Business Today

Fresh Fillip

After virtually abdicating its position in the consumer electronics market to nimbler rivals, Philips India is coming back with a radically different, more inclusive game plan. Will it work?

By Anusha Subramanian        Print Edition: August 26, 2007

For a company that has over 20,000 inventions under its belt-including the rotary head shaver, the audio cassette, and the CD, DVD, jpeg and mpeg formats-the past decade has been a long trip of learning the hard way for the Eindhoven-headquartered Royal Philips Electronics. Over this period, countless strategies have been crafted before being duly dust-binned, and the Dutch electronics major has gone through several makeovers. For instance, in 1998, then Chairman Cor Boonstra announced, more than two years after taking over, that Philips would henceforth focus on high-volume consumer electronics (CE).

Murali Sivaraman
Murali Sivaraman
CEO designate/Philips Electronics India:
"It's the simplicity of the experience that we are focussed on, even though the product itself can continue to be complex"

Analysts found that surprising as the CE portfolio was the biggest drag on Philips' profits. A few years later, Gerard Kleisterlee, who took over as President & CEO in April 2001, threatened to close down Philips' CE business in the us, a $10-billion business at that time. Then, in 2004, Philips did something pretty radical. It abandoned its slogan "Let's Make Things Better" and opted for "Sense and Simplicity", even as it started a new business group for consumer health and wellness; and a year later, Philips put its semi-conductors business on the block.

Indeed, it's been quite a shift over the past 10 years-from a high-volumes electronics giant and technology powerhouse to a pure lifestyle and healthcare company. The change was needed. Globally, market shares were stagnating, losses were piling up, and the brand promise was eroding. "We needed to come up with something that's simple to understand for our customers, and also a company that's simple to understand for our investors, because that has not always been the case," explains Kleisterlee. The short point: offer consumers a great experience rather than tech and specs.

Alexius Collette
Alexius Collette
Alexius Collette CEO/ Philips Innovation Campus: "We realise that it's not just about understanding technology, but having consumer insights and meeting the unfulfilled needs of consumers"
As far as strategies go, this one's working better than many from the past-not just for Philips worldwide, but in India too. Whilst global revenues climbed 5 per cent in 2006 over the previous year, net income (profits) shot up by 88 per cent. Back home, it's been a mixed picture. Whilst in 2005, sales were up, profits fell, and last year, profits spurted 164 per cent, although sales were down 7 per cent (see Sometimes On, Sometimes Off). For good measure, the Philips brand is moving up in the valuable sweepstakes, from #48 in 2006 to #42 this year, according to Interbrand's annual rankings. The value has increased by 15 per cent from $6.7 billion to $7.7 billion. This is the fourth consecutive increase in brand value for Philips.

Back home, Philips' growth is coming largely from the DAP (Domestic Appliances & Personal Care) division, medical systems and lighting. Consumer electronics, where Philips has more or less abdicated its position to LG, Samsung, Sony, Onida and Videocon in the television segment, is one area of concern. CE sales were down 57 per cent in 2006 over the previous year, although the company claims to be making significant gains in niches like DVD players.

So, what is Philips doing right in India? K. Ramachandran, who retires from the domestic operations in October 2007, after a 14-year stint, explains that Philips India has been following the global game plan to a T. "We need new technologies to improve people's lives, both in advanced as well as in new and emerging markets. But innovation and technology must make lives simpler rather than complex. In effect, we are isolating the consumer from the complexities and just giving him a Philips interface to deal with," explains Ramachandran. Murali Sivaraman, the new CEO designate for Philips in India, sings the same tune. "It's the simplicity of the experience that we're focussed on, even though the product itself can continue to be complex."

The new face of Philips

Products are targeted at rural and urban markets.

For the village people

Woodstove, or the smokeless chula

In the hinterlands, women are forced to cook on indoor wood-burning stoves. This means blackened ceilings and walls, ash on the floor and a long wait. Philips' woodstove claims to reduce pollution due to smoke by 90 per cent

Household and community water purifier

Using filters, the purifier removes bacteria, organic chemicals, mud and sediments, providing families with clear odourless, clean and tasty drinking water. The pilot has been successfully conducted, says Philips

Smile: Uday and smile: kiran-rechargeable portable lanterns and led flashlight

Philips Smile (Sustainable Model in Lighting Everywhere) is an initiative to provide affordable, high-quality, energy-efficient, clean lighting solutions, primarily for rural areas. Smile: Uday is a rechargeable portable lantern while Smile: Kiran is a hand-cranked LED flashlight

For the city-slicker

Rip all
Enables one to rip music out of a cassette and convert it into a MP3 format. The end product is a cassette player, a tuner, a CD Player and has a USB Port. Expected price: Rs 3,500-5,000

DVD player with an inbuilt amplifier
The launch of the DVP-3136 combines sleek and premium design with razor-sharp pictures and digital quality sound output. The product is priced at Rs 3,999

Ambisound home theatre system
It features five amplifiers integrated into a single horizontal sound bar, a three-band equaliser and DoubleBASS™ deep bass performance. The speakers feature soft dome tweeters for increased clarity and clear voice performance. Available at just under Rs 60,000 

In a market like India, where around 120 million households live at the bottom of the pyramid, the company has come up with several products and initiatives to improve the lives of the masses. Example: The woodstove or a smokeless chula for safe cooking, a UV water purifier for clean water on a mass scale and rechargeable battery lamps. Many such products are at pilot stages in various parts of the country (see The New Face of Philips).

Gerard Kleisterlee
Gerard Kleisterlee
President & CEO/ Royal Philips Electronics:
"We needed to come up with something that's simple to understand for our customers ... because that has not always been the case"
Consider the woodstove, which seeks to put an end to polluting and inefficient ways of cooking. Philips claims the woodstove reduces pollution due to smoke by 90 per cent and organic volatile emissions by 99 per cent. A thermo-electric generator uses heat from the burning wood to run a fan, which forces air through the stove, leading to a better fuel to air ratio. If used properly, the woodstove is said to reduce fuel consumption by up to 80 per cent. Apart from faster and more convenient cooking, this energy efficiency means the stove can save the cost of the time needed to gather fuel, and can slow down deforestation. Philips reckons the stove could benefit up to 300 million families in the world's poorest regions. A commercial pilot of this product was launched last year and concluded recently. The product is expected to hit the market by 2008.

Then there's the water purifier, for both households and communities. Cleaning with uv light is easily scalable, making it suitable for both small-scale and large-scale use. Using filters, the purifiers remove bacteria, organic chemicals, mud and sediments, providing families with clear, odourless and clean drinking water. The pilot has been successfully conducted and the company is currently exploring how to improve the robustness and ease-of-use of this product.

The rural thrust with affordable and accessible products is one prong of Philips India's strategy. The other is, of course, a focus on urban markets, perhaps without going head-on against the likes of LG and Samsung in the big categories like television sets. Here too, innovation and convenience are the guiding beacons. Consider, for instance, a product called Rip All, which will allow you to transfer music out of your cassettes that are lying wasted and unused onto a CD in an mp3 format. Rip All will have a CD player, an fm radio tuner, a cassette player and a USB port. The product is scheduled for a September launch and the price will range between Rs 3,500-Rs 5,000.

Having been priced out of the television and audio markets in the past, Philips India appears to be conscious about getting its pricing right. For instance, a DVD player with an inbuilt amplifier is priced just under Rs 4,000, and the recently launched Ambisound home theatre system is available at Rs 60,000 as against a similar product from Yamaha that costs Rs 70,000 upwards.

"Philips' products have been doing well. Their fastest selling products are the DVDs, where they're leading the pack," says Neelesh Gupta, Partner, Vijay Sales, a Mumbai dealer of consumer electronics and durables.

S. Nagarajan
S. Nagarajan
Vice President (Consumer Electronics):
"We realised (in 2003) we needed three pegs to be successful: retail strength, good value for money products and a strong company itself"

Yet, DVDs make up just about 10-12 per cent of the CE pie, whose total size is estimated at between Rs 13,000 crore and Rs 15,000 crore. It is difficult to reconcile with a Philips that is just a bit player with a marketshare of under 2 per cent in the colour TV segment, which makes up over two-thirds of the entire CE market "It's after the entry of players like Samsung and LG that Philips lost its shine," says Venugopal Dhoot, Chairman, Videocon Group.

If the Philips top brass is to be believed, there's clearly a method to their presence in the CE market. S. Nagarajan, VP (Consumer Electronics), says: "At the end of 2003, we realised we needed three pegs to be successful in this market, namely, retail strength, good value for money products and a strong company itself." When it comes to value for money, the Philips Innovation Campus in Bangalore, which houses some 950 people, has a major role to play. "We realise that it's not just about understanding technology but having consumer insights and meeting the unfulfilled needs of consumers. Once we get the insights, we try and find out what kind of product we could offer and what kind of technology is needed to fulfil those needs," says Alexius Collette, CEO, Philips Innovation Campus. Kleisterlee will approve.

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