National Research University – Higher School of Economics

Faculty of World Economy and International Affairs

International Business

Course project

Price Positioning of Hotpoint-Ariston SDA Products in Russia and UK

Prepared by: Olga Kocherova

Scientific Adviser: Irina G. Kratko

Moscow, 2013
 2

1. INTRODUCTION

Why I claim that price is important

Pricing is the only element that brings revenues to a firm1.

How to price a new product is a top management puzzle that is too often solved by cost theology and
hunch2.

Try to use market approach

Attentively observe tiny changes of competitor’s prices

Production – relatively low marginality

Crisis situation

All in company (Moscow office) are pessimistic about this SDA undertaking

The only component of the marketing mix that generate real revenues

Establish correct prices is hard

Clash of interests company and consumers

Create well-balanced complex a product that give real value to consumers they are glad to pay for

Real benefits + effective marketing communications

That all is about price positioning

Currently products are not widely distributed in the shops – only first distribution contracts are sighed.

Company is highly centralized

Common strategy

But specifics of markets are different

Would like to answer the following questions:

Did the company choose a relevant tool to deal with the economic crisis by introducing SDA line?

Did company managed to create products consumers will be happy to pay for?

Did company overestimate its products?

Did company price its products over competitors?

What are the strong points and drawbacks in its current price positing?

1
Rao V. Handbook of Pricing Research in Marketing. Edward Elgar Publishing Company. 2009

2
Dean J. Pricing policies for new products. Harvard Business Review. 54(Nov-Dec). 1976. Pp. 141-153
 3

How the price positing should be revised?

 4

2. THEORETICAL FOUNDATIONS

Value pricing A business is defined by thee value it creates for its customers. Your price speaks
volumes about your value proposition, more so than any other component of your firm's marketing.
Value is defined in economic terms as: The maximum amount that a consumer would be willing to
pay for an item. Therefore, value pricing can be defined as (the maximum amount a given client is
willing to pay for a particular service, before the work begins. This is not to suggest we can capture
100% of maximum value, but rather that we have the potential to access some of it with strategic
pricing3.

Brand pricing is an important strategic decision for marketing managers. Such decision is
interrelated and dependent upon competitive brand positions and prices. However, any ynilateral
decisions may encourage repositioning and price adjustment by competitors thus leading to either
new market equilibria or a price/positioning war4.

Price positioning
Price positing can be regarded as a component of a brand positioning and product positioning.
Positioning is how you differentiate yourself in the mind of your prospect. It’s also a body of work
on how the mind works in the process of communications5. For an effective positioning the
marketing message should be extremely focused and clear as the past 30 years have been an age of
«overcommunication», with people producing more information that they had in the previous 5 000
years put together6. Thus a strong, focused brand identity is a treasure. Even a murky idea of what
«Brand X» stands for is little better than having no idea at all7.

In the current study by price positioning I mean a creation of a clear perception of consumers what
values they are paying for by purchasing an exact line of branded products.

Pricing strategies for new products

Typical prescriptions for the pricing of new products include two alternatives: penetration
strategy or a skimming strategy.

One of the ways to justify a high price (skimming strategy) on a new unknown product is to focus
on its pioneer advantage. Pioneering should be distinguished from differentiating as a pioneer is
the first brand in any product class8. In other words, a product should be innovative in the eyes of
consumers.

3
Baker R. J. Pricing on purpose: Pricing on Purpose: How to Implement Value Pricing in Your Firm. Journal of
Accountancy. June 2009
4
Hauser J. Compatitive price and positioning strategies. Marketing science.Vol.7 No 1 Winter. 1988
5
Trout J. Positioning Myopia. Marketing News. March 15, 2012.
6
Trout J., Rivkin S. Repositioning: marketing in an era of competition, change and crisis. McGraw-Hill. 2009
7
Trout J., Rivkin S. Repositioning: marketing in an era of competition, change and crisis. McGraw-Hill. 2009
8
Schmalensee, R. Product differentiation advantages of pioneering brands. American Economic Review, 72, 349–365.
1982. P. 360
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Price sensitivity
Consumers are inclined to believe that the selling price of a good or service is substantially
higher than its fair price. Consumers appear sensitive to several reference points—including past
prices, competitor prices, and cost of goods sold—but underestimate the effects of inflation,
overattribute price differences to profit, and fail to take into account the full range of vendor costs 9.
Price sensitivity can be softened by clarifying the competitive advantage of the product. The first
way to use pricing to diminish price sensitivity is to make it call attention to the value your product
or service delivers, and ideally to the one dimension that most meaningfully differentiates it from
those of competitors.10
Reference prices concept suggests that consumers evaluate products and make purchase decisions
by comparing prices against an internal standard11. Reference prices are formed from experience of
previous prices either through purchase (i.e., paying the price) or observation12. Basing on results of
laboratory experiments Kahneman suggests that a reference point is used to determine how an offer
is perceived in negotiation and subsequently could affect the final price outcome13. Consumers can
use different points of reference for their relative price estimation. In this way they can for instance
orient on their future prices changes expectations14.

The main rationale is that a consumer, before effecting a purchase, forms his/her internal
reference price (IRP) by evaluating the past price levels of the product and other contextual
reference prices of related products on the shelf. Then the price is the basis of judgment to decide
whether or not he/she can accept the current market price15. Generally a consumer will buy a
product when his/her IRP is equal to or higher than the market price. At the same time consumer
can adjust his/her IRP by finding out and analyzing the new information about the product. Recent
market prices, the spreading rate of new price information and the timing of a consumer’s
awareness of new price information are the three important factors those can make a consumer to
adjust his/her IRP16.

9
Bolton L., Warlop L., Alba J. Consumer Perceptions of Price (Un)Fairness. Journal of consumer research. Vol. 29.
March 2003

10
Bertini M., Wathieu L. How to stop customers from fixating on price. Harvard Business Review, 88 (5). 2010. Pp.84-
91
11
Tridib M., S.P. Raj S. P., Sinha I."Reference Price Research: Review and Propositions," Journal of Marketing, 69
(October), 2005.Pp. 84-102.
12
Bruno H., Che H., and Dutta Sh.Role of Reference Price on Price and Quantity: Insights from Business-to Business.
Markets Journal of Marketing Research. Vol. XLIX (October 2012), Pp. 640-654
13
Kahneman D. Reference Points, Anchors, Norms, and Mixed Feelings," Organizational Behavior and Human
Decision Processes, 51 (2). 1992. Pp. 296-312.
14
Jacobson R. Obermiller C. The Formation of Expected Future Price: A Reference Price for Forward-Looking
Consumers. Journal of consumer research. Vol. l6 March. 1990
15
Chen M-Sh., Chen Ch-B. The optimal penetration pricing strategy model under the dynamic demand function. Asia-
Pacific Journal of Operational Research, 16. 1999.Pp 139-15. P.140
16
Chen M-Sh., Chen Ch-B. The optimal penetration pricing strategy model under the dynamic demand function. Asia-
Pacific Journal of Operational Research, 16. 1999.Pp 139-15. P.140
 6

Value map
Value map is an instrument that helps to understand the mechanism of price positioning as it
illustrates the ratio between perceived value and perceived price.

Graph 1. Value map. Source: Marn M., Roegner E., Zawada C. The Price Advantage. John Wiley and Sons, Ltd.
2004. p.47

This framework demonstrates how the price/benefit tradeoff functions in real markets. Each
circle in the map represents the product offering of a different company17. Perceived prices are
tracked on this vertical axis and perceived benefits – in our case of household appliances it can be
reliability, functionality, design – on the horizontal axis. Manufactures with higher-priced higher-
benefit systems are in the upper-right, and those with lower-priced, lower-benefit systems are in the
lower left 18.

If a market is stable (i.e. market share is not shifting among competitors), and if perceived
prices and benefits have been measured accurately, then the competitors will align along a diagonal
called the value equivalence line (VEL), as it shown on the graph 1. At any desired price or benefit
level, there is a clear and logical choice of which product to buy19. So called stable markets are
characterized by the clarity of pricing: if consumer wants a better product he/she pays a higher
price.

17
Marn M., Roegner E., Zawada C. The Price Advantage. John Wiley and Sons, Ltd. 2004. p.47

18
Marn M., Roegner E., Zawada C. The Price Advantage. John Wiley and Sons, Ltd. 2004. p.47

19
Marn M., Roegner E., Zawada C. The Price Advantage. John Wiley and Sons, Ltd. 2004. p.47
 7

If the market is not stable (competitors’ shares are changing) than a more relevant value map
will look like on a graph 2. Here some companies are positioned aside the VEL line. This is the
case we will deal with in the current research as Indesit Company enters a new market conquering
the market share from the competitors.

Graph 2. Value map. Source: Marn M., Roegner E., Zawada C. The Price Advantage. John Wiley and Sons, Ltd.
2004. p.47

On the graph 2 company B is below the VEL in a value-advantaged position (e.g. either
more benefits or lower price) and is gaining share. Looking at the value map we see that if a
customer wants a low-priced product, the choice is clear between companies E and B, since
Company B offers a better product at the same price. At the same time, a customer who wants a
high-benefit product also has a clear choice between companies A and B, since both offer similar
benefits, but B is priced much lower20.

20
Marn M., Roegner E., Zawada C. The Price Advantage. John Wiley and Sons, Ltd. 2004. p.48
 8

3. RESEARCH FRAMEWORK

Problem situation
Indesit Company, an international domestic appliances producer, launches a range of small
domestic appliances (SDA), a group of products it has never produced before. Indesit is at the
market entering stage and would like to use a skimming marketing strategy.

Aim

To understand what is the most relevant price positioning Indesit should implement in this case.

General hypothesis

Instead of a skimming strategy Indesit Company should use a penetration strategy for positioning its
small domestic appliances.

Objectives

Objective 1. Define market position of Indesit Company on the SDA market.

Hypothesis 1. Entering the SDA-market is an effective anti-crisis measure for the Indesit Company.

Method: SWOT-analysis.

Data source: information about company and market.

Objective 2. Estimate the current pricing of the Indesit Company SDA.

Hypothesis 2. Indesit SDA products are priced over the average price for the closest competitors’
products.

Method: Comparison of average Internet prices for the products produced by Indesit Company and
its competitors.

Data source: Own information of the company, information from Internet-shops.

Objective 3. Understand what characteristics of the Indesit Company SDA products are their
potential comparative advantages in the eyes of consumers.

Hypothesis 3. Characteristics of SDA products consumers would value do not coincide with the
characteristics Indesit Company SDA products have.

Method: Content-analysis of recommendations sites: monitoring of consumer’s reviews on the

selected products Indesit entering the SDA market and their competitors

Data source: Internet-shops, basic are for Russian consumers – yandex.market; for British
consumers – amazon.co.uk.

Objective 4. Estimate the current price positioning of the Indesit Company SDA.

Hypothesis 4. Indesit SDA is not able to get a market share.

 9

Method: Value-map.

Data source: Own information of the company, information from Internet-shops.

Methodology

In this paper I will use the value pricing approach to evaluate the pricing strategy of the
Indesit Company on the market of small domestic appliances. In other words, I will try to estimate
the possible value of new products offered by the company and the planed prices it would like to
establish.
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4. INDESIT COMPANY OVERVIEW

4.1.General information
Indesit Company S.p.A. (Indesit or 'the company') is a manufacturer of household
appliances for cooking, cooling and washing. The company operates in Europe. It is headquartered
in Ancona, Italy and employed 16,112 people as of December 31, 2011.
The company recorded revenues of E2,825.3 million (approximately $3,933.9 million) in the
financial year ended December 2011 (FY2011), a decrease of 1.8% over FY2010. The operating
profit of the company was E150.3 million (approximately $209.3 million) in FY2011, a decrease of
18.2% over FY2010. The net profit was E58.8 million (approximately $81.9 million) in FY2011, a
decrease of 34.4% over FY201021.

4.2.Indesit Company business description

Indesit is a manufacturer of household appliances, including washing machines, dryers,

dishwashers, refrigerators, freezers, cookers, hoods, ovens and hobs under Indesit, Hotpoint,
Ariston and Scholtes brand names.The company operates 14 manufacturing facilities across Italy,
Poland, the UK, Russia and Turkey.
Indesit operates through three segments, classified based on geography:Western Europe,
Eastern Europe and international. Western Europe includes the company’s operations in Italy, the
UK and Ireland, France, Spain, Portugal, Germany, Austria, Switzerland, Benelux and Scandinavia.
Eastern Europe includes operations in Russia and the Asian Republics, Belarus, Kazakhstan,
Poland, Ukraine, Moldova, Czech Republic, Hungary, Romania, Greece, the Baltics, Caucasian
Republic, Slovak Republic, Turkey, Bulgaria and the Balkans.
The international segment includes the company’s operations in all other non-European
markets. Indesit operates three product lines: cooling, washing and drying, cooking. The cooling
products include refrigerators and freezers. The company operates four facilities, one each located
in Carinaro (Italy), Lodz (Poland), Manisa (Turkey) and Lipetsk (Russia) and produces
over four million units a year.The washing product line includes washing machines,
dishwashers, combined washer-dryers and dryers. The company produces over five million units
every year. The company has two washing product plants in Italy, one each in Comunanza (Ascoli
Piceno) and Teverola (Caserta). Another two plants are located in Radomsko (Poland) and Lipetsk
(Russia). All of Indesit dryer production is concentrated in Yate (the UK), while dishwashers are
made in Radomsko (Poland). The cooking products comprise ovens, hobs and cookers. Indesit
manufactures and markets over 3.5 million cooking appliances a year. The company has three

21
Market Line. Report on Indesit Company (February, 2013). URRL:
<http://82.179.249.32:2118/Product?pid=DF121B0B-3643-4AC8-91D0-56AB946DC8A1>
 11

cooking product plants, of which two are in Melano-Marischio and Albacina (Ancona, Italy) and
one is in Lodz (Poland).22.

4.3.Indesit Company small domestic appliances

Indesit Company, a leader on the market of major domestic appliances entered the market of
SDA in April, 2013.23 Prototypes and original products were first presented to business partners and
journalists in the beginning of April. The new rage of SDA products branded under Hotpoint-
Ariston includes small kitchen appliances as well as clothes and home care devises.

4.4.Hotpoint-Ariston and Hotpoint brands

In March, 2007 Indesit Company presented a new brand architecture aiming to further
strengthen its brands and synergy between them. The Hotpoint and Ariston brands were united to
form Hotpoint-Ariston, combining the powerful international potential of the British brand with the
tradition of the Italian label in order to improve its market positioning in the middle/top-end
segment. At the same time, Indesit Company preserved it’s the most famous Indesit brand which is
positioned by focusing on innovation and design. In comparison with Hotpoint-Ariston Indesit
Brand is positioned as more budget24.

While in Russia Indesit Company presents its upper-middle segment products under brand
Hotpoint-Ariston, in the UK consumers are more aware about their old national Hotpoint. In Russia
Indesit Company also plans steadily transit to the Hotpoint. The company invest into marketing
communications to promote Hotpoint brand in Russia. The latest research that progress in achieving
this target is very slowly. According to Brand Awareness Barometer (the last wave of research is
conducted in October 2012) total awareness of Hotpoint-Ariston reached 29,3% / Spontaneous –
6,4%. Indesit remains to be #4 with 72,8% total brand awareness / 40,6% spontaneous after
Samsung, LG and Bosch. As it can be seen on the graph 3 below brand awareness of single
Hotpoint brand in Russia is low.

22
Market Line. Report on Indesit Company (February, 2013). URRL:
<http://82.179.249.32:2118/Product?pid=DF121B0B-3643-4AC8-91D0-56AB946DC8A1>
23
Official press-release of Indesit Rus. April 4, 2013. URRL: <http://www.press-
release.ru/branches/pr/29e8531dbab75/>
24
Press-release of the headquarter of Indesit Company. Indesit Company presents its new brand architecture. March 28,
2007. URRL: < http://www.indesitcompany.com/inst/en/press_room/pressReleasesDetail.action?id=963>
 12

HPA
HPA
Graph 3. Brand awareness in Russia of Indesit Company brands and rivals. Source: Brand Awareness
Barometer. October 2012

Currently the brands Hotpoint and Hotpoint-Ariston are having market shares only in the segment
of major domestic appliances but starting from the April, 2013 a new line of small domestic
appliances will be presented. By now they logically have 0% market share but the situation can be
soon changed. Here are the rating of the most popular brands in the segment of small domestic
appliances presented on the markets of Russia and UK.

Table 1. Top 10 of the most popular brands of small appliences in Russia. Source:
Euromonitor. Brand Shares (by global brand name). October 2012. URRL:
http://82.179.249.32:2088/Portal/Pages/Search/SearchResultsList.aspx
Company name
# Brand 2007 2008 2009 2010 2011 2012
(GBO)
Scarlett (Arima
1 Arima Holding Corp 9,8 9,7 9,6 9,6 9,5 9,7
Holding Corp)
Philips (Koninklijke
Koninklijke Philips
2 Philips Electronics 8,9 8,8 8,2 8,2 8,5 8,8
Electronics NV
NV)
Braun (Procter & Procter & Gamble Co,
3 9,1 9,1 8,5 9,2 9,1 7,0
Gamble Co, The) The
Tefal (SEB,
4 SEB, Groupe 5,9 6,3 6,3 5,5 5,9 5,9
Groupe)
Vitek (Golder
5 Golder Electronics 4,5 4,5 4,8 5,4 5,5 5,6
Electronics)
Samsung
6 Samsung Corp 2,7 3,2 3,4 3,7 4,0 4,0
(Samsung Corp)
Bosch (BSH
Bosch & Siemens BSH Bosch & Siemens
7 4,2 4,3 4,2 3,9 3,9 3,9
Hausgeräte Hausgeräte GmbH
GmbH)
Rowenta (SEB,
8 SEB, Groupe 4,1 4,3 3,5 3,4 3,5 3,5
Groupe)
9 Polaris (Polaris) Polaris 3,3 3,1 3,5 3,5 3,4 3,5
10 LG (LG Corp) LG Corp 2,9 2,8 3,0 3,2 3,4 3,3
 13

Table 2. Top 10 of the most popular brands of small appliences in the UK. Source:
Euromonitor. Brand Shares (by global brand name). October 2012. URRL:
http://82.179.249.32:2088/Portal/Pages/Search/SearchResultsList.aspx

Company name
# Brand 2007 2008 2009 2010 2011 2012
(GBO)
Morphy Richards
1 Glen Dimplex Ltd 6,6 6,6 6,3 6,1 6,0 5,9
(Glen Dimplex Ltd)
Braun (Procter & Procter & Gamble Co,
2 7,1 6,3 5,8 5,6 5,6 5,2
Gamble Co, The) The
Babyliss (Conair
3 Conair Corp 4,8 4,4 4,3 4,4 4,5 4,7
Corp)
Kenwood
4 De'Longhi SpA 4,1 4,3 4,5 4,5 4,6 4,6
(De'Longhi SpA)
Remington
Spectrum Brands
5 (Spectrum Brands - - - 4,2 4,3 4,5
Holdings Inc
Holdings Inc)
Oral-B (Procter & Procter & Gamble Co,
6 3,0 3,4 3,7 3,7 3,8 3,8
Gamble Co, The) The
Russell Hobbs
Spectrum Brands
7 (Spectrum Brands - - - 3,7 3,8 3,8
Holdings Inc
Holdings Inc)
Philips (Koninklijke
Koninklijke Philips
8 Philips Electronics 3,5 3,4 3,5 3,7 3,7 3,6
Electronics NV
NV)
Breville (Pulse
Pulse Home Products
9 Home Products 3,2 3,2 3,1 3,1 3,1 3,1
Ltd
Ltd)
Dyson (Dyson
10 Dyson Appliances Ltd 2,6 2,4 2,2 2,1 2,1 2,1
Appliances Ltd)
 14

5. MARKET OVERVIEW
5.1.Global market of small domestic appliances

All the markets were highly affected by the economic recession started in 2008. Especially
significant decline of consumption was experienced in developed countries. To the truth in Europe
the crisis is still going. In such circumstances small domestic appliances occupy a more
advantageous position in comparison with major domestic appliances requiring bigger investments
to purchase. While volume growth of major appliances slowed to 1% in 2008 and sales actually fell
by 2% in 2009, small appliances also demonstrated hindered sales figures in 2008 and 200925, but
recovered more rapidly. One of the reasons of SDA relative success is the forced changes in eating
habits of consumers who opted to eat in at home and replicate the going out experience. Reductions
in disposable incomes have prompted an acceleration of the cocooning trend, as people seek
escapism and comfort within the home, whilst saving on costs. This has created additional demand
for items such as home entertainment, meal solutions and culinary gadgets26.

Today in general modern world economy faces exceptional uncertainty. Besides financial
crisis is formally over but in fact it is still going in the Eurozone. In this way the emerging markets
are becoming a rescue that allows the world producers to release their products. Growth will
undoubtedly continue to be driven by emerging markets, both in volume and value, with Asia
Pacific taking the lead27. On the graph 4 we can see top 10 countries showing the highest rates of
growth. Russia demonstrated a growth rate of approximately 6.5% and is taking the forth position
being outpaced only by 3 fellow BRIC countries: India, China and Brazil. The UK is also in the list
occupying the 8th place with the annual growth rate around 2% in 2011.

25
Euromonitor International Report. Global small appliences: industry overview and futre hot spots. March 2012. 60
pages. P. 8
26
Euromonitor International Report. Global small appliences: industry overview and futre hot spots. March 2012. 60
pages. P. 12
27
Euromonitor International Report. Global small appliences: industry overview and futre hot spots. March 2012. 60
pages. P. 11
 15

Graph 4. Top 10 Small Appliances Markets 2010/2011/2012. Source: Euromonitor International

Report. Global small appliances: industry overview and future hot spots. March 2012. 60 pages. P. 8

Presence of a number of developed countries in the list on the graph 4 supports the
suggestion that macroeconomic factors have less of an impact on sales of small appliances than
socioeconomic factors and consumer trends, and, as such, consumers in developed economies are
more prone to spending on small appliances that will help them to make their household chores
easier and less time consuming28.

Analysts of Euromonitor International predict that with income inequality increasing,

polarization is stronger than ever within the market for consumer goods and services towards both
premium and budget brands, to the detriment of the mid-market. Consumers in developed markets
will either tend to go for entry level products or will become more sophisticated in their tastes,
opting for more innovative, premium products, for example coffee pod machines. Low income
consumers and those more affected by the economic situation are cutting out non-essentials and are
living more frugally. This may involve mending old clothes instead of buying new ones, buying
used products, growing vegetables at home, cooking from scratch, DIY, and cycling rather than
driving29. As the same time for producers it is becoming harder to position their goods as premium
due to sophisticated tastes of modern consumers. Some products, for instance, coffee machines are
steadily transiting from the category of luxury goods to ordinary necessities.

28
Euromonitor International Report. Global small appliences: industry overview and futre hot spots. March 2012. 60
pages. P. 12
29
Euromonitor International Report. Global small appliences: industry overview and futre hot spots. March 2012. 60
pages. P. 12
 16

In general the world market of small domestic appliances is growing (see graph 5). While
the developing markets provide the higher growth rate the sizes of the markets of developed
markets are more significant.

Global market of small appliances dynamics statistics

Global Small Appliences Market Sizes

Dynamics ('000 units)
2,000,000
Sales volumes (000' units)

1,500,000

1,000,000
Small appliences

500,000

-
2007 2008 2009 2010 2011 2012

Graph 5. Total sales volumes of world market. Source: Euromonitor. Market sizes statistics. October
2012.URRL:<http://82.179.249.32:2088/Portal/Pages/Search/SearchResultsList.aspx>

In this way Russia demonstrates higher pace of development but the size of UK market is much more
attractive being 60 mln items in contrast to less than 40 mln items sold on Russian market in year 2012.
(Graph 6)

UK and Russia Small Appliences

Total Sales Volumes
('000 units)
70,000
60,000
50,000
40,000
UK
30,000
Russia
20,000
10,000
-
2007 2008 2009 2010 2011 2012

Graph 6. Total sales volumes of Russia and UK markets. Source: Euromonitor. Market sizes statistics. October
2012.URRL:http://82.179.249.32:2088/Portal/Pages/Search/SearchResultsList.aspx
 17

6. ANALYSIS OF INDESIT COMPANY SDA PRICE POSITIONING

6.1.Indesit Company entrance on the market of SDA

As many others Indesit Company is affected by the financial crises which reduced word
consumption especially for such big ticket products as major domestic appliances. Moreover, crisis
has broken the strategic plans of Indesit Company in enter new emerging markets such as India,
China and Brazil30 which market growth rates are the highest. Finding the way to generate profits in
the crisis times Indesit Company decided to enter a new niche of small domestic appliances.
Analyzing the information on the company itself and the market of SDA I will implement
the Objective 1: Define market position of Indesit Company on the SDA market.
SWOT-ANALYSIS

Strengths
1) Indesit’s expertise in white goods;
2) Well-known brand;
3) Production and logistics facilities.
Weaknesses
1) Limited resources to finance new
business development;
2) Lack of specific positioning strategy for
the SDA products (simple coping of
MDA HPA positioning);
3) Lack of integration between MDA and
SDA businesses on a corporate level
(E.g. separate distribution agreements).
Table 3. SWOT-analysis for Indesit Company on the SDA market. Source: own estimations.
Opportunities
1) SDA market is more fast-moving than
MDA market, Indesit Co previously operating on;
2) Higher marginality of SDA products in
comparison of MDA products in case of
implementation of the skimming strategy;
3) Average cost of an SDA item is lower than
of an MDA, so consumers can easier buy it.
Threats
1) High competition;
2) Possibility of failure in creating an own
market niche;
3) Consumers can find products unattractive;
4) Products can be overpriced.

30Интервью Татьяны Романовой с Андреа Мерлони, зампредседателем совета директоров Indesit

Company. «Вокруг катастрофа, но нам повезло». Ведомости. 9 апреля 2009.
 18

Certainly entering a new market is associated with high risk but Indesit Company has a
sufficient base of expertise, knowledge and facilities gained by many-years experience of working
in the MDA sector. As market reports show an SDA market feels better in the era of crisis than an
MDA one due to higher turnover and average lower item price in comparison with MDA. In this
way I suppose it is possible to accept Hypothesis1: Entering the SDA-market is an effective anti-
crisis measure for the Indesit Company.

At the same time to be successful on the SDA market Indesit Company should use all its
existing strengths effectively by implementing correct positioning and pricing strategies. In the
following chapters of this paper I will study the questions of pricing and positioning of Indesit
Company products on the SDA markets.

6.2.Hotpoint-Ariston/Hotpoint SDA benchmarking

In this part I would like to compare SDA Hotpoint-Ariston products with the devices of the
closest competitors in terms of prices to attain the Objective 2: Estimate the current pricing of the
Indesit Company SDA.

Comparison with competitors’ prices is important because of the following reasons:

1) Market orientation. Indesit Company follows a market oriented approach to business. I

can conclude this at least from the experience of working in marketing of MDA
products. Indesit is a company where marketing department has a decisive role in many
questions.
2) High competitiveness. Even tiny changes in competitors’ pricing behavior is monitored
and regarded.
3) Reference prices. As Indesit enters an absolutely new for the company but already mature
market of small domestic appliances it should regard already formed rules established on this
market. In this way there is already existing reference prices formed mostly by the competitors
of Indesit who entered the market earlier. I mean that consumer come to the market with
intension to buy a new SDA item equipped with a luggage of their previous purchases
experience.
4) Price sensitivity. Modern consumers especially Europeans are very sensitive about the
price changes. To predict their pricing psychology it is essential to understand the
relative prices in comparison with rivals.
 19

I should remark that here I will speak about planned prices for HPA SDA those are used for
general preliminary market analytics by the employees of Moscow office of Indesit Company. In
this day I have no data on prices those be actual for the British market. At the same time I have
information of models of other brands those are considered to be the closest rivals by the company
management. These models of rivals are presented on the both – Russian and British markets – so
data on their prices is available.

Having such valuable information constrains I offer the following procedure to estimate the
relative prices:

1) Define the SDA categories Indesit Company have/will have models in on the
Russian market (Appendix 1-2);
2) Compare planned prices for HPA models with the prices of the closest rivals
(rivals are defined by the research made by Indesit analysts, Appendix 3).

Using the whole list of models included in the HPA SDA line and classification of the
categories within the SDA market used by Euromonitor International it is possible to define in with
categories of the SDA Indesit Company is ready to compete with its rivals. Indesit Company
entered Russian market of SDA with the offer of the products in 4 categories (for more information
see Appendix 2):

1) Irons;
2) Vacuum cleaners;
3) Small kitchen appliances (non-cooking);
4) Food preparation appliances.

In each category Indesit Company presents several models each of them has its own
competitors. I used the benchmarking analytics made by Indesit marketing specialists (Appendix 3)
for defining the pool of competitors for each model. I compared the average Internet price of
competitors with the average Internet price of HPA to distinguish the deviation of price. In general,
if we take all HPA SDA products they are in average cost 235 rubles higher. The most expensive
category is Vacuum cleaners with the HPA prices 758 rubles higher than the average competitors’
prices. Second place is occupied by Small non-cooking kitchen appliances with a 474 rubles
deviation. Irons are priced almost as a market – only a 5 rubles deviation is calculated. At the same
time food preparation appliances are cheaper than the competitors’ products (see Table 4).
 20

Table 4. Difference between average Internet price of closest competitors’ and HPA SDA
products

Product category Deviation from the average price for

competitors' prices (RUR)
VACUUM CLEANERS 758,48
SMALL KITCHEN APPLIANCES (NON-
COOKING) 474,18
IRONS 4,63
FOOD PREPARATION APPLIANCES -272,78

I decided to choose one HPA product in each of 4 categories that is the most expensive in
comparison with the competitors to understand their comparative advantages if any (see Appendix
3). In the next section I will compare the 4 HPA products characteristics with their competitors’
products.

Table 5. Top 4 of the most expensive HPA SDA models.

Mean of
average
Product category Product type Model Internet
price
deviation
FOOD
PREPARATION Food processor
APPLIANCES FP 1005 AX0 2716
IRONS Steam iron II E75 AA0 1292
SMALL KITCHEN
APPLIANCES (NON- Water machine
COOKING) CT NTC IX2 1745
VACUUM Parquet
CLEANERS cyclone SL C18 AAO Trolley Parquet Cyclone 2295

For each model out of top 4 I have made a comparative pricing analysis. The results are in the tables
6-10 below.

Table 6. Benchmarking for the most expensive HPA model in Food preparation appliances category.

Product type Food processor

Brand Hotpoint-Ariston Bosch Kenwood
Model FP 1005 AX0 MCM 5530 FPM 270

Av. Internet Price RUS, rubles 8000 4919 5649

Source Indesit Co info Indesit Co info Indesit Co info

Av. Internet Price UK, pounds 167 170 133

skinflint.co.uk/,
Source own estimation amazon.co.uk
idealprice.co.uk
 21

Table 7. Benchmarking for the most expensive HPA model in Irons category.

Product type Steam iron

Hotpoint-
Бренд Bosch Philips
Ariston
Модель II E75 AA0 TDS 1217 GC 4860
Av. Internet
Price RUS, 5490 3290 3 450
rubles
Indesit Co
Source Indesit Co info Indesit Co info
info
Av. Internet
Price UK, 115 n/d 57
pounds
own
Source amazon.co.uk
estimation

Table 8. Benchmarking for the most expensive HPA model in Vacuum cleaners category.

Бренд Hotpoint-Ariston ELECTROLUX Samsung

SL C18 AAO
Модель Trolley Parquet ZSC6920 SC8853
Cyclone

Av. Internet Price

6990 4 810 5290
RUS, rubles

Source Indesit Co info Indesit Co info Indesit Co info

Av. Internet Price

146 90 n/a
UK, pounds

Source own estimation amazon.co.uk

Table 9. Benchmarking for the most expensive HPA model in Water machines category.

Product type Water machine

Keosan
Бренд Hotpoint-Ariston Ariete
Actimo

Модель CT NTC IX2 KS-9610 2812

Av. Internet Price

8690 7 900 5 990
RUS, rubles

Source Indesit Co info Indesit Co info Indesit Co info

Av. Internet Price

181 n/a 82
UK, pounds

Source own estimation amazon.co.uk

 22

I used the average Internet prices to make comparison within different markets more
accurate. At the same time I should mention the increasing importance of Internet trade that is
becoming the most preferable way to make purchases. Indesit Company is currently trying to
preserve its retailers from Internet competitors by providing them with special models but the
increasing power of Internet changing the face of modern trade and soon producers should find new
ways to get more benefits from e-commerce.

In result of benchmarking analysis Hypothesis 2 can be accepted. Indesit SDA products are
indeed priced over the average price for the closest competitors’ products.
 23

6.3.Consumer preferences

UK and Russia are the only markets Indesit Company operates which showed positive
growth in the company’s products volumes sold in 2012 according to GFK reports. That is why
the opinion of the consumers on these two markets it especially important. In Russia Indesit Co
launches the line of SDA under the brand Hotpoint-Ariston. In strategic plans of the company is to
get rid of the Ariston brand switching to the Hotpoint but in Russia it is not possible by now as the
brand awareness of Hotpoint is much lower than for Hotpoint-Ariston and Ariston (see graph 3).
In the UK Indesit Company SDA will be branded under Hotpoint, an initially British brand
possessing a good brand image at the homeland.

Currently (on the beginning of May, 2013) it is almost impossible to find

Hotpoint/Hotpoint-Ariston SDA on the Internet available. In April, 2013 Moscow office started to
negotiate and sign contracts with national retailers. Keeping in mind the whole process of
negotiations and logistics these products can be widely presented for consumers only in a few
months. Moreover, the first consignments of some models out of the range announced will be
produced at the factories only in June, 2013. In this way by now it is not possible to analyze the
reviews of consumers on new HPA SDA as there are none. In such circumstances I find it the most
efficient to analyze the reviews consumers made on using the devises those are the closest
competitors. Such an analysis will allow achieving the Objective 3: Understand what
characteristics of the Indesit Company SDA products are their potential comparative advantages
in the eyes of consumers.

In the previous chapter Benchmarking I have distinguished the most expensive Hotpoint-
Ariston products (Table 5):

1) Food processor FP 1005 AX0;

2) Steam iron II E75 AA0;
3) Water machine CT NTC IX2;
4) Parquet cyclone SL C18 AAO Trolley Parquet Cyclone.

I have chosen two products to monitor the consumers opinion on which seems to me the
most innovative. Even if they have not an absolute pioneer advantage on the market as a whole they
have some unique combination of characteristics. For instance, a metal corpus of a food processor is
not an absolute innovation but it is the first metal corpus food processor in the middle pricing class.
For comparison similar looking Bork B801 has an average price on Yandex.Market of 26 690
rubles. In this way I have selected Food processor FP 1005 AX0 and Water machine CT NTC
IX2.
 24

Analysis of reviews of Russian and British consumers

I should warn you in advance about the a curious regularity I have noticed while analyzing the
reviews of consumers: Russian consumers are writing a report when they are annoyed or disappointed with
their purchase, British consumers, on the other hand, are glad to share their positive experience with others
and recommend the items they are themselves pleased with. Another point is British customers are more
price sensitive than Russians: a good price for value is a key term for them. Moreover, British consumers
living in the reality of a developed market economy longer than Russians have a richer consumption
experience. They compare the new item with all the previous they have ever used. For British customers a
good reputation of a brand and its long history is especially important. Russians first of all pay attention to
easiness of use, functionality and reliability.

Analysis of consumers reviews of Food processor FP 1005 AX0 competitors

What is important for consumers

Food processor

RUS UK
Bosch MCM 5530 Bosch MCM 5530

Kenwood FPM 270 Kenwood FPM 270

Comparative advantages of HPA SDA

 25

HPA FP 1005 AX0 food processor (Food preparation appliances).

1) Strong metal instead of weak plastic (extremely important);

2) A lot of nozzles in the assortment (important);
3) Long warranty - 2 years (important) ;
4) Big power (important);
5) Big cup (good point for big families).
 26

Hypothesis 3. Characteristics of SDA products consumers would value do not coincide with the
characteristics Indesit Company SDA products have.

Hypothesis 3 is rejected as SDA products have a number of characteristics those can give value to
the customers.
27
 28

6.4. Value-map for Hotpoint-Ariston/Hotpoint SDA

HPA
 29

1. RESULTS
1.1.Reasoning and criticizing the pricing decisions made by Indesit Company

7.2. Recommendations on price positioning of Hotpoint-Ariston/Hotpoint

Adjust prices + effective marketing communications

There are doubts whether HPA SDA has entered the market with a cleared differentiated face that can be
perceived by the customers clearly.

Indesit relies highly on the brand image of Hotpoint-Ariston it acquired by working on the market of MDA.
But probably to adapt properly for the new market it should be repositioned or the work of consumers
informing should be conducted «from the start» to make sure that consumers are aware of the values and
comparative advantages of the brand those should be now regarded in the context of the new market.

Doubts about its innovativeness

Problem is that currently Indesit Company is operating in a crisis period. Being a leader on the market of
MDA (especially in the segments of washing and cooling), Indesit Company rely

Limited financial resources for SDA development

Lack of integration

Promotion and pricing

Promotion!!

Freedom weakness
Есть отдельные успехи. Условие перехода на новый уровень управленческой эффективности - это грамотная организация внутренних отношений в
компании. Есть компании, которые несколько раз в год выезжают со всей своей руководящей командой для обсуждения стратегических приоритетов. И хотя
люди поначалу относятся к этому немножко цинично, потом они начинают задумываться. Формирование межфункционального взаимодействия - вещь не
сиюминутная. И именно те компании, которым удастся выстроить такое взаимодействие, обеспечить открытость и сотрудничество, смогут сформировать
важное конкурентное преимущество. Пока отношение к своему подразделению как к бастиону власти, крепости внутри компании нередко берет верх.31

2. CONCLUSION

31
Ермолай Солженицын . Будьте превосходными. Интервью партнером московского офиса McKinsey
Ермолаем Солженицыным журналу "Менеджмент роста"№ 3, 22 октября 2007 г.
 30

REFERENCES
 31

APPENDIX

Appendix 1.Table A1. Categorization Of SDA products. Source: table was formed basing on Euromonitor
International information.

Product category Product type

AIR TREATMENT PRODUCTS
FOOD PREPARATION
APPLIANCES
HEATING APPLIANCES
IRONS
PERSONAL CARE APPLIANCES
SMALL COOKING APPLIANCES
SMALL KITCHEN APPLIANCES
(NON-COOKING)
VACUUM CLEANERS
Air Purifiers
Air Conditioners
Air Coolers
Ceiling Fans
Cooling Fans
Dehumidifiers
Humidifiers
Blenders
Citrus Pressers
Food Processors
Grinders and Choppers
Juice Extractors
Mixers
Smoothie Makers
Convector Heaters
Electric Blankets
Electric Fires
Fan Heaters
Oil-filled Radiators
Panel Heaters
Other Heating Appliances
Steam Generators/Ironing Systems
Traditional Dry Irons
Traditional Steam Irons
Travel Iron
Body Shavers
Hair Care Appliances
Oral Care Appliances
Other Personal Care Appliances
Slow Cookers
Deep Fat Fryers
Sandwich Makers
Waffle Makers
Electric Steamers
Breadmakers
Rotisseries and Roasters
Coffee Mills
Food and Meat Slicers
Kettles
Other Small Kitchen Appliances (Non-Cooking)
Cylinder Vacuum Cleaners
Handheld Vacuum Cleaners
Stick Vacuum Cleaners
Upright Vacuum Cleaners
Wet and Dry Vacuum Cleaners
Other Vacuum Cleaners
Robotic Vacuum Cleaners
 32

Appendix 2. Table A2. Assortment of Hotpoint-Ariston Small Domestic Appliances. Table

was based on the own company information

# Product category Product type Model

1 IRONS Steam Generator SG E12 AA0

2 IRONS Steam Generator SG DC11 AA0
3 IRONS Steam Generator SG C10 AA0
4 IRONS Steam iron II E75 AA0
5 IRONS Steam iron II DC60 AA0
6 IRONS Steam iron II C50 AA0
7 IRONS Iron SI E40 BA0
8 IRONS Iron SI DC30 BA0
9 VACUUM CLEANERS Extreme clean SL B24 AA0
Trolley Extreme
Clean
10 VACUUM CLEANERS Easy clean SL B16 AA0
Trolley Easy Care
11 VACUUM CLEANERS Easy parquet SL B18 AA0
Trolley Easy
Parquet
12 VACUUM CLEANERS Parquet plus SL B20 AA0
Trolley Parquet
Plus
13 VACUUM CLEANERS Multi care SL B22 AA0
Trolley Multi Care
14 VACUUM CLEANERS Parquet cyclone SL C18 AAO
Trolley Parquet
Cyclone
15 VACUUM CLEANERS Dual clean SL C22 AAO
Trolley Dual Clean
16 VACUUM CLEANERS Compact extreme/HS HS B18 AA0
Power care Compact Extreme
17 VACUUM CLEANERS Easy care/HS Easy HS B16 AA0
care Compact Easy
18 SMALL KITCHEN APPLIANCES (NON-COOKING) Kettle WK 22M AXO
19 SMALL KITCHEN APPLIANCES (NON-COOKING) Kettle WK 24E AXO
20 SMALL KITCHEN APPLIANCES (NON-COOKING) Toaster TT 12E AX0
21 Toaster TT 22E AX0
SMALL KITCHEN APPLIANCES (NON-COOKING)
22 FOOD PREPARATION APPLIANCES Blender TB 060C AXO
23 FOOD PREPARATION APPLIANCES Hand Blender HB 0705 AX0
24 FOOD PREPARATION APPLIANCES Hand Blender HB 0703 AX0
25 FOOD PREPARATION APPLIANCES Hand Blender HB 0701 AX0
26 FOOD PREPARATION APPLIANCES Juicer SJ 4010 AX0
27 FOOD PREPARATION APPLIANCES Food processor FP 1009 AX0
28 FOOD PREPARATION APPLIANCES Food processor FP 1005 AX0
29 FOOD PREPARATION APPLIANCES Kitchen machine KM 040 AX0
30 SMALL KITCHEN APPLIANCES (NON-COOKING) Water machine CT NTC IX2
 33

Appendix 3. Benchmarking tables prepared by Indesit Company marketing specialists

Appendix 4. Consumers reviews content-analysis materials.