You have to strain your ears to hear the piped music at the Mumbai headquarters of Philips. The sound in the audios market, on the other hand, is loud and clear. Philips ended 2004 with an impressive 47 per cent value-share of the total audio market.
That's a Rs 950 crore (Rs 9.5 billion) market that includes mini-systems, CD portables, mono and stereos and radios, but excludes DVDs. The company's share at the end of 2003 was 41 per cent of a Rs 750 crore (Rs 7.5 billion) market. Compare that with the just-over 25 per cent share Philips had in 2000. (Source: ORG-GFK)
Last month, the company launched an aggressive new advertising campaign in print, television and online. The new tagline "Sense and simplicity" showcases the new brand promise -- using technology to make life simpler and easier. Company sources say Philips is counting on the new campaign to help it grow by at least 25 per cent this year.
That's in the future, but how did Philips almost double its market share in under four years? Interestingly, the company didn't adopt radically different strategies.
It paid attention to what customers wanted; passed on cost benefits; and brushed up its admittedly fuddy-duddy image. Says D Shivkumar, executive director, consumer electronics, Philips, "We have managed to grow the business by focusing on the price -- quality equation."
The battle of perception
Philips has been a household name in India for 75 years, but consumers associated the brand more with tubelights and transistors than cutting-edge technology.
That's ironic, considering the company has made its mark globally as a technology leader -- it invented the cassette recorder, the compact disc and the DVD; the last in association with Sony.
But a survey by advertising agency JWT, which held the Philips account from 2001 (it has recently moved to Mudra), revealed that Philips technology was seen as reliable but not state-of-the-art.
Clearly, Philips needed an image makeover. It began by taking the technology route. Post-2001, advertising campaigns emphasised the company's technologically-advanced features.
Philips was the first audio company to launch an MP3 player (May 2002), and it made sure its communication played that up: "Don't buy a system if it doesn't have an MP3 player." Then there was the October 2002 campaign, in which a little boy uses the power of the music system to nudge the cookie jar off the top-most kitchen shelf.
"We were constantly refining the image of the company in the minds of the consumer, making it more modern," explains Tarun Rai, senior vice president, JWT.
But that wasn't enough. That's where in-store displays and promotions that demonstrated the abilities of Philips products came in. In October 2003, JWT broke the "Ramu kaka" ad, where the manservant inadvertently inserts a roti into the DVD player.
The tagline made the message clear: "The new Philips DVD player plays anything". The campaign proved immensely popular -- it was used in other Asian countries as well -- and Philips wasn't slow in leveraging its appeal. At live demos, customers would be invited to slip rotis into the player, creating a buzz around the product and the brand.
But that would probably appeal more to families and Philips needed to reach out to the youth, its target customer base. So it went to where the action was -- colleges and rock festivals.
Philips set up stalls, complete with a professional DJ. Youngsters were invited to man the console, while the DJ gave them tips on mixing and spinning. "We had huge walk-ins and could provide an involvement and experience with the brand," says Shivkumar.
Clinch the dealer
Philips has successfully played the price card, but not all price cuts have been due to better or cheaper technology. In some segments like radios, it did away with trade discounts and passed on the savings to the customer.
Two years ago, Philips' radios sold at Rs 600 -- a huge premium compared to the Rs 200 or so that other brands cost. In mid-2003, the company slashed the price to Rs 400 and even introduced new models at the Rs 160 price point, especially targeting the non-urban youth segment.
Not surprisingly, dealers were upset at their shrinking margins. Some started stocking competing brands, only to return, claim company officials, when they found volumes were increasing exponentially.
"They soon realised it was more profitable to sell Philips radios because the turnover is much higher," points out Gunjan Srivastava, business head, audio consumer electronics.
Radio sales in themselves are not significant for Philips -- they account for about 15 per cent of the audio business. But, as S Nagarajan, head sales and service, explains, they help penetration and distribution of other products, such as DVDs, colour televisions and mini music systems.
To ensure that happens, Philips changed its distribution strategy around two years ago. Distributors are now allocated smaller geographical territories so they can concentrate on getting firmer footholds in their areas.
Distributor in upcountry markets, who were earlier allotted five or six districts are now given only two or three. And not all are given the entire product range.
"We allocated only some products so that the focus is sharper" explains Nagarajan.
Creating the value proposition
Philips realised early on that maintaining the price-quality equation is critical. That's especially true of the minis (DVD and VCD hi-fi systems) segment, which accounts for a quarter of the audio market in value terms.
Even as Philips constantly raised the technology bar (MP3 players, deeper bass, sleeker, more streamlined systems), it's kept its prices competitive. The company prices its minis at Rs 8,000-25,000, compared with the market range of Rs 7,500-30,000.
Moreover, prices have been falling by 10 per cent on average every year. Of course, that's true for other brands as well but, as Shivkumar points out, Philips "found the sweet spot at which youngsters could buy".
How did it do that? By ensuring that it was perceived neither as a price warrior like Aiwa or Sansui nor prohibitively expensive -- Sony products are on average 10 per cent more expensive.
Philips also brought in help from outside. In late 2002, it tied up with Countrywide and Citibank to provide accessible finance schemes for its products.
Compared to equal monthly instalments of about Rs 1,000 earlier, the new schemes let customers pick up state-of-the-art sound machines for as little as Rs 333 a month - that too, without a down-payment.
Has that helped? Consider: Philips entered the minis segment only in 2000, a year behind Sony. But it's now carved up the market with Sony, with 45 per cent share each.
The company also paid close attention to customer feedback. It has ramped up the number of service centres across the country to 190, from 125 two years ago. Today, over 900 technicians now attend to complaints, up from 600 in 2002.
The increased attention to the customer pays off in many ways. Realising that many customers were using the DVD player to play music discs, Philips decided to offer two speakers with built-in amplifiers, along with the player.
For just Rs 500 more, customers could get two benefits: enhance their music playback and, when used to play movie discs, get home theatre-quality sound. The response to the scheme has been encouraging, says Srivastava.
He adds that the company is now considering building the amplifier into the player to further improve the sound.
Product innovation has helped in rural markets, too. Based on customer research, in early 2003 Philips launched a radio with TV tuner -- this way, customers who didn't own a TV set could at least listen to television programmes.
Shivkumar points out Philips'market share in radios has climbed to 62 per cent, from 50 per cent in 2002. "Innovation is critical. We have to keep launching new products and upgrading the looks."