mr Mahalingam said that LG had been able to attain 100 per cent growth in the fully automatic category, while 34 per cent growth in semi-automatic category.
19 | P a g e
According to industry analysts, LG has been able to strengthen its stronghold in the country due to innovation and understanding of the Indian consumer.
"Besides, their rural thrust has been strong with `Sampoorna TVs' in the Hindi heartland and the semi-urban belt," they point out.
Electricity Shortage – Sporadic Power Supply
Acute Water Shortage.
Poor Transportation availability.
Consumer Finance Options
Can they make energy saving products??
Can they give him a washing machine which consumes less
Can they give him access to buying products near by his
Set up of a Life style Research Team which would analyze the needs & preferences of the consumer , Indepth..
20 | P a g e
Understand at length his comfort levels in terms of what he wants and what he would spend for what he wants..
Make products and service available for him to suit his needs & Preferences..
Have a deep pocket network to make products available for him at a close proximity from where they can access product easily.
1) The rural market accounts for 60 per cent of new CTV buyers for LG.
2) The rural market for LG grew at 25 per cent over the last year, against a 15 per cent growth in urban areas.
3) Sampoorna TVs sold in the Indian heartland and the semiurban belts ,enforced a strong connection with India for LG.
4) It connected very well with down the pop strata
5) LG has adopted the regional distribution channel in India. All the distributers work directly with the company. This has resulted in quicker rotation of the stock and better penetration into B, C, D, class market.
6) LG was the first brand to introduce gaming in TVs in continuations of its association with cricket LG introduce cricket game in CTVs.
21 | P a g e
7) Local and efficient manufacturing to reduce cost - To overcome high import duties, LG manufactures PC monitors and refrigerators in India at its manufacturing facility at Noida, Delhi.
1. Internet www.in.lge.com www.wikipedia.com www.businessstandard.com www.economicstimes.com www.thehindubusinessline
2. Magazines Business World Business Out Look India Today