afaqs!

Konka to sell on quality rather than price

By , agencyfaqs! | In | September 13, 2000
Will the Chinese electronics major be able to convince the Indian consumer that Chinese goods are as good as the rest?

Sabil Francis
agencyfaqs!
NEW DELHI, September 13

"There is no best, only better."
The motto of Konka chairman Chen Weirong, 42, who sweated it out on the factory floor before he became top boss in 1982, has rarely driven market strategy for the $2- billion Beijing based-Chinese electronics giant. Instead, Konka, which in Chinese means wealth and happiness, is known for ruthlessly undercutting its rivals.
It's different in India. Moving away from the beaten track, the company, which controls a quarter of the Chinese market and captured 1 per cent of the US market, after arrival in 1999, plans to go in for a quality-led rather than price-driven strategy.
In contrast, globally, Konka has adopted the time-tested marketing tactic of coming in cheap and then selling on quality. In the United States, Konka cold-bloodedly sold its HDTV's at $3,000 while the nearest US product was sold at $7,000 to $8,000. Such undercutting, combined with an aggressive marketing strategy to portray a warm and friendly image, helped Konka to capture a 1 per cent share of the US TV market within one year of its arrival in 1999. It's now aiming at a 3 per cent market share.
So the question is: Can Konka make the transition from a quantity-brand to a quality-brand, or effortlessly combine both?
If past experience is any indication, it just could. Japanese companies penetrated the US market by selling at ultra-low prices, and in India too, LG and Samsung were able to successfully overcome the image of Korean products as inferior to Japanese.
On the other hand, Chinese products conjure up images of drab workers routinely churning out shoddy goods. Such images are far removed from reality. Konka's factory, which started to produce cassette players in a run-down shed surrounded by lush green rice fields near Shenzen in southern China, can now, using fully automated machines, produce a TV every 13 seconds. Workers, clad in the corporate uniform of a baby-blue windbreaker, have to punch in a time clock, a rarity in Chinese state run industries.
The Indian scene is tough. Aggressive marketing and positioning designed to cater to every segment of the market has seen LG, whose products hit the Indian market in May 1997, wresting 5.7 per cent of the television market share. Samsung, which came in a year earlier, has an 8 per cent market share, according to industry sources. With such well-established players in the market Konka will find a quality-led strategy tough going.
The idea that Chinese equals cut-price is deeply ingrained in the mind of the Indian consumer. This is what rival companies are banking on. Says Vijay Narayanan, director general, (marketing), LG electronics, "There is an image connotation. To sell at high prices, you need a brand image. Nobody is going to buy a Maruti Esteem for the price of a BMW." Company officials claim that though the TV sales have gone down by 5 to 7 per cent in the first fiscal of 2000, LG sales have grown substantially.
And other manufacturers are opting for aggressive tactics. As part of its 'Samsung Digitall - Everyone's Invited' global campaign, Samsung is stressing on a "value for price" strategy. The idea is to capture a major chunk of the market for premium television brands. Company officials say that Samsung expects at least 10 per cent of its CTV sales to come from the Plano CTV range and has not resorted to discounts or exchange offers.
Samsung is banking on the high quality image that South Korean products have in the minds of the Indian consumer. Konka may not be able to do this as long as Chinese products are considered qualitatively inferior.
Consumer behaviour could be another stumbling block. TVs are seen as utility items that can be changed for better ones, and not as lifetime investments. Consumers, who are willing to shell out more are likely to go for the premium brands, while economy buyers would prefer to go in for better prices. With Akai and Aiwa playing the price game, and other Chinese companies like TCL, Onwa, Changkong and Haier eyeing the lucrative CTV market with price strategies, the going will be tough for the Chinese major as long as Chinese means cheap.
At the same time, there could be a deeper reason for the company moving away from a price-driven strategy. In the United States, the company had a major advantage as it could assemble TV sets in China and then ship them to the US. Thus, Konka's costs were substatially cheaper than that of competing manufacturers. This will not work in India, where labour costs are comparable to China and tax and duties are higher by at least 30 per cent in comparision to western markets. If the company is to generate profit, it must go in for volumes. For this, a price-driven rather than a quality driven campaign is the best option.
To their advantage, corporations like Konka have Chinese government backing. China would like to break its traditional reliance on slow-growth industries such as textiles. So Beijing is aiding the international expansions of Konka and other companies with tax credits, cheap capital and speedy approvals for moving people and resources.
Can Konka turn around its image? Company officials are upbeat. Says R.B. Tandan, vice-president (marketing) Konka Electronics India Limited, "Twenty years ago Japanese goods were cheap. A decade ago, it was the same for the Koreans. Now they are on top. We'll be the same."
The Koreans did it. The Japanese did it. If Konka is able to do the same, it just might mean that the Chairman's motto, splashed in red paint all over the company compound, will come true in Indian markets.

© 2000 agencyfaqs!