Deepak George, Student, Indian Institute of Management, Kozhikode
Some key factors lie behind Daikin's success. Strategy: Understanding the Indian AC market and the segment that generates the maximum revenue, and repositioning the Daikin brand accordingly from a premium category to a low-cost category. Tactic 1: Achieving operational excellence by eliminating costs in the value chain to sustain low-cost product strategy. Tactic 2: Achieving further growth by widening product portfolio, distribution network and focusing on customer service. Daikin understood that the real market for ACs in India is mainly in the residential segment, which is sensitive to price, and repositioned its brand from a high-end one to a low-cost one. Business cannot succeed by slashing prices alone; the paradigm shift in brand should make financial sense, and Daikin used local sourcing instead of importing materials to cut nearly 45 per cent of its costs. It also used strategic location near raw material suppliers and proximity to the largest market (Delhi) to reduce logistics costs. Daikin further increased its growth by having a wide product portfolio, entering Tier 1 and Tier 2 cities by increasing the distribution network, and improving customer service. Existing dealers were encouraged to venture into smaller cities, thus making dealers partners in Daikin's growth. But Daikin has to continually reduce costs to remain competitive.
Differentiation can be through innovative service to have a competitive edge against the likes of Samsung and LG, since product differentiation may be difficult in this industry.