Despite headwinds, consumer durables companies hopeful of festive sales

The festive season of the year, starting with Onam in Kerala, travels to the eastern states for Durga Puja and ends with Diwali over large parts of the country. It has always been a good bet for consumer durables companies.

As this brief period (two to three months) of the year accounts for 30-35 per cent annual sales revenue, consumer durables companies every year bring out fresh promotions, launch new products and offer freebies and special discounts to lure as many as possible.

Discretionary spending of consumers goes up during this time essentially for two reasons - salaried people get bonuses from employers and farmers harvest their crops, and therefore, have money to make discretionary purchases. The mood this year, however, is unlikely to be favourable for the companies, essentially because of the slowing economic conditions, coupled with high prices due to a falling rupee.

 

ODE TO SPENDERS

• The three months between Onam and Diwali account for 30-35% of sales for consumer durables companies
• Discretionary spending increases in this period as the salaried class in towns and cities get bonuses and farmers have money after the harvest
• Every year, companies bring start new promotions, launch new products and offer freebies and special discounts
• An economic slowdown and a falling rupee against the dollar lifting prices of consumer durables during the festive season might kill the festive mood this year

But consumer durables companies are still hopeful the season would boost sales. Firms such as LG Electronics, Panasonic, Whirlpool and Canon are targeting around 20 per cent growth.

Lower marketing spend
None of these have any plan to increase the marketing, promotional and advertising spends for this year's festive season. Even if they keep it at the same level of what they had spent during the previous season, it will actually be much lower after adjustments of inflation and other factors. Camera maker Canon, aggressive on this front during the past few years, has decided to cut its marketing spend by 50 per cent this time of what it had spent last season. "The strategy this year is completely different from the earlier years. And, we have taken a conscious decision of reducing the marketing budget, considering the low-tide consumer sentiment," says Alok Bharadwaj, executive vice-president, Canon India.

This year, it will spend just about Rs 15 crore towards marketing and promotions for the festive season.

Adds Shantanu Dasgupta, vice-president (corporate affairs and strategy), Whirlpool of India: "Discretionary spend, which includes advertising and promotion, is under strict control. We will be apportioning budgets to support our festival initiatives. But they may not exceed what we spent last year."

But LG and Panasonic are planning to keep the marketing spend for the festive season almost at the same level as the previous year.

"There is no plan of cutting the planned budget for festivals, as we have a very ambitious sales plan. This year, our major focus is on on-ground and in-store activities, to give customers a world-class experience of the LG product range," says Sanjay Chitkara, marketing head, LG.

Panasonic India managing director Manish Sharma says the company will invest Rs 75 crore towards marketing and promotional activity this festive season.

This is the same as the previous year but much lower compared with what it had spent during the festive season in 2011 (reportedly Rs 100 crore).

A Samsung Electronics spokesperson, however, declined to reveal details of the company's marketing spend for the festive season. "This will be announced closer to the festival."

Whirlpool and Sony, on the other hand, have finalised their marketing spend for Onam, and their plans for Dussehra and Diwali are not yet finalised.

While Whirlpool's consumer offers plus media and below the line expenditure for Onam will be below Rs 20 crore, Sony will spend just Rs 6.5 crore on marketing and promotions for Onam.

Offers, freebies galore
In low-tide times, companies need to showcase desirability, affordability and flexibility to attract consumers, says Canon's Bharadwaj.

Not only Canon, most companies are offering extended warranty and free gifts (such as Panasonic offering Free Benetton bag on the purchase of a 29-inch LED TV and Free Microlab Speakers on purchase of select models of 39-inch LED TV). Affordable finance schemes or zero-interest EMI (equated monthly instalment) options and special gift offers are also available.

For example, Whirlpool's Onam scheme is offering bumper scratch card of 51 return tickets to Dubai for couples and the company is also flying down 25 Keralites living in West Asia, who have not visited home in the past three years, during Onam.

Canon, for instance, has started adding one extra lens in the starter kit and offering special warranty for some products. "Every company is redesigning the marketing strategy this year, so we are," adds Bharadwaj.

Fresh launches
In spite of weak consumer sentiment, no company wants to go slow on new launches and promotions. What matters in the business, especially when the markets go weak is brand perception and visibility. So, there is no scope to cut corners here.

But the number of fresh launches is likely to be fewer compared with the previous years.

According to a spokesperson of Samsung Electronics, it plans to launch premium products such as Panel TVs, Q9000 (air conditioner), new models of Frostfree refrigerators and microwave ovens in the Indian market for the festival season.

Whirlpool would launch a French Door Bottom Mount, some new colour finishes in Frost Free Refrigerators, two new ranges in Top-Load Washing Machine, and a couple of new Microwave models. Most products would be rolled out between September and October.

But companies like Panasonic and LG did not reveal details of fresh launches for this festive season.

Rupee pressure
The depreciating rupee has already forced the consumer durable companies to go for a price hike of two-five per cent across categories during the past three months.

And, most companies are planning for another round of price rise.

But, keeping the festive season in mind, some may try to hold on.

"We at LG try and absorb the maximum increase in cost, but after a certain point, it becomes mandatory for us to pass on a fraction of this hike to the consumers," says Chitkara.

But Panasonic's Sharma says the company would pass on the pressure to consumers only if the rupee depreciated further. The price rise will be across all categories.

"Indigenising sourcing and manufacturing wherever possible, and increasing exports, are on the agenda of mitigating actions for the challenge caused by the sharp depreciation of the rupee," says Dasgupta, adding the supply base in India has not developed in line with the evolution of the appliance industry yet.