Voltas vs LG: The Tussle for Air Conditioning leadership in India

‘When you reach the top, that’s when the climb begins’.
Michael Caine
After a long day, full of congratulatory messages over Voltas becoming the market
leader in the AC segment, the above statement resonated in the mind of Mr. Mahesh
Agarwal, Divisional Head of Air Conditioners, Voltas India, as he looked back on his
success with Voltas and the challenges that lay ahead.
It has been a long haul for Voltas, one of the earliest players in the Indian AC market
and leader in the 1980s and 1990s that lost market leadership to the Korean giants
and regained it in 2017.
The penetration of Air Conditioners in India stood at only 3%1 and the AC market was
set for rapid growth with expectations of CAGR of more than 10% till 2020 in
conjunction with rising per capita income2. In India, air conditioning alone was
expected to double the country's electricity demand in 15 years3. Such numbers
represented a major opportunity where India could leapfrog to the kind of room air
conditioners models that are far more efficient and that use refrigerants that do not
contribute to global warming like the ones common in the West, and even in China.
Therefore, it became a strategic market for the players in the air conditioner segment,
who not only have to be competitive in pricing but also be innovative to appeal to
increasingly eco-friendly customers.
Sitting in the living room of his apartment, Mr. Agarwal started working on his
presentation to the Board of Directors on their performance in the year 2016-17 and
his plans for the future growth of the company
The Air Conditioning Market in India
The population of India stood at over 1.2 billion people in 2017 and was increasing.
With hot and humid summers, a rising population and the AC penetration of only 3%,
India presented a huge opportunity to the leading Air Conditioning players. The AC
industry witnessed moderate growth during 2011-12 to 2016-17, wherein sales
clocked 6.9% CAGR to about 4.3 million units 4. During this period, the split AC (SAC)
segment grew at around 11-12% CAGR, while the windows AC (WAC) segment
witnessed a decline of around 2-3% CAGR in sales volumes 4. Consequently, share

1 http://www.thehindubusinessline.com/companies/daikin-takes-pole-position-in-ac-sales-garners-15-
share-of-home-segment/article9461691.ece
2 https://www.techsciresearch.com/news/422-india-air-conditioners-market-to-witness-growth-of-over-

10-until-2020.html
3 https://www.forbes.com/sites/jeffmcmahon/2017/05/01/worlds-hottest-market-air-conditioners-for-

india-and-hundreds-of-electric-plants-to-power-them/#31804e0a532b
4 CRISIL Research, Industry

This case was presented for the Trojan Horse event in Vista 2017, IIM Bangalore’s annual business
summit. We would like to thank Professor Ramesh Venkateswaran, Faculty, Marketing at IIMB for
helping us in preparing this case.
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of the SAC segment increased to 75% in 2016-17 from 60% in 2011-12 4. The industry
witnessed a shift in consumer preference from window ACs to split ACs despite being
priced higher than window ACs, given their lower noise levels and running cost, easier
portability, reduced operating cost as well as shrinking price differentials.
In India, room air conditioners (RACs) managed to penetrate only about 11% of
households up to 2016-17, which was much lower than the 25-30% figure at the global
level5. The low priority for RACs on the purchase list is evident, specifically in rural
areas, as alternatives like air coolers are available at lower price points and consume
lesser power. (Refer Exhibit 1)
In the room air conditioner (RAC) segment, the top three players accounted for around
50-55% of the market in 2016-176. Large Players like LG, Voltas and Samsung had
been struggling to increase their market share over the years, due to the entry of many
new players. The focus was on widening the distribution channel, mainly in tier-II and
III cities, where penetration was very low. This has made air conditioners the most
competitive segment in the household appliance industry.
Voltas
Voltas Ltd., part of the Tata Group, was founded in India in 1954. As an engineering
solutions provider and project specialist, the company offers engineering solutions in
areas such as material handling equipment, water management & treatment, heating,
cold chain solutions, textile machinery, ventilation, electro-mechanical projects, air
conditioning, refrigeration, mining and construction equipment, building management
systems, and indoor air quality.7 Voltas launched the split air-conditioner in 1991,
specifically needed for showrooms, general office areas and shops.8
The Turnaround Story (Late 1990s to 2000s)
Korean rivals in the AC market had overthrown Voltas in the late 90s and the early
2000s. Over the years of being dominated by foreign MNCs, Voltas has undergone
several transitions in terms of its positioning and communication plans. In the mid-
2000’s, when the AC market in India was emerging, the company came up with a
tagline of “India ka dil, India ka AC”, assuming a more India-centric position. This was
followed with a proposition of “Save Karo India”, a positioning shift towards energy
efficiency, the company continued to stress on energy efficiency for several years
during which it also experimented with cause related marketing. On the lines of rural
electrification and effective deployment of energy savings towards lighting many
households in India, a campaign “Jagmag Desh Mera” was also conceived and
implemented. Next, the focus was on educating the customers on the efficient usage
of the brands’ products. Thus, the company came up with ‘Sensible Cooling’
campaign’. After having continued with the ‘Sensible Cooling’ campaign for two

5 CRISIL Research, Industry

6 CRISIL Research, Industry
7 http://www.voltas.com/about-voltas/Profile.asp
8 http://www.business-standard.com/company/voltas-597/information/company-history

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consecutive summers, the company believed, this was the time for customer re-
engagement. It is based on the same premise that the latest campaign by Voltas has
been initiated.9
Voltas launched its new brand positioning with a tag ‘Indian ka dil, India ka AC’ in
2006. It took the homegrown brand a decade to become ‘India ka AC’, though it might
have won ‘India ka dil’ a long time back. 10
The All-Weather AC (2010s)
The company introduced its all-weather AC in 2012, backed by a character called ‘Mr
Murthy’ in its TV commercials. It took a huge leap in terms of connecting with
consumers with this TV commercial.
While other brands were selling themselves desperately on their features, Voltas had
Murthy calling out to people, connecting, impacting and talking to them. Murthy not
only addressed people in the language they understand and relate to, but the Murthy
campaign for Voltas helped in simplifying jargon and prodded people to use ACs all
year round. Also, the move of sticking to a wide portfolio worked well for the company.
It’s latest summer campaign tagged ‘All weather AC’ tries to go beyond the
conventional ‘cooling’ route that is followed by most of its competitors, the several air-
conditioner brands, in their marketing campaigns. It goes a step further to focus on the
concept of ‘climate control’. The strategy this time around is to de-seasonalise the
brand.11 (Refer Exhibit 2)
The aim was to create a compelling communication, to make people believe that
Voltas is the expert in climate control, the go to AC across all seasons. The new
campaign mainly targeted and appealed to the younger audience and the first-time
buyers of air-conditioners.
Voltas ended FY’17 with a 19.5% market share. LG — South Korean biggie, logged
in 18.4%, enabling Voltas, its Indian rival to emerge the leader. The ‘all-weather’ and
‘energy efficient’ brand positioning along with the imagery of ‘trust’ being part of the
Tata group, reinforced their dominance. It has led us to believe that at the least, for
the time being, the ‘smarter’ Murthy had outsmarted the Korean giant.
Factors of Voltas’ Success
Looking at what potentially played a part in the success of the latest campaign, the
key success factors would be a well-differentiated product portfolio with spot-on
positioning based on sharp consumer insight, brand equity, customised India-centric
approach and highest distribution reach achieved.
The following were the challenges at the category level – fragmented market, slow
product innovation, global brands offering products at competitive prices, multiple

9 http://www.pitchonnet.com/blog/2012/06/12/voltas-changes-positioning-a-seasoned-approach/
10 http://brandequity.economictimes.indiatimes.com/news/marketing/brand-wars-korean-ac-brands-
feel-the-heat/59860784
11 http://www.pitchonnet.com/blog/2012/06/12/voltas-changes-positioning-a-seasoned-approach/

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consumer touch-points, a largely male-skewed decision-maker, less control on last
mile connectivity with the consumer and feature loaded communication.
The primary drivers of growth for Voltas were:
➢ An augmented model mix, suitable for consumers varied preferences, in
terms of new technology, features, aesthetics and price points.
➢ Highly responsive service network
➢ Revamped distribution, mainly through multi-branded outlets based on a
Retail Aggregation Model, with a network of over 9,700 touch-points, across
India and the highest reach in the category.
➢ Consumer-centric brand positioning and the trust factor of being a Tata
brand.
➢ A strong and involved leadership team, with a focus on AC category.
➢ Extremely competitive pricing strategy with entry level air conditioners
priced around 20% lower than LG in the split AC segment.
“It’s a tenacious brand and the latest numbers only reinforce the belief that Indian
brands can beat the global biggies,” says Ashita Aggarwal, head of marketing at SP
Jain Institute of Management and Research.12
Voltas Today
Voltas has been a consistent pioneer in the field of electromechanical and
refrigeration. Currently, it has a wide range of equipment in the HVAC & refrigeration
space being manufactured in high-end facilities, most of which are ISO 9001:200813
certified. This market segment has an industrial focus, and is of a B2B nature, and is
separate from the consumer retail segment. These equipments are technologically up-
to-date and are tested in the facility, which offers international testing standards.
Quality assurance of all products in ensured by means of testing through HVIR
instruments. Multiple air conditioning use cases are catered to, therefore offering the
customer a wide choice.
The product range at Voltas in the HVAC (heating, ventilation and air conditioning)
segment comprises of packaged units, ductable split units, chiller packages, vapour
absorption machines, low temperature refrigeration, VRF and value-added systems
like indoor air quality Systems (IAQ), STP / kitchen exhaust systems, UVGI System,
etc.
In the B2C air conditioning space, Voltas again has a wide variety of products, starting
from conventional ACs (split, window, cassette, slimline, all weather smart AC), air
coolers, along with certain other product classes such as deep freezers, chest coolers,
water coolers and combo coolers. (Refer Exhibit 3)

12 http://www.impactonnet.com/%E2%80%98Mr-Murthy%E2%80%99-does-it-again-for-voltas
13 http://www.voltas.com/emr/hvacr_products.asp

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LG Electronics
LG Electronics India Pvt. Ltd., a wholly owned subsidiary of LG Electronics, South
Korea was established in India in January 199714. LG became the acknowledged
trendsetter and achieved a premium brand positioning.
Initial Challenges and the four-pronged approach
However, it faced some challenges while entering the Indian market which included –
low brand awareness, high import duty, price sensitivity of Indian customer15.
In order to tackle these challenges, it adopted a four- pronged approach15 –
1. Innovative marketing strategies: It became the first consumer electronics brand
to endorse cricket which was popular in India by sponsoring the 1999 and 2003
world cup and invested over $ 8 million on marketing in this sport. It also used
technology benefits to differentiate its products from others.
2. Local manufacturing: To reduce the effect of import duties it started
manufacturing PC monitors and refrigerators in Noida, Delhi.
3. Product Localization: To appeal and connect to the Indian population it tried
to localize its products e.g. regionalizing its TV menus to achieve a brand
presence which helped all its products.
4. Regional channel and wide distribution network: This helped in higher
penetration and a better rotation of stocks. LG set up 46 branch offices and 110
area offices pan India with a dealer base of over 3000.
Apart from the above four-pronged approach, LG was also able to leverage the IT
advantage of India and the R&D potential by setting up R&D facilities in Bangalore,
India. The IT solutions developed in India also helps LG Electronics’ other subsidiaries
worldwide15.
The Market Leadership phase
In a few years, it established itself as the market leader for Air conditioners in India
for over a decade. The leadership came from the commitment to R&D and product
innovation. LG Electronics had been spending to the tune of $10 million per annum
on R&D16.
Its product highlights in ACs in two decades from the 1990s to 2010s were:
LG Plasma Gold Air conditioners: These ACs packed with unique features, such as
Plasmaster Ionizer. This technology was developed to give 99.9% pure air.

14
http://www.business-standard.com/article/press-releases/cool-your-summers-with-lg-india-s-new-range-of-
air-conditioners-109033000092_1.html
15
https://www.ibef.org/download/lg.pdf
16
https://www.themobileindian.com/news/when-patience-pays-lgs-journey-so-far-in-india-17767

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LG Art cool Air conditioners: AC with a frame that allows the customer to modify &
personalise the unit with their own artwork or photography
LG Dual Inverter AC: LG is the first manufacturer to shift the entire line of split ACs to
Inverter ACs. LG Dual Inverter ACs complies with ISEER Ratings (Indian Seasonal
Energy Efficiency Ratio), a new efficiency rating for AC by BEE (Bureau of Energy
Efficiency)
Recent Developments (2017)
In the year 2017, they changed the entire line up of products to inverter ACs citing
higher energy efficiency. However, in the same year, they lost the market leader
position to Voltas and their market share in ACs stood at about 18% as compared to
over 20% a year ago (Refer Exhibit 4). “It’s a marketing disaster to put all your eggs
in one basket,” commented Mr. Mahesh Aggarwal. The Korean major, for its part,
stuck to its inverter AC gambit. LG, claimed its AC business head, managed to
transition from regular ACs to 100% inverter ACs range and lead the split AC market
in India. The industry share of inverter technology within split air conditioner stood at
31% as of 2017. However, this meant losing out on 70% market, which was non-
inverter. From a high of 16.2% share in FY16, LG slipped to 10.5% in multi brand
outlets in May 2017.
Experts claimed that, in a country like India, the pursuit of winning market in the AC
market share came with a condition of being present across the categories so that a
wider set of users can be catered to. Indians scored over the MNC rivals in
understanding the needs of the local market and users.
LG’s inverter ACs were priced 12-15% above most others in the market owing to
higher cost. In order to gain market share, LG had reduced its prices by 15% as
compared to last year. It’s 1.5 tonne AC was priced at INR 46000 in 2017 compared
to INR 51000 in 2016. Most other split ACs of the same capacity and 5-star rating were
available anywhere between INR 39000 to 4200017.
LG was optimistic of its latest business manoeuvre of inverter ACs and price reduction,
and expected volumes to rise in the next year.
Key Developments18
Government Initiatives Supporting Consumer Appliances Players
Many initiatives have been taken by the Govt. to strengthen local production in India.
The ‘Make in India’ campaign initiated by the government encouraged many
manufacturers to increase local production capacity and set up new production
facilities in the country. This helped companies to reduce production costs and boost
profits. In addition, the government extended capital subsidy benefits under a modified
special incentive package scheme to 15 new electronics for another five years. Under

17 http://economictimes.indiatimes.com/industry/cons-products/durables/inverter-acs-price-crashed-
by-up-to-25-after-lg-slashes-prices/articleshow/57583622.cms
18 Passport – Consumer Appliances in India, Euromonitor International, November 2016

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this scheme, electronic manufacturers would receive a capital benefit of 25% outside
special economic zones and 20% within. With increasing support from government
companies, major appliances companies like LG Electronics, Samsung India
Electronics etc. planned to expand production in India. With the rise in local
production, the prices of the products are expected to fall, thus fuelling demand during
the forecast period. Also, during the recent budget, the government initiated plans to
electrify 100% of the country by the end of 2019, thus potentially increasing demand
for air conditioners in the short term.
Internet Retailing to Fuel Growth
The share of consumer appliances sales through online retailers rose considerably. In
addition, the number of online retailers selling consumer appliances has grown. To
attract consumers, online retailers started offering heavy discounts and wide product
ranges which affected sales of traditional retailers in the country. In addition, online
retailers also began offering additional services like cash back and EMI options, which
encouraged consumers to buy online. Sales of consumer appliances on the internet
grew at a CAGR of 13% from 2013-2017.19
Looking Ahead
Mr. Agarwal was almost done with his presentation. The numbers on his presentation
were looking good and he was excited to show them to the board. His team had tired
long for this feat and he was sure of getting a positive response on the performance
this year. He remembered the quote from Michael Caine. Now that they were at the
top, the climb would begin.

19 Euromonitor International

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 Exhibits
Exhibit 1 Overall Market Share

(Per cent) 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

LG 21 19 21 20 22 18

Voltas 18 18 20 22 20 22

Samsung 17 14 11 12 12 10

Others 44 49 48 46 46 50

Total 100 100 100 100 100 100

Source: Industry, CRISIL Research

RACs

Overall Units 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Million
Volume 3.1 3.1 3.2 3.6 3.9 4.3
units

Rs.
Value 69,566 74,760 83,653
Million 1,01,621 1,05,191 1,18,037

Rs/Unit 22,589 24,354 26,366 28,398 26,791 27,403

Realizations

Source: Industry, CRISIL Research

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Exhibit 2 – Murthy Ad in Print Media
Through Mr. Murthy, Voltas created the image of a common man and a smart
consumer who buys energy efficient ACs that can be used perennially.

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Exhibit 3 - Voltas Product Mix

HVAC Product Range at Voltas

Source- http://www.voltas.com/emr/hvacr_products.asp

Sample specifications of a Voltas split AC

Source – http://www.voltasac.com/index.php

Exhibit 4

Source:http://brandequity.economictimes.indiatimes.com/news/marketing/brand-wars-korean-ac-brands-feel-the-
heat/59860784

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Exhibit 5 -Drivers and challenges in AC market

Source:http://www.strategyr.com/MarketResearch/Air_Conditioning_Systems_AC_Market_Trends.asp

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