LG Electronics: A Rural Initiative

Abstract
The case focuses on the rural marketing initiatives undertaken by the LG Electronics India Ltd (LG). In this context, it describes the product and promotion strategy employed by LG Electronics for the rural markets. It also describes how LG was able to understand the Indian consumers and accordingly offered products and framed different strategies that supplemented its offerings. Further, it also provides details about the unique distribution structure designed by the LGEIL (LG Electronics India Pvt. Limited) that consisted of a pyramidal sales structure with decentralization of decision-making powers by the lower level managers. Finally, it mentions the various challenges faced by consumer electronics companies in the rural segment. Selling to the poor may be more profitable than selling to you and me. This is where the future is .Opportunities are everywhere. The digital divide is not about lack of opportunity, it is about lack of imagination. -C.K. Prahlad

Introduction
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 is recognized as a leading technology innovator in the mobile communications and information technology. LG is the acknowledged trendsetter for the consumer durable industry in India with the fastest ever nationwide reach, product innovation and latest global technology. One of the most formidable brands, LGEIL has an impressive portfolio of Consumer Electronics, GSM mobile phones, home appliances and IT products.

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 Colour Televisions, Air-Conditioners, Washing Machines and Microwave Ovens. During the year 2001, LG also commenced the home production for its eco-friendly Refrigerators and established 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.

In 2004, LGEIL also up its second Greenfield manufacturing unit in Pune and Maharashtra. Covering over 50 acres, the facility manufactures LCD TV, Air Conditioners, Refrigerators, Microwave Ovens, GSM Phones, Color Televisions and Color Monitors. 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 electronics market segment.

The Indian Rural Scenario

The rural market of India is large and scattered and it consists of 63 crore consumers spread throughout the country. More than 70% of the rural income is from agriculture. Although the rural market does offer a vast untapped potential, it should also be recognized that it is not easy to operate because of several problems. Rural marketing is thus a time consuming affair and requires considerable investments. According to National Council for Applied Economic Research (NCAER) the Percentage Distribution of Household Population and Income:
Table1: Distribution of Population

Households Rural 73.6 Urban 27.4 India 100

Population 74.6 25.4 100

Income 55.6 44.4 100

Source: NCARE Report

Thus it can be seen that Rural India contributes about 56% of national income as against 44% contributed by Urban India. Although it is contributed by 75% of the total population, which has its own challenges like how to sell small quantities to large base of consumers. The major causes for this misbalance are:

1. The number of people below poverty line has not decreased in any appreciable manner. 2. Nearly 50% of the villages in the country do not have all weather roads. 3. The Literacy rate is low as compared to urban areas which lead to problem of communication for promotion purposes. 4. Rural areas are scattered and it is impossible to ensure the availability of a brand all over the country. 5. The kind of choices of brands that an urban consumer enjoys is different from the choices available to the rural customer.

The 4 A Approach by LG
The rural market may be alluring but is not without its problems.

Availability
The first and foremost challenge is to ensure availability of the product or service. However given the poor state of roads, it is an even greater challenge to regularly reach products to the far-off villages. In a bid to consciously go deeper and farther into the hinterland, LG has set up 50 Central Area Offices (CAOs) in B class cities and 59 Remote Area Offices (RAOs), in C class towns,

besides its 18 branch offices. This has helped in feeling the pulse of the consumer and being able to respond rapidly to their needs.

Affordability
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. Thus the CTV Sampoorna is priced at Rs 5,650. Similarly, frost-free refrigerators now begin from Rs 11,500, ACs from Rs 16,000 and microwave ovens from Rs 6,000.

Acceptability
The third challenge is to gain acceptability for the product or service. One company, which has reached rich dividends by doing so, is LG Electronics. In 1998, it developed a customized TV for the rural market and named it Sampoorna. It was a runaway hit selling 100,000sets in the very first year.

Awareness
Mass media is able to reach only 57% of the rural population. With large parts of rural India inaccessible to conventional advertising media only 41 of rural households have access to TVbuilding awareness is another challenge. LG Electronics uses vans and roads to reach rural customers.

Distribution and Selling Strategies by LG

A penetrative distribution strategy ensured that products were available even in smaller towns and cities, breaking the chain of urban dependency that plagues most white goods manufacturers. How does it do that? LG reaches into the market through a pyramidal sales structure. Branch offices in larger cities set up central area offices in smaller towns, these in turn reach out to even smaller towns and villages through remote area offices. Each RAO has servicing, marketing and sales teams at its disposal and an individual budget for marketing activities in its territory. The executive in charge has independent decision-making power. He can decide the time and scale of brand promotions in his area, without having to ask every little detail from the head office.

Technology too, is being used to the maximum to ease their jobs. The RAOs and CAOs are all electronically connected through a V-SAT and Intranet network and where earlier decisions about putting up large hoardings could be approved only after a visit from the head office, LG has provided all its branch managers digital cameras, now they just click images of suitable locations and get them approved electronically which in turn saves cost and time.

LG Promotion Strategies
Promotion is the process of marketing communication to inform, persuade, remind and influence customers or users in favor of your products and services and this promotion strategy becomes even more difficult when we are dealing with rural markets. 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 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. Various Promotion Medias used were, Newspaper: Eenadu(A.P), Dina Thanti (Tamil Nadu), Punjab Kesari (North), Loksatta (Maharashtra), Anand Bazaar Patrika (West Bengal). Television: Sun Tv, Asianet, Alpha Punjabi, Alpha Marathi. Radio reach is the highest in the rural market. Outdoor Advertising includes Signboards, Wall paintings, Hoardings, Tree Boards and Bus boards. Conducting Fairs and Meals in Rural parts of India. Audio Visual Vans: The van is a mobile promotion station having facilities for screening films, slides and microphone publicity.

Challenges Faced by LGEIL in Rural Market

1. Level of Education in rural sector (approximately 60 percent of the population lies below the middle education brackets).
Table 2: Education in Rural India

Education Level Rural Below Primary 31.7 Primary but below Middle 29.5 Middle but below 16.9 Matriculation Matriculation but below 18.4 Graduates Graduates and Above 3.5 Source: Census of India , 2001

Urban 18 22.9 16.9 29.6 13.2

2. Traditional outlook of rural consumers due to which they are resistant to change. Life in rural areas is still governed by customs and traditions and people do not easily adapt new practices. For example, even rich and educated class of farmers does not wear jeans or branded shoes. Rural consumers are cautious in buying and decisions are slow and delayed 3. Demand in rural market depends on the agricultural situation as it is the main source of income. Again agriculture depends on monsoon. So buying capacity of rural consumers varies and it becomes difficult to predict demand.

4. Lack of infrastructure facilities. Many rural areas are not connected by rail transport. Kacha roads become unserviceable during the monsoon and interior villages get isolated.

5. Retailers pushing imitation or fake products in place of branded ones for better commission. Growth rate of fake product industry is 20% per year.

6. Communication

Problems. Facilities such as telephone, fax and telegram are rather poor in rural

areas.

7. The problems of physical distribution and channel management adversely affect the service as well as the cost aspect. The existent market structure consists of primary rural market and retail sales outlet An effective distribution system requires village-level shopkeeper, Mandal/ Talukalevel wholesaler or preferred dealer, distributor or stockiest at district level and company-owned depot or consignment distribution at state level.

Future
According to India managing director Moon B Shin LGEIL is planning to invest around $40 million in 2009 towards its product development. It expects all such initiatives will enable it to maintain its targeted 15% plus growth rate. LGEIL grew by 14% in 2008 and clocked a turnover of Rs 10,750 crore. It is now aiming for Rs 13,000 crore turnover in 2009. LG is also planning to roll out several new models in low-end segments like direct cool refrigerators, twintub washing machines, solo microwave and CRT TVs in the first half of 2009. The company, which has expanded its focus areas to the rural markets, now expects 40 per cent contribution from rural sales to its turnover this year, as the rural sector is growing at a pace faster than urban sector resulting in higher disposable incomes and, thus, mounting purchasing power.

Questions for Discussion

1. Discuss the strategies of LG Electronics India Ltd. (LGEIL) in terms of relying completely on promotional campaigns to market and increase sales of its products. 2. Comment on Distribution and Selling Strategies by LG to enter into the rural market in India 3. Discuss what different strategies should LGEIL adopt to overcome the various Challenges faced by it in Rural Market.

References:
Hansra, B.S and P.Adhiguru, "Agriculture transfer of technology approaches since
Independence in India", Journal of Extension Education, 9(4), 1998. Dr Yasho V Verma (2008), Passion- The Untold Story of LG Electronics India, BIZTANTRA India. Suvi Dogra,LG India will bring relevant products to India, and focus on rural markets, after-sales service and IT, http://www.business-standard. April 26, 2009 P. Balakrishna ,Selling in Rural India , http://www.thehindubusinessline.com LG, Hero Honda, Nicholas Piramal to focus, http://knowledge.wharton.upenn.edu Gagandeep Kaur, HANDSET Strategy : Ride to Rural India, http://voicendata.ciol.com/content/rural_special/108110702.asp, November 8, 2008. Rural Market , http://www.ibef.org/economy/ruralmarket.aspx, August 2009 LG Electronics to focus more on rural marketing, http://www.thehindubusinessline.com/2004/01/25/stories/2004012501260500.htm, Jan 25, 2004. http://www.pressreleasepoint.com http://www.filesend.net/download.php http://ezinearticles.com/?Challenges-In-Rural-Marketing&id=1092597 http://www.in.lge.com http://www.domain-b.com http://www.icmrindia.org http://toostep.com/idea/challenges-in-rural-marketing