Case study: Will Philips' attempt at repositioning its products work? Manu Kaushik Edition: Sep 30, 2012
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Executive Summary: Once a household name, Dutch consumer electronics major Philips has slipped over the years to become an 'also ran'. Its repeated attempts to rekindle its mojo have failed. Will its attempt at repositioning its products at the youth work? This case study looks at what went wrong and what the company needs to do in order to succeed.
In April 2010, when Philips Electronics India Ltd announced its plan to outsource its TV business to Videocon Industries, the decision came as no surprise. The five-year pact, under which Videocon is handling Philips's TV manufacturing, distribution and sales in India, is aimed at restoring the profitability of the TV business. Philips was once a dominant player in the segment, with a market share of around 15 per cent in the early 1990s, but business eroded as Korean and Indian brands grabbed market share. As volumes fell, the company struggled to run its TV factory in Pune efficiently. It took the third-party route to manufacture CRTs and imported LCD screens, but this didn't help. Then the company licensed the unit to Videocon. The downfall of Philips's consumer business - especially TV - began in late 1990s Through the arrangement, Philips will get royalty income based on turnover. Videocon's economies of scale in manufacturing and its strong distribution network will help the Philips brand reach more outlets and reduce the cost per unit.
The downfall of Philips's consumer business - especially TV - began in late 1990s. The reasons were beyond the control of the management. The entry of Korean chaebols such as Samsung and LG started eating into the market share of older players such as Onida, Videocon and Philips. Philips decided to stick to its usual strategy: relying on technology rather than strengthening distribution and marketing. It didn't want to compete with the Koreans on pricing, and thought the superior technology of its products, be it picture or sound quality, would stand out. "We took a conscious decision not to cut prices," says Kris Ramachandran, former CEO of Philips Electronics India. LOW-VOLTAGE BRAND
The companyâ€™s brand image has declined over the years, and has very little recall value among youth
Despite its technological strengths, the company failed to market its products well, which hurt its brand perception
The company rolled out multiple strategies to overcome its problem, but they failed in a market dominated by fleet-footed Korean companies| In no time, the strategy flopped. The slow-moving Philips couldn't sustain its top position and its market share fell to some 3.5 per cent by 1999. After losing its relevance in the consumer business, Philips did take some steps to address the situation.
In early 2000, it roped in PwC to revamp its consumer products portfolio, set up new processes and overhaul the supply chain. After this, it launched a new range of CRT TVs under the brand name EyeQ. "The idea was to Indianise products to suit local tastes," says Rajeev Karwal, who headed Philips's consumer electronics division in 1999.
The new sets had 300 channels, as opposed to 60 channels in older ones. High-end plasma TVs were also introduced. "The earlier TVs were more suited for Europeans, who like subtle colours. Indians, on the other hand, have a fondness for saturation and bright colours. The later versions of our TVs focused on targeting this issue," says S. Venkataramani, Non-Executive Director, Philips India. In lighting, Philips has historically been the segment leader in India, with a market share of around 30 per cent "Philips was...