Out In The Cold?

If you visit Carrier Aircon's headquarters, in Gurgaon on the the edge of Delhi, you'll come across a door prominently labelled WAR ROOM. This is the room in which managing director Anil K Srivastava and other key executives of this Rs 390-crore Indian subsidiary of the $ 8 billion United Technologies Corporation have been spending a fair amount of their working days.

They have good reason to do so. Almost invincible in the air-conditioner market so far, Carrier now finds its turf invaded by the Japanese and Koreans. In barely a year, new players such as National, LG and Samsung are closing in on the company, which is now battling to maintain its edge.

 

For the past two years, Carrier's market share has stagnated at 25 per cent in a market that grew at a 10-12 per cent clip. Last year alone, LG managed a 16 per cent share and Samsung 7 per cent. Carrier claims much of this came at the expense of other players like ex-market leader Voltas. But if the time Srivastava & company are spending in the War Room is any indication, Carrier is clearly feeling the chill of the new competition.

The stakes are high because, though the market is expected to grow a record 40 per cent this summer, each of the new entrants wants a larger share of the 3,00,000 unit market. If Carrier wants to increase its share from 25 to 30 per cent, LG hopes to move to 25 per cent while Samsung will look to more than double its share to 15 per cent.

Carrier may have established itself as the leader in India's airconditioning market in just eight years, but this time, its job may be far tougher. This is because the nature of the market has radically changed in just one year _ and this was catalysed not by Carrier, but by the new upstarts.

Till the advent of the Japanese and the Koreans, the market was mostly brand-driven. Consumers went for reliable brands like Carrier or Voltas, since they carried with them the guarantee of a hardy compressor, which everyone knew lies at the heart of a good air-conditioner. But when the number of players in a market rises, a strong brand alone can never be a sales driver. In fact, when LG, one of the companies acknowledged to have catalysed the change in the rules of the game, entered in 1998, research pointed to a possible gap in a market that was dominated by strong and established brands. The opportunity was to convert the air-conditioner from just a cooling agent to a household accessory.

Says Ajay Kapila, vice president, sales and marketing, LG Electronics India, "We saw that air-conditioners had moved up the consumer's preference list very fast in the last two or three years and we designed our product and communication to suit the individual. Today air-conditioners are not seen as an institutional product but are being sold like any other consumer product."

In fact, it is the individual segment that everyone is making a beeline for, as it is estimated to account for at least 70 per cent of sales in the next two years and is growing at 40 per cent. In comparison, the central air-conditioning segment where Blue Star is the leader is growing just by 4-5 per cent.

What the newcomers did was pin their hard-sell on features rather than just the brand. "People are looking for goodies. They want higher order features other than

cooling." says Samit Sinha, executive vice president, Mudra Communications, who handled the Carrier account when he was with Clarion.

New players like LG and Samsung essentially did two things. One was to add aesthetics to the common air-conditioner. For the first time, in place of the squat box came sleek, contemporary designs complete with add-ons like a remote control.

The other important change was to offer a cogent new value proposition. The newcomers focused on the air filters, and spoke about how they improved the quality of indoor air _ that is free from bacteria and dust.

And Carrier admits that. As Srivastava says, "These new players made the Indian market more aesthetics-conscious. Since

they came in, we have started benchmarking our products with theirs. They have brought in very contemporary products and we

clearly saw a need to upgrade our product offering, even though we feel we are technically superior."

Carrier was initially slow to react due to production problems last year. But earlier this year, it fired the first salvo in its fightback by launching the Global Series range which improved on looks and added a filter that it claimed could kill bacteria.

At base, however, this was a reactive move. Carrier has also tried to be proactive by improving its point of purchase interaction. Traditionally a consumer buys an air-conditioner without actually seeing the product. Carrier reckoned that someone who is dishing out more than a couple of thousands for a product would definitely like to see it work before he buys it.

So Carrier came up with the idea of "Comfort Points" _ a strategy that is unique to the multinational's Indian operations. These are outlets that allow the customer to actually feel and touch the product in an environment that is like home. Carrier has 50-odd comfort points in the country today. An extension of these are mobile comfort shops, vans fitted out like showrooms that do the rounds of smaller towns and cities. They come packed with the product and offer ready finance options.

In fact, the boom in consumer loans and a 10-14 per cent drop in prices over the past two years have ensured that air-conditioners are no longer considered a big-ticket household purchase. Therefore, communication is expected to play a crucial role in a marketer's success. This year Carrier plans to more than double its advertising budget - ad spend should touch about Rs 15 crore this year. Archrival LG also plans to dish out similar amount to make advertising noise.

Carrier's advertising today tries to focus on its core competence of superior cooling as well as on features. It has also added "air-throw" as a another feature that the consumer looks out for in an air-conditioner. This is not unlike the PUF lining that Godrej refrigerators famously touted in the mid-eighties to carve out an USP for its products. (PUF is insulation that all fridges come with, but Godrej was the first company to highlight it. Similarly, air throw is not unique to a Carrier product; it's the function of the fan. "The blower is a need created by the advertising agency. Since the market is now so features-driven, everyone is looking for bells and whistles, this was necessary," says an advertising professional.

Carrier today may be reactive but it had established itself precisely by changing the nature of the market. Till it entered in 1988, the market for air-conditioners was largely price rather than brand driven. That is why for most of the eighties and the early nineties, it was the unorganised sector that gave the branded market a run for its money (see box: Cooling off, on page three ).

By 1993, it became evident to this 51 per cent subsidiary of United Technologies Corporation of Hartfort, Connecticut, that the household segment for ACs would explode. First, ACs were rising in the hierarchy of household items to be purchased. The middle class, having acquired most other durables like TV and washing machines, now looked for owning an AC that cost approximately Rs 15,000 in the grey market. Excise duties were also brought down by the government post-liberalisation, and the price difference between the branded and assembled versions was narrowing.

Carrier decided to cash in on this. Its brand recall in 1993 was just 5 per cent, and the first task was to change that, and the company, which had hired Clarion, embarked on a high impact advertising campaign that capitalised on the fact that Carrier was the American company that invented the air-conditioner. It was a covertly aggressive campaign.

In an oblique reference to the market leader at that time, Voltas, the ad asked consumers if they wanted anything but the best. In 18 months, Carrier's brand awareness had increased 12-fold. In 1995, by the time it ran a commercial extolling Carrier's credentials - a la `This is the company that centrally air-conditioned the Louvre - brand awareness had risen to 62 per cent. And in 1996-1997, the company became the leading AC brand in India, toppling Voltas.

Will history repeat itself at Carrier's cost? One of the areas where LG, Samsung and National have an advantage over Carrier is they have several approach points to the consumer due to their range of products. So, if a buyer is happy with his LG TV, he may go in for an LG air-conditioner as well, all of which are available at the same showroom. Srivastava agrees that others might have an edge when it comes to front-end operations. "They can leverage different channels for marketing as they have a battery of products. But, in back-end operations, we have the edge as we are focused on one product and all our technological endeavours are towards that one product. We also have a vast dealer network devoted to just selling air-conditioners."

Though Carrier has been building its equity for over a decade in India, there is no doubt that it will have to look at greater flexibility to stay atop. Says Hari Krishnan, account director, Bates India, the agency on the Carrier account, "To react quick and fast is also a strategy. They could have sat in their ivory tower and waited for their brand equity to see them through. Market dynamics have changed. If earlier Carrier-the-brand was the driver of sales, today the reverse works. The product offering is now the driving force. The Carrier name is not enough to push sales."

After all, it didn't have much new competition to fend off when it was building its brand in India. Now the market is turning dynamic and more players are expected to enter the market that offers lot of potential - air-conditioner penetration in India is in single digits, about 8 per cent - and the consumer profile also keeps changing. If today people are upgrading themselves to own an air-conditioner, tomorrow the same guys will be going in for a second air-conditioner. "Last year the second air-conditioner buyer made up 13-14 per cent of the market. This is the segment to look out for. They could be a good target group for split air-conditioners," says Krishnan.

Competition is clearly hotting up. Already, LG claims that it has sold 40,000 units this year _ which is equal to the total number of units the company sold last year. Carrier also claims to have increased sales in the window segment by 35 per cent over last year. Clearly, it's going to be the strategies in the War Rooms that will dictate who wins this numbers game.