Insight No.40 : Aug 2012 : Recipes for Success: Business Insights from PcubedThe Global Kitchen: Electrolux Perfects Regional Product DevelopmentBy Dian Schaffhauser
While health concerns rank lower on the list of priorities in cooking, the Chinese have the most helpful spouses in Asia when it comes to helping out in the kitchen. Ninety three percent of Filipinos and 90 percent of Koreans and Indonesians find the ability to cook attractive in a partner when considering relationships. The most independent cooks are located in Australia and Singapore, who are the least concerned if their partners can't cook. These results come out of the biannual Electrolux Asia Pacific Food Survey, which spans 11 countries and dives into the cooking habits and preferences of 6,500 men and women ages 20 to 59.
Such differences don't surprise Suresh Balan, President of East Asia and India at Electrolux Major Appliances, who has served for 18 years in executive roles for the appliance maker.
Balan's current role encompasses small and major appliances for consumers in Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Thailand, Taiwan, and Vietnam. Each of these markets has unique aspects that call for product development that suits regional distinctions and addresses specific country preferences of Asian consumers as a strong middle class emerges.
Electrolux is a global appliance firm that officially started out in 1912 building its reputation selling high-quality vacuum cleaners - the Lux I - door to door in Sweden, Germany, the United Kingdom, and France. Now the company sells 40 million products within 17 brands, from AEG to Zanussi, to consumers and professional customers in 150 different markets around the world.
Balan is no newcomer to Electrolux. His first Electrolux posting: India. After three years he moved to Belgium, then Sweden, and eventually Singapore, where he currently resides. From there he now leads a major appliance division that sells refrigerators, washers, cooking ranges, and air conditioners, as well as a small appliance group that includes vacuums, microwaves, toasters, kettles, and other small items.
Understanding Country and Regional Markets
When Balan begins working in a new region, the priority is to gain a deep understanding of the culture of the country being served, including customer appliance preferences and how they prefer to do business.
Market research takes many forms, including acquiring market data from research companies and relying on people with a local presence - sales people and retail people - who have been serving that market for years. "It's not that we sit in Singapore and sell something in Indonesia," Balan notes. However, the company also uses regional staff that goes out and supports local managers and teams, which also feeds into the understanding of specific markets.
The company also performs "consumer insight studies," in which Electrolux will visit kitchens with cameras and other kinds of recording devices, explains Balan, "to actually find out how many times the consumer opens the door of the refrigerator to take things, whether it's for cooking or for a snack or for a drink, how many times he uses the cook top oven and how he uses it."
For example, in Singapore and more Westernized countries, people tend to use ovens for baking. Very few ovens are sold in Vietnam or Indonesia, "because of the nature of their cooking," Balan explains. "There's not much baking, not much roasting, so the ovens are not a very prominent or sought after product. So we don't try to develop a new oven for Vietnam, because the market requirement is much less."
The same is true with dishwashers, he adds. "In the city people use dishwashers. In provincial towns dishwashers are not very much used."
Understanding how people prefer to shop is also important - what Balan refers to as "the trade." Since Electrolux no longer sells door to door or even directly to the customer, how it manages retail distribution is a major part of its success.
"In some of these countries we have a mixture of modern trade as well as the traditional trade, so each country is very different." Indonesia, for example, has a mixture of both modern and traditional trades, whereas it's all modern trade in Thailand and Korea.
What's the difference? Modern is applied to chains, such as Wal-Mart. They are usually termed as modern trades, Balan says, "because they're more organized; they do central warehousing; they do retailing; they do promotions." "Traditional" retailers, on the other hand, are "mainly the pop and mom shops. They own one shop or two shops but they run it as the individual entrepreneur." In several of the countries, once a company goes outside of a main city - Bangkok or Jakarta, for instance, chains don't exist; traditional retailers dominate.
Gaining a market understanding isn't a quick process, Balan observes. "You just can't gather this within a month. Over the years you gather what the trends are, what the requirements are, and how the environment is changing, so it takes a bit of time."
Achieving the Right Mix of Products
Market sensibility can only go so far. It also needs to be translated into product development that works for a given geographic area - and done two years out. Electrolux is "developing new products all the time," says Balan, "whether it's in terms of capacity or color or ease of use." But whereas other companies will often take their European or American-made products and sell them in Asia, Electrolux customizes its appliances. "We look at requirements in the market over here and [go back] to our research and development integration team to come up with products," he explains.
For example, countries in East Asia do more wok cooking. "If we take a hob or a hood from Europe or the U.S., it will not work here because they don't have that kind of deep cooking or deep frying. There's not so much smoke generated," Balan notes. "We had to understand the local market over here and develop a range of hobs and hoods that would fit the local markets."
That includes development of a hob with a "very powerful flame" that's distributed evenly across the wok to allow its contents to be heated up quickly, as well as a hood built to quickly carry away the steam and fumes generated by wok cooking.
Some appliances, such as a refrigerator, are "more common across the region," but even then, variations in preference exist. "People want a freezer, but they want a larger area for storage of fresh produce. If you go to Europe, [the ratio] is 50 percent is freezer and 50 percent is refrigerator," Balan says. That fits a need where the shopper goes out once a week or every two weeks and loads up on frozen foods. To cater to a market where there's an emphasis on fresh foods and people tend to buy their produce every day or every second day, Electrolux developed a refrigerator called "Market Fresh," which has technical innovations in how it keeps vegetables and other foods fresh compared to other refrigerators in the market.
"Those kinds of things are very specifically designed here in Asia for the Asian market," Balan says.
However, some products - such as front-loading washing machines and vacuum cleaners - truly are global. They fit every market where there's a consumer demand. "Wherever we can use global products in the market, we use them," he says. "And wherever it's [necessary] to develop local products to suit the local needs, then we do that."
Steady Growth in a Down Global Economy
It's no secret that while many parts of the Western hemisphere are struggling in a down economy, Asia is on a growth path. Electrolux revenues for Asia were up 70 percent in 2011 over 2006. Balan cites several reasons for the growth. First, a lot of buyers are entering the market for the first time, such as customers in Indonesia purchasing refrigerators and vacuum cleaners.
Second, Asia has a burgeoning middle class that are upgrading their lifestyles by upgrading how they cook. "They're going from old kerosene stoves for small cook tops, more built-in hobs, and hoods."
Third, he says, because the company positions itself as a "premium product," its buyers are more immune to financial downturns that have hit other companies in the same industry.
In fact, the company has made a big push into opening up "concept stores" in major Asian cities. As Balan explains, these are "a kind of Electrolux showroom where people can walk in and experience the whole range of products in one store." That allows Electrolux to play up its philosophy: "We are making products that suit you and make life easier for you." That separates the firm from its Japanese and Korean competitors, "which tend to push their products with high technical content," Balan says.
The advantage of the concept store approach: There's no competitor vying for the buyer's attention. The challenge: It requires Electrolux to work closely with its retailers in each country to make sure desire for the concept gets translated into sales.
At the same time that new buyers are entering the market for appliances and existing buyers are upgrading, they're becoming savvier about shopping, Balan points out. "People do a lot of pre-survey on the Internet before they go into the stores. They're more aware. They [will have] compared three other manufacturers and prices."
Likewise, the retailers are evolving too, he adds. Bigger chains are becoming a major force in appliance retail, just as they have in the United States, and Electrolux must adapt to a specific chain's policies and practices to ensure its own growth.
However, one aspect of the appliance business isn't changing much in Asia. The preferred appliance color is still white. "That's why they call it 'white goods,'" Balan says. "Over the years, we've seen stainless steel become very popular, and black on glass. But white is still predominant."
Pcubed, which has worked with Electrolux recently on a global portfolio management engagement, brings a unique, pragmatic brand of consulting to its clients with a boutique depth of expertise in complex project and portfolio management, an agile, flexible approach, and the ability to engage and focus people on delivering sustainable results. To learn more, contact Linda Lavine at email@example.com.