Companies with a continuous product development pipeline have been able to deliver sustained profitability and growth.
Demand for consumer durables has grown much faster in developing markets like India and China as compared to developed markets in the last three to four years. The consumer durables market in India in 2009 was Rs 100,000 crore having grown at 25 per cent per annum during 2005-09. Positive shifts in consumer demographics have driven this demand surge in India. While on one end these shifts have led to the growth of newer categories (for example LCD TVs, laptops, split air-conditioners), they have also enabled consumers at the lower end of the income pyramid to become first-time users (like A research by Tata Strategic indicates that with continued growth of the Indian economy in the coming years, share of spend on non-food items in the overall consumer spend pie is expected to increase. And durables, being one of the key non-food spend categories is expected to benefit from this trend. Tata Strategic estimates that the per capita durables spend in India and the durables market is expected to continue to move on its high growth trajectory of 25 per cent per annum in the next five to seven years.
The past decade has seen the entrenchment of the Korean chaebols in the Indian consumer durables market. While they have taken the top two positions in most key categories, the market gets fragmented as we move beyond the top three to four positions. Thus, for smaller players or newer entrants the problem is two fold. On one side they are up against the large companies with deep pockets, a strong product pipeline, top-of-mind brand recall and robust distribution. On the other side there are a plethora of smaller companies vying for their share in the market leveraging both the price and features platform. An analysis of durable companies in India reveals that the small and mid-sized companies exhibited relatively lower growth and profitability.
Tata Strategic’s research of the global durables market highlights that companies with a continuous product innovation pipeline have been able to deliver sustained profitability and growth. Apple is an excellent example of a company that has seen a dramatic turnaround in fortunes riding on product innovations with global scale. In fact a mapping of spikes in its market valuation over the years shows a clear correlation with its product launches.
Smaller global players, like Garmin (USA), have emerged as market leaders in a niche, fast-expanding category like navigation devices. Rinnai (Japan) is a company, which provides heating solutions covering cooking, water heating and room heating. They have focused on constantly innovating in this space and have built up a small but profitable business model. Gree is a successful Chinese company selling room air-conditioners and kitchen appliances. The company’s portfolio of 3,000 technical patents has helped it leverage the burgeoning domestic demand and emerge as the market leader.
Selected players in India have differentiated themselves riding on consumer insight-led product innovation. These include large, well-entrenched players, and also new entrants who identified and addressed uncontested spaces side-stepping large players. Some innovation examples are:
Micromax: Mobiles with dual SIM cards to aid consumers in switching to mobile operators with the most attractive subscription plan,
Godrej Chotukool: Low priced refrigerators at $90 for the rural consumers
Eveready LED lanterns: Better light, lower monthly cost than kerosene lanterns
Pure It (Hindustan Unilever): Lower-priced water purifier, addressing the concern of water borne diseases (no electricity required)
Inverters (Sukam, Luminous): Addressing the erratic power-supply situation in many parts of the country
A clear implication for smaller durable companies in India is the need to drive product innovation for sustainable profitable growth. The innovation agenda needs to identify unaddressed needs and deliver products relevant to the chosen target consumer segment. Players could choose any of the following options for category selection:
Enter categories where large players are not present or less interested,
Enter categories with large player presence with a significantly differentiated value proposition preferably expanding the market,
Identify future categories based on unserved consumer needs, and become an early entrant.
Two factors determine the success of the innovation agenda superior ability to identify un-served/underserved consumer needs and product development through technology accessed from outsourced partners.
Companies can adopt a four step structured framework developing their innovation led entry or growth strategy.
Step 1 of this approach starts with an in depth category understanding covering current category size, future growth drivers, segmental trends on technology and consumer preferences, the key competitors and their market shares.
In step 2, this understanding is deepened to identify new pockets of opportunity for companies (concepts). Existing price-features-benefit matrix in the market, unoccupied positioning planks or planks occupied by minor players, megatrends likely to impact the Indian market in the medium term and underserved needs or pain points of the Indian consumer are combined to create concepts. Next key characteristic for each concept like target consumer segment, value proposition and the basis of differentiation are outlined.
Step 3 is aimed at optimising innovation within the limited resources available to the company. The concepts are prioritised based on factors like their brand affinity, proof of concept, technology access, and commonality of target consumer segment, distribution overlap and expected future competition. Consumer validation of the filtered concepts forms an important basis to estimate the likelihood of success of these opportunities.
In step 4, prioritized concepts are then developed further to create the innovation based entry or growth plan for the company.
The product innovation framework provides a robust methodology for companies in the Indian durables market to deploy a systematic process to develop their strategy enabling them to simultaneously differentiate from local competition and fight the large global players. In conclusion, prosperity through innovation can be the only sustainable route for rapid profitable growth in the consumer durables market in India.
Excerpts from Business Standard