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Looking to the future at LG

By , agencyfaqs! | In | November 21, 2000
LG comes in with prohibitively expensive washing machines and refrigerators but the focus is on the future

Sabil Francis
agencyfaqs!
NEW DELHI, November 21

Crystal ball gazing is part of market strategy at LG.

For the Korean monolith - which started out in 1947 with a capital of 3,800 won under the name Lucky and is now a US$ 54-billion business group with 50,000 employees in over 60 countries and profits of 572 billion won - shrewd marketing has played just as important a role in the company's triumph as the smile of Dame Fortune.

One of the key factors in the company's success has been its ability to correctly anticipate the future - a talent it has put to good use time and again in an entire range of products. LG introduced the first toothpaste in South Korea in 1954, the first refrigerators in 1965, and the first locally made computer in 1981. All the products sold well. In India, LG is now trying to corner future markets for internet-enabled microwaves, washing machines and refrigerators.

In a nutshell, the strategy is this - get in first with a new product, dig in, and then sell when the product becomes commercially viable. LG's new products are almost magical. They can download recipes from the net, be operated from the office, and adjust settings automatically. And they are prohibitively expensive - $4,000 for the computer-enabled fridge, and $9,000 for the internet-enabled one.

So why is the company going ahead with such fanfare? "We are not trying to be the number one in quantity. We are always looking for quality, we want to be number one is specific segments. Let the other companies eat, we too will eat, but at the highest end of the market," says K.R. Kim, managing editor, LG Electronics, India.

The future networked home is what the company is looking at.

LG plans to invest $289 million (Rs 1,040 crore) over the next nine years and is looking at a major manufacturing presence in India in a range of white and brown goods as well as in a range of electronic components by 2005. LG knows that the company will sell "maybe one IT fridge a month, or maybe one a year" - as Kim puts it - but its aim is to have "a market presence" now. And when the costs come down, the brand name would already have been established. That's when LG plans to cash in.

In other words, the Korean chaebol's cyber initiative is to have the first mover advantage in the e-commerce world. This strategy has paid dividends for the company several times in the past. In 1998, for instance, taking advantage of a booming demand for colour TVs in rural India, LG launched Sampoorna, a colour TV targeted at the rural market. The operations booklet was in the Devnagari script and LG also introduced technology that gave better a reception in low signal rural areas.
Today, the Sampoorna series accounts for about 30 per cent of LG's colour TV volumes.

In refrigerators, LG entered the mass market direct cool segment in 1998. Prior to that, it sold high-end frost-free refrigerators only. Today, nine out of every 10 refrigerators sold are direct cool, and LG claims a share of 8 per cent in this segment, up from 3.5 per cent last year.

Now, LG is preparing for a time when consumers will buy groceries and prefer to wash their clothes by giving commands online. What could spoil the dream is the last mile disadvantage - its products may be fine, but the necessary infrastructure such as reliable delivery companies, that can physically deliver the products that have been ordered online, are difficult to come by.

And then there is the possible reluctance of the consumer to go completely online. As one observer put it, "If I have to put the clothes into my washing machine by hand, I might as well push the buttons rights there. Why go to the office?"

Introducing internet-enabled washing machines and refrigerators alone will not be enough. Even if the brand name and the infrastructural backup exists LG will have to convince the consumer that shelling out the extra cash, even when such technological gizmos are 40 to 50 per cent more expensive than ordinary refrigerators or washing machines, is worth it.

© 2000 agencyfaqs!