Analyis of the Marketing Strategy of LG

This is a study to analyse the Marketing Strategy of LG, one of the most popular brands in Consumer Electronics, focusing specifically on its Television Products.

This study finds about the status of Consumer Electronic industry and its segmentation. Then which part the industry the LG is targeting. Also some of the leading competitors of LG like Samsung and Sony were discussed. Further the study offers Porter’s 5-forces and SWOT analysis.

Finally a consumer survey was undertaken and based on its analysis and previous data some recommendations will be offered.

Table of Contents

1. Introduction

Business competition is getting tougher year after year due to increasing globalization and the progress of technology. The world has now become a one huge market where you can buy and sell products all around it. Many companies try to properly satisfy their customers in order to sell their products. They focus on this because a satisfied customer is a loyal customer who will continue to buy the product from the same company hence increasing the company sales and revenue. That is companies have to sell their products effectively in order to get the necessary financial resource. Financial resource can be used to develop new products so companies can survive in competitive market and also expand their business. Marketing activities plays a very crucial role in helping companies sell their product.

Philip Kotler states that “Marketing is the process of planning and executing the conception, pricing, promotions, and distribution of goods, services, and ideas to create exchanges with target groups that satisfy customer and organizational objectives”. Marketing activities can help companies to sell their products at the right time, the right place, the right price, and also appropriate with customer needs. Marketer’s fundamental aim is to satisfy and forge good relationship with their customers (Kotler 1994, pp.13-14).

This report aims to critically analyse the Consumer Electronics industry primarily focusing on Television products and its key players especially LG (Lucky Gold star), South Korea’s 3rd largest conglomerate. Further the report then will analyse the LG’s Target Market for Television& their Marketing Strategy especially in Singapore. In the last part, some recommendations will be offered for the improvement of the LG’s marketing strategy.

1. Description of Industry

Industry Structure

Consumer electronics are electronic products which are used by everyday people. Consumer electronics usually find application in entertainment, communications, and office productivity.The global consumer electronics industry is dominated by Japanese and Korean company. The world consumer electronics market value from 2004 to 2008 can be seen in figure 2.1 (Consumer Electronics, 2010).

Figure 2.1 World Consumer Electronics

Source: Enterprise One Business Information Services, 2009

LG’s Competitive Strategy

LG’s competitive strategies are (LG Electronics 50-Year History 2008, pp. 197-199):

Focusing on boosting ROIC (Return on Investment Capital) instead of simple growth.

LG targets to achieve ROIC 15%, it means company have to improve gross margin. LG will decrease indirect costs and switch to high-profit products.

Optimizing the portfolio.

The company increase its profitability, strengthened its brand in the market, use external resources (alliances) to expand the business in order to optimize the portfolio.

Counter measuring the market bipolarization.

LG develops the products based on customer needs and identify potential needs of the target segment based on STP (Segmenting, Targeting, and Positioning) strategies.

Technology innovation and design differentiation.

LG focus on technology innovation and design differentiation through R&D process based on customer needs.

Strengthening brand investments.

Repositioning LG’s brand identity and reorganize brand communication by developing “Life’s Good” slogan and new futuristic logo (Our Brand, 2010).

Reinforcing global competencies.

LG advance all internal and external resources for the organizational competencies by hired the best people to create the best human resources pool in the world.

Adopted from: LG Electronics, 2010

Direct Competitors and the Strategies

LG TV’s direct competitors are Samsung and Sony with market shares which are shown in figure 3.9.

Figure 3.9World TV Market Shares 2009

Source: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aPC4aW2cZE.M

Samsung

Samsung Electronics vision for the new decade is “Inspire the world, create the future.”With the ‘TOP plan’ and sponsorship strategies, Samsung has become the top brand in the world. It has become the world’s leading brand in electronics and digital industry. This achievement is mainly due to the strategies followed as explained below (The top brand in the world, 2010):

1. Sponsoring Strategies

Samsung has associated its name to the ‘TOP plan’ which is called the ‘The Olympic Partner’ plan. It is this strategy which has made Samsung the TOP brand. Without this strategy it will not have much effectiveness and efficiency. Samsung has been sponsoring various activities in order to create brand awareness and enhance its market position.Samsung was an official sponsor in wireless communication equipment presented by the Wireless Olympic works.

2. Reposition of its products

Initially in 1990s Samsung was targeting the lower income groups with penetration pricing. Later on it realized that it would be better to target the cream or skimmed group of the population by increasing the price and improving the quality. It realized that in upscale marketing, technology and brand are competitive means. Thus it repositioned its products to upscale the market. To Samsung, higher price increases its profit and it will also imply good quality.

3. Technology innovation

Samsung realized that digital is the future of the world and technology upgrades are essential to sustain in the competitive market. They switched their core competitive power from mass manufacture to high-end product supplier which is based on digital technology. Samsung launched the industry design revolution to get rid of its image of imitator. It employed world’s top designers to expand, differentiate and innovate its product.

Sony

Sony is a Japanese company and key players in consumer electronics especially television. The brand for Sony’s television is BRAVIATM. The strategies of Sony Electronics are (Sony Electronics Inc., 2010):

The leader in product innovation.

Sony has an ability to identify imagination and enhance people’s life. The company has been at the cutting edge of technology for more than 50 years. Now, Sony develops its business with sales innovative products as well as Sony’s convergence strategy. For example, Sony has Hi-Scan flat screen TV which can deliver near HDTV picture quality through Digital Reality Creation (DRC) circuitry.

Broadband network area.

Sony is well positioned to bring new benefits for consumer by combining hardware, software, content and services. Consumers can access information wherever and whenever they want through cable, satellite, or internet.

Promoting a world class brand.

Sony conducts an advertisement campaigns to secure consumer attention and utilizes world class public relations to enhance Sony’s value, reputation and brand image. Communications campaigns are executed on both an individual product and strategic platform basis which ensures exposure for the company’s fundamental products including digital TV.

Brand values.

In the mind of consumers, Sony is one of the world’s greatest brands. Sony tries to leverage its brand beyond the products and add the value to the brand by re-focusing its brand outside the world.

LG’s Indirect Competitors and The Strategies

LG TV’s indirect competitors are computers and mobile phones. Computers and mobile phones can be used as to watch movie. People can watch movie, news, online programmes with using computers and mobile phones.

Computers

Some people prefer to watch the programmes that are available on the television but on the computers especially laptops. This way they can watch movies, news, live programmes, etc wherever and whenever they want.One of the best methods of getting the programmes is to download or streaming from the Internet. There are millions of movies, news, online programmes, etc which are available online through various downloading sites and commercial streaming websites like Hulu, Youtube etc.(Watch Movie Online From your PC or Laptop, 2008).

Figure 3.10Streaming from Internet

http://blog.worldvillage.com/computers/vlc_media_player.png

Source:http://worldvillage.com/heritage/computers/vlc_media_player.png

Figure 3.11 Watch Movies on Laptop

http://www.byteeoh.com/wp-content/uploads/2009/08/Gen-Y-laptop.png

Source: http://www.byteeoh.com/wp-content/uploads/2009/08/Gen-Y-laptop.png

Mobile phones

Some people prefer to watch movies and other programmes in mobile phones.Many mobile phones can be used to watch programmes which are available on the television. For example people can use Blackberry and iPhone to watch various movies, television shows, news etc. Both mobile phones provide technology which can be used to watch the many television programmes. Mobile phones are very handy and easy to carry everywhere. People can use them any where such as gym, office, while travelling, etc. (Watch Movie Online From your PC or Laptop, 2008).

Figure 3.12 iPhone

http://bp2.blogger.com/_cGA2amRH5MY/SE1mpnqlikI/AAAAAAAACFU/1BS1fFbnaOc/s400/Watch+Movies+on+Iphone.JPGSource:http://3.bp.blogspot.com/_cGA2amRH5MY/SE1mpnqlikI/AAAAAAAACFU/1BS1fFbnaOc/s400/Watch%2BMovies%2Bon%2BIphone.JPG

Figure 3.13 Blackberry

http://www.pdaflix.com/images/tour.jpg

Source: http://www.pdaflix.com/

4.1 LG’s Porter Five Forces Model

Porter’s Five Forces is one of the models of competitive analysis for the purpose of developing strategies in many industries. But the intensity with which competition exists in the industry keeps varying. According to Michael Porter, the nature of competitiveness in an industry is based on the following five forces (Porter-Five Forces Model, 2009):

Figure 6.1 Porter Five Forces Model

http://kelas.files.wordpress.com/2009/10/porters-five-forces-model.jpg

Source: http://www.soopertutorials.com/business/strategic-management/3028-porter-fiveforces-model.html

Rivalry among Competitive Firms

The enduring conflict with Sony and Samsung for the purpose of gaining customer share is too high. The competition is more intense as these firms pursue strategies that give competitive advantage over the strategies pursued by its rivals.

Potential Entrants

Potential entry of new competitors is an important factor to intensify competition in the industry. Larger the band of new entrants, more intense will be the competition. Considering the trait of product differentiation,

Development of Substitute Products

LG faces stiff competition by substitute products producers firms especially when the switching cost of the customer is lower, and when the functionality and quality of the substitute product is better. On account of this reason, LG has to monitor its trend for the purpose of tracking those strategies as it may face competition not only from similar industry but also from different industry. But LG, Sony and Samsung have penetrated into the industry for a long time and they have created economies of scale, product differentiation, strong familiar brands, that will make it difficult for new brands to enter the industry.

Bargaining Power of Suppliers

The bargaining powers of suppliers affect the intensity of competition for LG on account of a large number of suppliers, and less availability of raw materials. Based on these attributes, the suppliers of LG have the power to enforce certain terms and conditions on manufacturers by charging a high cost of raw material.

Bargaining Power of Buyers

A buyer group is powerful if it purchases in large volumes. The bargaining power of consumers of LG is more, as products are not differentiated and widely available. In this case consumers of LG can ask for more discounts, extended warranty and services. As the satisfaction level of consumer goes up, the intensity level of competition increases. As a result, LG has to monitor the strategies of its competitors by taking into consideration the likes and dislikes of its customers.

SWOT ANALYSIS

LG SWOT Analysis company profile is the essential source for top-level company data and information. LG Electronics, Inc. – SWOT Analysis examines the company’s key business structure and operations, history and products, and provides summary analysis of its key revenue lines and strategy

SWOT is the tool to see that where organization stands, which areas required improvement, which areas required serious consideration, which would be the source of growth, which things need avoidance and so on. The SWOT of LG will help to understand the position of LG in the market.

LG SWOT analysis can be seen in figure 6.2 (New Research Report on Companies and Markets, 2008).

Figure 6.2 SWOT Analysis

Source: New Research Report on Companies and Markets, 2008

STRENGTHS

LG is a multinational company and a recognize brand around the world. It has successful established not only in developed countries but also in developing countries.

LG products are reliable, easy to use, and have simple designs which satisfy customers that’s why LG have the advantage of having loyal customers.

LG Corporation the research and development has given greater importance because to satisfy the customers and provide the customers what they want the research and development id required. LG try to keep products innovative to attract the customers and to capture more market share. LG is at its growing stage and its growing quickly. It is producing solid products which rapidly satisfying the customers.

1 Strong Brand Image

LG enhances the life of its customers through its strong brand image and reputation. Right now choosing LG has become a form of self-expression and a promise of satisfaction due to its intellectual product features, intuitive functionality and exceptional performance. The LG brand comprises of four basic elements namely values, promises, benefit and personality. Nowadays customers take the pride of owning a LG product and they take the comfort that they have made a smart purchase. “LG is the brand that is delightfully smart.” They have created a separate logo and brand image for LG. This surely adds on to the strength of LG (Brand identity,2010).

1. Strong Marketing Communication

LG wants to deliver synchronized communication messages worldwide to elevate their profile and promote their brand identity. In order to increase consumers’ understanding of the LG brand and to differentiate the company’s image, LG has set up a single global brand under the theme “Life’s Good.” To accomplish this, all brand marketing communications from LG have a consistent look and feel, as well as consistent messages (LG to Become Top-Level TV Maker by 2010, 2008).

Source: http://www.lg.com/sg/img/about/assets/20090210191407688H.jpg

http://www.koreatimes.co.kr/www/news/img/biz/081020_p5_LGtwo.jpg

Source: http://www.koreatimes.co.kr/www/news/biz/2010/04/263_33015.html

3Alliance Joint Venture

LG has made tie ups with highly successful business partners. This has made LG to be one among the top players in their field in the world. Strategic associations between companies existing in the same or related industry is a sign of prosperity and it can be a vital means of growth of the existing industry as well as forging new ones. (Strategic Alliances,2010)

Figure 6.4 Joint Venture

strategic_alliance_img

Source: http://www.lg.com/sg/about-lg/corporate-info/strategic-alliances/index.jsp

WEAKNESS

Product Line

On comparing LG televisions with its directed competitors like Sony and Samsung, it lacks in producing variety of products and features. Comparatively, Samsung and Sony have a wide product line offering different models of televisions. For example, LG only has 29 types of TV, but Samsung has 102 types of TV. This deficiency in the product line of LG is considered as a weakness.

Higher overall costs than its rivals

LG Television has a higher price than the competitor because LG offers premium television. LG offers Television with stylish looks, sleek design, and smart technology.

OPPORTUNITIES

Marketplace. After all, opportunities are everywhere, such as the changes in technology, government policy, social patterns, and so on. An opportunity is a major situation in a firm’s environment. Key trends are one source of opportunities. Identification of a previously overlooked market segment changes in competitive or regulatory circumstances, technological changes, and improved buyer or supplier relationships could represent opportunities for the firm

1. Alliance or Joint Ventures

LG has alliance or joint venture with companies that have established a brand for themselves in the market. It can further increase its market share and market presence and increase its brand image, by having alliances and joint ventures with other successful companies. This would also help in generating more revenues for them (Strategic Alliances,2010).

2. Distinguish its Services from Competitors

The consumer electronic services are expected to grow in Singapore. As several initiatives are being realised, it is found that would be integrated so that LG can distinguish from its competitors. The consumer electronics industry in Singapore is already thriving. So this would boost the performance of consumer electronic industry in Singapore.

THREATS

No one likes to think about threats, but we still have to face them, despite the fact that they are external factors that are out of our control, for example, the recent economic slump in Asia. It is vital to be prepared and face threats even during turbulent times. A threat is a major unfavourable situation in a firm’s environment.

Threats are key impediments to the firm’s current or desired position. The entrance of new competitors, slow market growth, increased bargaining power of key buyers or suppliers, technological changes, and new or revised regulations could represent threats to a firm’s success.

Because SWOT is such a familiar and comforting tool, many students use it at the start of their analysis. This is a mistake. In order to arrive at a proper SWOT appraisal, other analyses need to be carried out first. Since opportunities and threats mostly arise from the environment, analysis needs to take account of the results of a full environmental analysis.

It is impossible to gauge what an organisation’s real strengths are until you have assessed its strategic resources – in fact, strategic resources and strengths are the same thing. There is a tendency for students to put down anything vaguely favourable that they can think of about a company as strength. This temptation needs to be resisted – strength is not strength unless it makes a genuine difference to an organisation’s competitiveness. The same is true of weaknesses. For example, look at Southwest Airlines and Amazon.com. Both companies have important groups of potential customers to whom they offer poor service.

 Southwest ignores business passengers, and will not accept transfers from other airlines. Amazon makes people wait days to receive books that they can obtain instantly from their neighbourhood bookstores, and pay a delivery charge for the privilege. Surely, these are major threats. Southwest and Amazon have chosen not to give those customers priority. Serving them would divert resources from the firm’s core markets, and dilute service to their main customers. Not serving them is certainly not a weakness; in a paradoxical way, it may be strength.

The wizardry of SWOT is the matching of specific internal and external factors, which creates a strategic matrix and which makes sense. It is essential to note that the internal factors are within the control of organisation, such as operations, finance, marketing, and other areas. On the contrary, the external factors are out of the organisation’s control, such as political and economic factors, technology, competition, and other areas.

1. Aggressive Competitors

Looking at LG, it is found that Samsung and Sony are found out to be their aggressive competitors. As consumers in Singapore are now becoming open to new technology, they would try going in for the latest technology that is being adopted by them. So the smaller chain brands are offering different products and are using different advertising strategies to attract consumers.

Mature and Saturated Industry

LG is almost in a mature and saturated industry. LG has got a strong brand image and reputation. They have a lot of competitors and they have to face lot of challenges. So they need to protect their market position and competitive advantage.

Competitors with different Skills and Potent Brand Image

Looking at LG Electronics’ competitor, being Samsung and Sony, it is found that they poses different skills with potent brand image as they were able to acquire a greater market share by satisfying the needs and wants of the people. The reason being, they have constantly come out with innovative products (SWOT analysis worksheet, 2009).It is very important that every company considers its macro-environment before the marketing process. The macro-environment consists of political (and legal) forces, economic forces,

Figure 6.5 PEST Analysis

Source: PEST Analysis, 2010

PEST factors in LG are (LG Electronics 50-Year History, 2008):

Political factors.

LG Electronics has high import duty.

LG Electronics import 42-inch PDP (plasma TV) from Korean and sell those into other countries. The problem is the high price after the import duty and freight cost. In order to overcome high import duty, LG Electronics builds a local production plan for plasma TV. The only way to avoid the high import duty, the local production has made been possible.

Faithful tax payment.

LG Electronics is the leading enterprise in contribution in society and economy, creation of employment, and faithful tax payment.

Economic factors.

Marketers need to consider the state of a trading economy in the short and long term especially when planning for international marketing (PEST Analysis, 2010).

Singapore has small interest rate which Singapore benchmark interest rate stands at 0.06%. The rate is official interest rate which banks lend to one another (Singapore Interest Rate, 2010). This interest rate should be considered by LG in order to state of a trading economy in the short and long term.

Singapore has small inflation rate about 1% inflation rate. This inflation rate will effect on the standard level of purchasing power. LG should consider this inflation level in order to set up pricing strategy, identify purchasing power of LG consumer, etc. (Singapore Inflation Rate, 2010).

Socio-cultural factors.

In response to intensifying global warming issues, LG Electronics is actively producing eco-friendly products. LGE is actively developing eco-friendly technology to reduce toxic material in products, and is also accelerating the development of reliable technology to actively protect user safety.

LG Electronics also response to other social issues such as high oil prices and population aging by developing new products including solar batteries and Health Care.

Technological factors.

LG develop new technology in order to create innovative product.

LG Electronics develops new technologies which enrich customers’ lives and provides comfort and enjoyment. LG Electronics implements customer feedback, stylish design &intelligent, state of-the-art functionalities in order to create innovative product and increase customer value. R&D sector plays important role in discover creative ideas and implement those ideas into products.

Improving technology in order to increase the quality standard of the product.

LG Electronics focuses its energy and resources in creating first-quality products and technologies, quality indispensable for the global market competition.

Recommendations and Conclusion

LG faces stiff competition from the Market leader Samsung and closest rival Sony. It is because they are not able to create reliable brand image among their customers. They need to focus on developing their products that can give better experience to their consumer.

From the survey, it is seen that LG is only able to somewhat satisfy their costumers from their products. They need to create a great sense of joy in their customers by offering unmatched product features and service that will make their customers loyal to the brand and this will greatly help LG in increasing its market share.

LG’s product prices are in comparison with its leading competitors. The problem is that consumers do not think that LG has that much value and hence prefer to buy other brands. LG need to offer more competitive pricing and better promotions to sell their televisions better.