Business Model Analysis
of
LG Butterfly
Group 1
BANGLADESH UNIVERSITY OF PROFESSIONALS
Assignment
Topic Name:
Business Model Analysis of LG Butterfly
Course Name: Strategic Management
Course Code: MGT 8503
Submitted To:
Major General Prof. Alauddin M A Wadud
Bangladesh University of Professionals (BUP)
Submitted By: Group 1
Roll Name
18019033 Md. Tanjim Hossain
18019039 Zubayer Hassan Siddiqui
18019059 Sajeeda Islam Deena
18019061 Jasia Masrura
18019069 Fairooz Homaira Ehsan
18019077 Rushda Rahman
Acknowledgements
We would like to express our deep gratitude to our honorable course teacher Major General Prof.
Alauddin M A Wadud, who has given us valuable and far-reaching suggestions and guidelines for
preparing this report on Business Model of LG Butterfly.
We would like to thank our classmates for giving us morale support and helping us with preparing this
paper.
Letter of Transmittal
Dear Sir,
It gives us immense pleasure to submit a report on “Business Model of LG Butterfly”. While
preparing this report, we tried to follow the guidelines given by you.
I hope that you will pardon our unintentional mistakes in preparing this paper and accept it.
Sincerely,
Md. Tanjim Hossain
Zubayer Hassan Siddiqui
Sajeeda Islam Deena
Jasia Masrura
Fairooz Homaira Ehsan
Rushda Rahman
Table of Contents
Title Page
Executive Summary ii
Chapter 1: Introduction 1-2
1.1 Objectives
Chapter 2: Strategic Analysis 3-28
2.1 Business Model of LG Butterfly
2.2 Competitive Analysis
2.3 Marketing Strategies
2.4 SWOT Analysis of LG Butterfly
2.5 Porter’s Five Forces Analysis
2.6 Ansoff Growth Matrix
Chapter 3: Recommendations 29
Chapter 4: Conclusion 30
References 31
i
Executive Summary
In Bangladesh LG electronics started its operation in 1987. Butterfly Marketing Limited is the sole
distributor of LG electronics in Bangladesh. Butterfly grasps a majority portion of share for the electric
goods and appliances in Bangladesh. In Bangladesh the company spread its wide distribution channel
and outlets.
In the TV industry LG Butterfly offers a large number variation in terms of technologies and size. LG
Butterfly Marketing Ltd. Is currently focusing on manufacturing LED TVs locally. Their target
customers are upper middle class and affluent people. However, LG Butterfly Marketing Ltd. Also
takes strategies to be low cost provider in color television market with their economical brand LG
Butterfly Marketing Ltd. Television.
The key resources identified of Butterfly Marketing Ltd. are the competitive advantages. Customer
focus, a strong dealer network through the country, cutting-edge supply chain management
capabilities, quickness in responding to shifting market conditions and emerging opportunities, slightly
below competitive price help Butterfly to become one of the great market players in Bangladesh. An
experienced and capable workforce, talented employees in key areas, cutting-edge knowledge and
intellectual capital provide LG Butterfly a sustainable competitive capability.
However, there are also some threats for Butterfly. Increasing competition among the market players,
entry of new competitors, frequent technological changes make it difficult to retain LG Butterfly
existing market position. Yet, so far LG Butterfly Marketing Ltd. strategies are working pretty well
and these strategies are the ones that making LG Butterfly a winning
ii
Chapter 1
Introduction
When it comes to naming home appliance brands, LG electronics definitely rings a bell. LG electronics
has been serving us with home appliances and electronic good since 1958. “Lucky-Goldstar” was the
creation name of the company which later on abbreviated name to “LG” in 1995. Almost 62 years
later, it still stands high up in electronic goods market. LG electronics is considered as one of the
leading consumer electronic companies in the world with around 55 million USD in global revenue.
South Korea is the home of the brand LG. The history of LG Electronics has always been surrounded
by the company’s desire to create a happier, better life. LG Electronics was established in 1958 and
has since led the way into the advanced digital era thanks to the technological expertise acquired by
manufacturing many home appliances such as radios and TVs. LG Electronics has unveiled many new
products, applied new technologies in the form of mobile devices and digital TVs in the 21st century
and continues to reinforce its status as a global company.
The transformation from ultra-cheap Lucky Goldstar to upscale LG Electronics has been nothing short
of remarkable. Credit goes to Michael Ahn, who guided the branding effort for LG Electronics North
America before stepping down as the Group’s president and CEO in 2010. LG’s initial step was to try
to get distribution in higher-end retailers but this effort was stymied by the low-quality “couldn’t be
trusted” perception of the product line. A critical decision in the early 2000s was to avoid the path of
least resistance and seek distribution in stores like K-Mart, Wal-Mart and Sam’s Club. While such
distribution would have made the Korean factories hum with activity it was off strategy for Ahn who
sought to make LG an upscale brand.
When Ahn stepped down after 35 years with the company, LG had become No. 2 worldwide in
television sales and has also become a major player in cell phones. During the six years Ahn was in
charge of North Americas operations, sales increased 20 percent a year from $5.6 billion to $13 billion.
In addition to electronics, LG’s appliance business, which featured front-loading washers and dryers,
also increased dramatically thanks to the addition of bright color schemes, which contrasted with the
competition’s drab white.
While distributing through Wal-Mart and Sam’s Club was off-strategy in the early 2000s, the
company’s transformation put this channel on-strategy in 2010 when LG flat screen TVs began
appearing on the shelves at Wal-Mart and Sam’s Club. This was an acknowledgement of consumers
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recognizing that LGs image as a high-end product has followed the product life cycle dynamics as big
screen TVs have become more of a commodity.
LG is the market leader in various segments like color TV’s with market share of 26.2%, microwave
ovens with market share of 41.2%, frost free refrigerators with market share of 37.9%, washing
machines with 34.1% market share and air conditioners with 34% market share.
1.1 Objective of the Study:
To study the business model of LG Butterfly.
To dive deep into the brand-new venture as mentioned in the case study.
To observe and analyze the competition in the market.
To develop a new business model based on available information.
To point out the obstacles and predict the what’s next.
Recommendations for the company to adopt so that they can have better strategies for their
new venture.
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Chapter 2
Strategic Analysis
2.1 Business Model of LG Butterfly
2.1.1 Company Mission
To provide locally produced consumer electronics, home appliances and energy products to
consumers, businesses and institutions at an affordable pricing through nationwide distribution
network effectively coupled with faster and efficient service network.
2.1.2 Company Vision
To grow as a fully home-manufactured complete electronic solution providing company, by creating
an environment of distributing state-of-the art electronic products to fulfill the demand of the mass
consumers in our country and of international market.
2.1.3 Objective of the Company
In order to flourish in the future, LG butterfly has set a few objectives. Since the company will start
manufacturing goods locally, it has to focus on a new set of objectives. We have the objectives broken
down into two parts; Financial objectives and Strategic objectives. The objectives are as follows
Financial Objectives:
These are basically goals and targets that can relate to financial performance, resources and structure
of the business.
We are keeping the profit margin at 15%, which means we will be keeping 15% of our total
revenue.
We are expecting yearly company financial growth to be 10%.
To hit the Breakeven point in 2 years and 3 months.
To have the dividend 5% after 2 years.
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Strategic Objectives:
These are the goals that the company wants to achieve in a certain period of time.
The current market share of LG Butterfly tv in at 4%. We definitely want to target higher. So,
our target market share is 10%.
LG Butterfly currently sells 1,00,000 units of TV in Bangladesh yearly. The company aims to
sell 3,00,000 units of TV yearly.
The company is currently focusing on TV. LG Butterfly is manufacturing their TV locally
and in the near future it wants to expand the business by manufacturing other home
appliances locally. Refrigerator and Air conditioner is what we have in mind to manufacture
locally in the future.
We aspire to be trendy and up to date with the current world. Keeping this in mind, we want
to incorporate technology and introduce the new line of next gen TVs. This will include
OLED TV, UHD TV, Smart TV and 8K TV.
We currently have 110 showrooms all over Bangladesh and we plan to increase the numbers.
We want to have at least 200 showrooms all across Bangladesh.
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2.1.4 Business Model for New Venture
Key Partners Key Activities Value Propositions Customer Relationships Customer Segments
- Butterfly as - Domestic R&D - In-house - Brand - 300,000
local partner of Center produced LED awareness customers
LG - Designed by LG TV - Customer - Middle class
- Parts - Manufactured and - 4 LED TV experience and affluent
purchased from Assembled in Models - Word of mouth Bangladeshi
South Korean Bangladesh - Replacement - Recommendati citizens living
suppliers - Distribution Warranty: 4 on in urban areas.
- Developers - Customer service Years - Quality
- Reseller and - Marketing and sales - Easy
Distributors - Branding installment
- Ad agencies payment
Key Resources Channels
- High brand value - Retailers
- 100,000 units of - Resellers &
LG Tv sale in Distributors
Bangladesh - Repair shops
- Sales growth is - Websites
high - Online Stores
- 500 well-trained - Media
employees
- Technical supports
from LG, South
Korea.
Cost Structure Revenue Streams
- Cost of parts - Quality Control - Sale of LED TVs
- Components - Distribution and logistics - Post-sale service
- Raw materials - Customer service - Sale of components
- Staff compensation - Marketing
- Manufacturing cost - Taxes
- R&D
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2.1.5 Customer Base:
- Market Size: 300,000 customers (expected) would be served each year
2.1.6 Value Proposition:
“More for the same” value proposition will be offered to counter competition like Samsung and Sony
whose proposition is “More for More”. A "More for the same" value proposition entails offering a
product along with services or brand with comparable quality, at a lower price that major
competition. Depending on the costs associated with producing your product or service, LG may have
the same margins as a "More for More" competitor, which LG is expecting to make up for with a
higher volume of sales.
In-house produced LED TV
1. 4 LED TV Models
a. 24” Flat screen LED TV, HD video quality
b. 32” Flat screen LED TV, HD quality, Dolby Sound System
c. 43” Flat screen LED TV, HD quality, Dolby Digital Sound System, Supports Android
OS
d. 55” Ultra Slim OLED TV, Full HD, Dolby Digital Sound System, Supports Android
OS, USB Port, HDMI Port.
2. Replacement Warranty: 4 Years
3. Easy installment payment
2.1.7 Key Resources:
- High brand value of LG
- Yearly 100,000 units of LG Tv sale in Bangladesh
- Sales growth is high, as LG and Butterfly sold Tk. 900 crore in 2015-16 and Tk. 1,200 crore in
2016-17
- 500 well-trained employees
- Technical supports from LG, South Korea.
2.1.8 Key Activities:
1. Domestic R&D Center
2. Designed by LG, South Korea
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3. Manufactured and Assembled in Bangladesh
4. Distribution
5. Customer service
6. Marketing and sales
7. Branding
2.1.9 Customer Relationship:
1. Brand awareness
2. Customer experience
3. Word of mouth
4. Recommendation
5. Quality
2.1.10 Key Partners:
1. Butterfly as local partner of LG
2. Parts purchased from South Korean suppliers
3. Developers
4. Reseller and Distributors
5. Ad agencies
2.1.11 Channels:
- Retailers
- Resellers and Distributors
- Repair shops
- Websites
- Online Stores
- Media
2.1.12 Cost Structure:
1. Cost of parts
2. Components
3. Raw materials
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4. Staff compensation
5. Manufacturing cost
6. Quality Control
7. Distribution and logistics
8. Customer service
9. Marketing
10. Taxes
11. R&D
2.1.13 Revenue Streams:
1. Sale of LED TVs
2. Post-sale service
3. Sale of components
2.1.14 Generic Competitive Strategy
LG & Butterfly will focus on a niche market: middle and affluent class of Bangladeshi citizens from
urban areas. So, it has a narrow buyer segment. Now, for the focused group, it cannot go for low-cost
leadership strategy, as Walton and other local and Chinese brands are already selling low-cost low-
quality LED TV in urban areas. LG & Butterfly has some level of differentiation similar to Samsung’s
TV as it brings LED TV with digital sound quality and Android OS for some models. So, LG &
Butterfly may use a combination of low-cost with strategic emphasis on differentiation. It can make
an upscale product at a lower cost because of low tax than the makers of other brands with comparable
features and attributes and can give customers more value for money. Overall, it can be said that LG
& Butterfly should look for Best-Cost Provider Strategy.
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2.1.15 Cost Benefit Analysis
The projection of year-wise cash inflow and outflow are given below:
Year Sector Amount (Tk.) Net Cashflow
2018 Initial Setup Cost (8,500,000,000) (8,500,000,000)
2019 Yearly Operating and Sales (1,000,000,000) 4,360,000,000
Cost
Variable Cost (10,640,000,000)
Sale 16,000,000,000
2020 Yearly Operating and Sales (1,000,000,000) 4,700,000,000
Cost
Variable Cost (11,400,000,000)
Sale 17,100,000,000
2021 Yearly Operating and Sales (1,000,000,000) 5,080,000,000
Cost
Variable Cost (12,160,000,000)
Sale 18,240,000,000
2.1.16 Net Present Value (NPV):
Assuming Required Rate of Return: 11%
NPV = -8,500,000,000 + 4,360,000,000/(1.11) + 4,700,000,000/(1.11)^2 + 5,080,000,000/(1.11)^3
= - 8,500,000,000 + 3,927,927,928 + 3,814,625,436 + 3,714,452,217
= 2,957,005,581
NPV = Tk. 3,000,000,000
As NPV is Positive, this project is profitable.
Profitability Index (PI):
PI = (3,927,927,928 + 3,814,625,436 + 3,714,452,217) / 8,500,000,000 = 1.35
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PI = 1.35
As, PI > 1, this project is profitable
Discounted Payback Period (DPP):
DPP = 1 + 1 + 0.20 = 2.20 years
DPP = 2 years 3 months
The project will reach break-even in 2years 3 months
2.1.17 Value Chain System:
Raw Materials from
Transfer to Bhaluka Raw Material
South Korean
Factory Inventory Control
Suppliers by Ship
Packaging Quality Control Production
Ready Product LG-Butterfly
Distributors
Inventory Showroom
Consumer
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2.2 Competitive Analysis:
2.2.1 Industry Competition & Growth:
Bangladesh is now a very competitive ground for consumer electronics brands. In consumer
electronics major two products are Television and Refrigerator. LG & Butterfly both are strong brand
individually and since 1995 these two brands are doing business under one umbrella, consumers treat
these two brands as one.
With rising population and income level purchase of consumer electronics goods are also increasing.
Geo-strategically positioned between India and China, Bangladesh consists of the world’s 8th largest
population, where consumer spending is more than USD 130 billion, which is growing at 6% annually.
Among these population urban living young generation and nuclear families holds a large portion, in
1990, 19% of total population living in urban areas has increased to more than 30% in 2016; Rising
literacy rate, growing middle class and white collar culture, and globalization along with rising use of
internet and social media are the key factors to drive the increased consumption of home appliance
and consumer electronics industry to grow 15% in every year.
With increased labor cost in china and import duty in Bangladesh is making very hard to sustain in
competition for all the brands in Bangladesh. As we learnt from the report that import duty is 100% -
156% for consumer electronics components, so importing TV and refrigerator will be costly and brands
with local set-up will definitely have competitive price advantages.
The market for Consumer Electronics consists of a number of segments but major tow categories are
Refrigerator and TV which are holding the 40% and 30% market share in consumer electronics
industry. The continually growing market is currently stands at USD 1.38 Billion as of 2017. Below is
the category wise market share in
2017:
Television: USD 414.22 Million
Refrigerators: USD 549.11 Million
Air Conditioner: USD 164.57
Million
Home Appliances: USD 251.41 Million
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As we already mentioned industry forecast is around 15% per year. Below is the growth forecast of
major two products:
YOY GROWTH FORECAST (IN M ILLIO N)
TV Refrigerator
878
779
699
680
636
614
549
543
478
414
2018 2019 2020 2021 2022
Data Source: LightCastle Primary Research
2.2.2 LG Butterfly’s Competition in the industry:
Consumer Electronics is a competitive market with a wide ranging products from both international
and local players. Due to the brand image and credibility, the international brands have strong top of
mind association. However, the local players are dominating the market in terms of sales volume,
mainly due to competitive pricing. Even though local players are ahead in sales, LG’s home electronics
business also grew with time, LG & Butterfly jointly sold 90 million, 106 million and 141 million
USD in 2014-15, 2015-16 and 2016-17 year respectively. If we compare with the industry of 1.37
billion the figure is too low because LG and Butterfly in the consumer electronics market in
Bangladesh from 1995. So establishing own factory with new technology and high quality engineering
support will surely give them an edge to grad higher market share. So with local manufacturing LG
would be able to reduce the product price in great extent. Below are brands available for LG Butterfly
in consumer electronics industry:
Product Category Local Brands International Brands
Rangs, Walton, Vision, Sony, Samsung, LG, Panasonic,
Television
Singer, MyOne. Toshiba, Phillips, , Sharp
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Samsung, LG, Whirlpool,
Refrigerator Walton, MyOne, Minister.
Kelvinator, Hitachi, Hier.
General, LG, Daikin, Gree, Carrier,
Air Conditioner Butterfly, Walton,
Whirlpool.
Walton, Electra, Singer, Miyako, Sebec, Panasonic, Sharp,
Home Appliances
Eco+. Steamfast.
2.2.3 Market Share – Television:
Walton, the local brand is in the leading position in the Television market with a market share of 27
percent. However, most of the market share is covered by different local, international and Chinese
brands which makes the television market somewhat saturated. Below is the percentage wise market
share:
Brand Market Share
Non branded Local & Chinese 50%
TV
Walton 27%
Singer 7%
Minister 4%
LG 3%
Sony Rangs 3%
Vision 2%
Nova 2%
Transcom 2%
Total 100%
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TV Market Share by Brands
2% 2% 2%
3% Non branded Local & Chinese TV
3%
4% Walton
Singer
7% Minister
50% LG
Sony Rangs
27%
Vision
Nova
Transcom
Data Source: LightCastle Primary Research
From this data we can see that market is dominated by non-branded TV due to their low price and LG
is only having 3% TV market, so if LG can reduce the price and utilize their 200+ selling point
nationally then surely they can grab some of the market share from Walton and grey market.
2.2.4 Market Share – Refrigerator:
In the market for Refrigerators, local brand Walton is in the leading position with 54% market sharing,
taking over more than half of the market share. The second position is also held by a local brand,
Singer. Below is the market share as per 2018 data:
Brand Market Share
Walton 54%
Non-Branded 20%
Singer 14%
LG 4%
Jamuna 4%
Minister/MyOne 4%
Total 100%
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Data Source: LightCastle Primary Research
Currently with their own manufacturing set-up LG is aiming to hit close to 190 million USD sellout
in 2018. Comparatively cheap labor, growing expertise in the IT sector & light engineering, and
obviously reduced cost will sure help LG to compete in market stronger than before. Even with all
these benefits LG’s renowned TV technology will surely help them to capture competitor’s market
share.
2.3 Marketing Strategies:
LG is already a recognized brand in Bangladesh since it’s been operating with Butterfly for a long
time. With new factory set-up and product line it’s required to redefine the marketing strategies to
yield maximum customer awareness on purchasing decision and ensure differentiated after sales
service.
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2.3.1 Segmentation:
Market segmentation is the process of dividing a target market into smaller, more defined categories.
It segments customers and audiences into groups that share similar characteristics such as
demographics, interests, needs, or even location. Market segmentation will allow LG to get to know
its customers more narrowly, identify what is needed in the selected market segment, and determine
how LG can best meet those needs with its product. With a right segmentation LG will be able to
design right and effective marketing campaigns.
2.3.2 Geographic Segmentation:
Geographically LG TV customers are segmented in 3 categories:
Urban: Urban customers are falls into this segment. Urban customers refers to potential customers
from major city dwellers like Dhaka, Chittagong, Sylhet etc.
Semi-Urban: Other segment is the semi-urban segment, which is also the biggest segment for LG TV.
Suburban areas like Narayanganj, Comilla, Mymensingh, Bogra etc falls in.
Rural: Rest of the areas which include all the villages or location which are distant from the city falls
under rural.
2.3.3 Demographic Segmentation:
Income: Income is a very critical segmentation for LG LED TVs. Available segments based on income
are:
- Low income group
- Lower Middle Class
- Middle Class
- Upper Middle Class
- Upper class.
2.3.4 Age: Age is obviously a variable for LG LED TV. Segments based on age for LG TV are:
- Below 18 Years of age
- 18 – 25 Years of age
- 25 - 30 Years of age or Young Adults
- Adults or 30 – Below 50 years of age
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2.3.5 Psychographic Segmentation
Lifestyle: In the new business model LG LED TVs will be targeted to segment who are tech savvy,
loves entertainment, movies or sports.
Personality: Personality wise family oriented personality segment will be most suitable for LG LED
TV.
2.3.6 Targeting:
With locally manufactured 4 models LG will be targeting multiple segments to capture maximum
market share. LG LED TV will be target on below segments:
- Lower Middle Class, Middle Class, Upper Middle Class and Upper class. Even with the
reduced price due to locally manufacturing LED TV still considered as luxury product and
lowest price of newly introduced 4 models is 25,000 BDT so anyone one with monthly income
minimum 30,000 BDT will be potential customer of LG LED TV
- Young adults who are influencers, new corporate people are newly started earning and adults
who are the key decision makers in the family are the desired segment to target. So from 25
years to below 50 years of age are the potential customer segments for LG.
- Personality wise LG TVs will be targeted who are entertainment and sports lover and family
oriented.
2.3.7 Positioning:
On these targeted segments, newly manufactured LG LED TV will be position based on superior
display technology in competitive price along with extended after sales service.
2.3.8 Pricing Strategy:
Pricing is one of the trickiest issues in marketing as it requires understanding the product and
understanding the market. No doubt LG is going to face highly rivalry by others in the market like
Samsung, Sony, Walton and other Chinese brands. Obviously, pricing will be one of the key market
wining factor for LG LED TV because price will be lower than before due to local manufacturing but
it will not be the competitive advantage for the company because major competition like Samsung and
Walton also have local manufacturing facility. Considering this, newly launched LG LED TV’s pricing
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strategy will be mixture of competitive pricing and market penetration strategy with psychological
pricing.
2.3.8 Competitive Pricing:
Competitive pricing is the process of selecting strategic price points to best take advantage of a product
or service based market relative to competition. With new 4 models LG will be targeting to offer
customer price closer to Samsung and Sony. To ensure brand strength over local brands like Walton
or Konka LG’s price will be surely higher than local brands.
2.3.9 Market Penetration:
Market Penetration is basically setting a low price, leaving more value in the hands of the customers,
shutting off margin from the competitors. With own hi-tech manufacturing facility LG can surely
leverage cost than before as there will be less import tax and manufacturing cost due cheap labor cost.
LG can achieve cost leadership and in the market they can offer penetration pricing offer lower value
than before but offering new technology bundled with more value like extended after sales service,
free delivery & set-up etc.
2.3.10 Psychological Pricing:
As we already shared our strategy will be mixture of competitive pricing and Market Penetration
Pricing, so we are also going to use Psychological Pricing to get a competitive pricing. Psychological
pricing is the business practices of setting prices lower than a whole number, in LG’s case slightly
lower than Samsung and Sony’s TV price. The idea behind psychological pricing is that customers
will read the slightly lowered price and treat it lower than the price actually is. So the upcoming LED
TV’s price will be:
24” Flat screen LED TV, High video quality, Price: 24,990/-
32” Flat screen LED TV, High video quality, Dolby Sound System, Price: 29,990/-
43” Flat screen LED TV, High video quality, Dolby Digital Sound System, Supports Android
OS, Price: 54,990/-
55” Ultra Slim LED TV, Full HD, High video quality, Dolby Digital Sound System, Supports
Android OS, USB Port, HDMI Port, Price: 84,990/-
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2.3.11 EMI Facility:
New 4 models will available with EMI facility with at least 20 commercial and merchant banks who
card facility. 3/6/9/12/24 month EMI facility will be available. For 3-6 months EMI 0% interest rate
will be offered which will be carried by the LG and for rest of the packages bank assigned interest rate
will be applicable.
2.3.12 Place:
In the marketing mix, the process of moving products from the producer to the intended user is
called place. In other words, it is how your product is bought and where it is bought. Surely LG’s
distribution coverage needs to be expanded to achieve the target and grad higher market share. LG is
planning to enhance the distribution coverage in two way:
Expansion of Sales Center:
Currently, LG Butterfly have 100+ sales center nationally and by 2020 we are planning to increase the
number of sales centers to 200+. More brand shop will be inaugurated in strategic locations to reach
out more customers. New LG Butterfly brand shops will be placed near Samsung and Sony’s
showroom, so that LG can capture Sony and Samsung’s customer and also increase the customer
footfall.
Online:
LG will also be focusing on selling online to create an alternate channel. Customers can purchase new
4 Models directly from LG Butterfly’s website and also LG is planning to partnering with 2 big online
e-commerce site which are Daraz and Pickaboo to sell its products from online. Customer will get free
delivery directly from LG local depot and in this channel LG will gain cost advantage due to reduction
of transport and showroom cost.
2.3.13 Promotional Strategy:
With new 4 models LG is planning to create big buzz in the market to get maximum attention. Different
marketing and promotional activities are under development. These activities are:
Advertisement in the major newspaper for 1 month from 1 day before launching in the market.
After 1st month advertisement will be published only on the Friday for next 6 month.
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Scratch card campaign will be live from the 1st day of launching. Scratch cards will offer cash
discount from 500 – 2000 BDT and the grand price will be all sponsored tickets to Russia to
see match in FIFA World Cup 2018
Considering the FIFA World Cup 2018 and Eid-ul-Fitr, 20% discounted price campaign will
be run from 1st day of June 2018
Special exchange offers for any old LG TV to get a brand-new LG LED TV.
TVC on the local TV channels 2 month before FIFA World Cup.
FM radio advertisement on the prime time that is on the 8.30 am – 10.30 am in the morning
and 6.00 pm – 8.00 pm in the evening.
Celebrity endorsement to promote LG products. For the 2018 only TV will be promoted
through celebrity.
Promotional SMS to the partner bank’s customer offering EMI facility to purchase LG LED
TV. 3-6 months EMI will have 0% interest.
Warranty facilities. 4 years warranty will be provided starting from the day of launching.
Free home delivery and installation.
Home service for the under-warranty period
Exclusive loyalty card for special discount to buy any other LG products.
Special gift offer for lucky 1st 100 customers.
Online promotion in Facebook, Youtube.
2.4 SWOT Analysis of LG Electronics:
Strengths:
31 years old company
Partnership with Butterfly
Good Brand image of Butterfly
Own production
Plant set up in Bhaluka on 50 acres of land
Good employee relationship which will expected to hit 3000 soon
Low tax rate as well as comparatively low price
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Popular brand image in the area of electronic goods and home appliances
Increasing growth rate
Opportunities:
Butterfly has been marketing LG products by assembling in Bangladesh since 1995
Demand for TVs in Bangladesh is 10 lakh units a year
Bangladesh is becoming a big home appliance market as demand for electronic goods are
increasing
People’s disposable income is rising so is the purchasing power
As women empowerment is increasing the demand for home appliances is also increasing.
Upcoming events of FIFA world cup 2018
Expecting a sales of Tk 1600 crore at the end of 2018 fiscal year
Offering a low cost rather than Samsung and other international rivals
As the price is comparatively low, it can compete against the all other local brands and
definitely it will do good to capture the local market
Exporting in India, Nepal, Sri Lanka, Indonesia and Malaysia in near future
24 inches to 55 inches TV’s at a price for Tk 25000 to Tk 2 Lakh
Easy payment systems attract the customers for purchasing
Weaknesses:
Brand reliability is lower than the other International competitors like Samsung, Phillips etc
Product quality of Samsung is better than LG’s
Low focus on other electronic items like refrigerator, air conditioner etc
Threats:
High brand value of Samsung and other existing international brands
Assembling of appliances becoming expensive due to high import duties
Decrease profit margin due to high import duties
Made in Bangladesh may have negative impact on customer’s mind
Many local companies are entering into the market with their lucrative offers
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2.5 Porter’s Five Forces Analysis:
Suppliers Power:
LG enters into a cooperative relationship with its suppliers by becoming their shareholder thus
creates trustworthy suppliers
Product differentiation is very low
There is no or very negligible switching cost
Supplier’s power is low.
Buyers Power:
Use of internet to get all the information
Mid to High price sensitivity of buyer
Feedbacks and suggestions available over internet
Buyer switching cost is very less
Buyer’s power is high.
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Competitive Rivalry:
There is continuous innovation in this industry making an intense competitive rivalry
Powerful competitive strategy of Samsung
Competitive rivalry is again very high.
Threats of substitution:
Due to changing technology, there is high threat of substitute products in this industry
Buyer have huge propensity to substitute if any firm provide more technologically advanced
product
Threat of substitutes are from mid to high.
Threats of new entry:
Huge capital requirement for a firm to enter in this segment
Rapidly evolving technology is another entry barrier as for a new entrant
Efficiently built supply chain will make very difficult for a new entrant to compete them on
price
Already developed huge brand equity will make very tough for a new entrant to establish in
this market
Brand loyalty is moderate in this sector
Threats of new entry is Low.
2.6 Ansoff Growth Matrix
The Ansoff Matrix, also called the Product/Market Expansion Grid, is a tool used by firms to analyze
and plan their strategies for growth. The matrix shows four strategies that can be used to help a firm
grow and also analyzes the risk associated with each strategy.
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2.6.1 Market Penetration (Primary Strategy)
What is the market penetration strategy?
Market penetration involves encouraging sales growth within the current customer base. It includes
the activities used to increase the market share by focusing on an existing product in the existing
market. Market penetration is the primary intensive growth strategy adopted by LG Group to
accomplish the growth objectives.
How LG Butterfly applies a market penetration strategy?
Adoption of this strategy requires LG Butterfly to lower the prices and use different
marketing and promotional strategies to push the sales in the existing customer market. The
organization offers various price discounts and deals, frequently runs the promotional
campaigns and offers the product in new attractive packages to achieve sales growth target
while staying in the same market. Aggressive marketing tactics are required when using this
strategy in a competitive consumer market.
LG’s strategic objective associated with market penetration strategy is to increase sales by
lowering the prices through cost leadership. A correlation between low cost and low price
leadership is assumed in this case. Another way to achieve this growth objective is to
integrate the innovation for setting clear differentiation basis. It helps LG Group in expanding
the customer base despite the market becomes saturated. However, it is also important to note
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that market penetration becomes increasingly costly when a market reaches its saturation
point. In that case, investment in different marketing and promotional activities brings a low
return, which encourages the company to consider other intensive growth strategies.
The adoption of market penetration as a primary intensive growth strategy is linked with
LG’s ability to differentiate its offerings besides attaining the cost leadership. The
combination of cost and differentiation of generic strategies supports this intensive growth
strategy. During the initial growth time period, market penetration strategy played an
important role in making the LG Group successful in its home market. Later, recognition at
the national level was used to target new markets all over the world. The brand awareness
gained through high market penetration was also used as a tool to offer new products to
existing and new consumer markets.
At present, Butterfly sells 100,000 units of LG-branded LED TVs a year in Bangladesh. The
company is targeting sales of 300,000 units in three years' time.
Although LG is among the biggest global industry players, market penetration is still the primary
intensive growth strategy as the company is currently present in numerous consumer markets with
further growth potential.
2.6.2 Product Development (Secondary Strategy)
What is the product development strategy?
Product development is the second intensive growth strategy of Ansoff growth matrix. LG Butterfly
uses it as a secondary strategy to achieve growth objectives. This strategy involves the development
of new products or modification in the current product lines to make them new to current customer
base. Growth-seeking firms like LG adopt this strategy when they found limited growth
opportunities in the current market with the current product line. During the last few years, the
intensified competition has induced LG to bring new products to targeted market segments.
Targeting existing customers with new products requires comparatively less time, resources and
efforts as the company leverage the already developed brand awareness and customer loyalty.
How LG Butterfly applies product development strategy?
Since its introduction, LG Group has considerably extended its product line, and its product
array has become too broad. It allows the company to hedge the risks as it can compensate
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the losses incurred from one product line with the gains received from others. Currently, the
organization has more than Competitor product brands being served all over the world.
Product development is an important tool to attract more customers.
The strategic objective linked with using this intensive growth strategy is to increase the
research and development investments for innovation and new product development. LG’s
ability to use the differentiation generic growth strategy supports the product development
process and enhances an organization's ability to offer novel or new products to achieve
growth in existing consumer markets.
Cost leadership strategy used by LG also supports this intensive growth strategy as it allows
the organization to minimize the costs and use existing infrastructure to launch new products.
Although the company can use the same resources to extend the product lines, successful new
product development requires LG to emphasize research and development and use new
technologies required to pursue this strategy.
In terms of new product development, three main approaches are available to LG.
v First is to offer new products that share a close association with current product lines.
v Second, to offer new products that resonate the purchase behavior of current
customers.
v The third strategy is to develop new products that refresh or reinvent current products.
LG manages to successfully introduce new products through on-going assessment of
customers' needs.
For example, LG will extend technical support to Butterfly for manufacturing TVs
locally in Bangladesh. They are launching new product LED & Smart Android TVs in
Bangladesh though in Bangladesh they were selling their electronics goods since
1995.
2.6.3 Market Development (Supporting Strategy)
What is a market development strategy?
Market development is the third intensive growth strategy of Ansoff growth matrix. The main
objective of this strategy is to explore and enter new markets.
How LG Butterfly applies market development strategy?
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LG Butterfly uses market development as a growth strategy that supports market penetration
and product development. The organization has extensively applied this strategy, and as a
result, it is currently present in more than Competitor countries. The successful entry in new
consumer markets has played a key role in making LG Group a global brand. Main reasons
behind the worldwide presence are- affordable prices, strong brand name and flavor. Besides
these factors, the successful marketing and celebrity endorsed promotional campaigns have
also helped LG Group in capturing new customers and becoming the market leader in many
countries.
Through on-going investment in research and development, the company continuously
expands the distribution network to reach every corner of the world, particularly in
developing countries where the presence is currently weak. However, a company is already
entered in most of the markets all over the world; market development now only acts as a
supporting strategy and has secondary importance.
The LG’s strategic objective of applying this strategy is to expand the value chain so that it
could support the distribution network growth. LG's ability to minimize the costs and attain
the cost leadership position allows the organization to apply this intensive growth strategy
successfully. The cost minimization supports the additional investment made by the LG
Group to enter in new consumer markets.
LG Group understands the importance of understanding culture and integrating local
norms and values in marketing campaigns when entering new geographic regions. High
cultural intelligence has helped LG Group gain acceptance in culturally diversified
consumer markets. LG's local partner Butterfly has shelled out $100 million to set up a
plant on 50 acres of land in Bhaluka, Bangladesh. They started production of television
first because of the football World Cup. Sales of TVs see a spike around the time of the
tournament, which takes place every four years.
2.6.4 Diversification (Supporting Strategy)
What is diversification strategy?
Diversification is the fourth intensive growth strategy of the Ansoff matrix. This strategy involves
entering new markets with new products. The diversification strategy is further divided into related
diversification and unrelated diversification.
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How LG Butterfly uses diversification strategy?
The LG's portfolio diversification is supported by its cost leadership generic growth strategy
as cost minimization ability, and existing infrastructure makes it possible for the organization
to explore new product opportunities in new markets.
The strategic objective linked with diversification intensive growth strategy is to expand the
portfolio through effective acquisition strategies. Due to risk factors, the company focuses on
the related diversification and avoids risky experiences into unknown regions. Rather, the
company utilizes the brand awareness and strength to launch related products in the global
drink industry. However, some examples of LG Group’s unrelated diversification are offering
merchandise from fridges, shirts, glasses to pens.
The related diversification strategy is applied by acquiring profitable businesses after
analyzing market trends and changing customer expectations. For example, LG Butterfly
started to launch LED, Smart TVs in Bangladesh, developed a new plant to manufacture them
locally. Bangladesh is progressively becoming a big home-appliance market as people's
disposable income is on the rise and they are purchasing more and more electronic goods for
their daily use. That’s why they launched new products in Bangladesh. Moreover, they are
also planning to enter new markets like India, Nepal, Sri lanka, Indonesia, Malaysia with
their new products.
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Chapter 3
Recommendation:
LG Butterfly is already doing its job by maintaining a stable position among other electronic brands
in our country. It cannot be considered as market leader of a low-cost goods but, even after, it is
sustaining the electronics goods market pretty well. We have suggested some recommendations for
the brand to do even better in the future and the recommendations are as follows
Strong marketing strategy is very important. LG Butterfly needs to up their game when it comes
to marketing. They constantly need to keep track of their competition and match their levels.
They need to focus on their existing customer market because drawing in new customers can
be hard. Also, through their existing customers they can have their publicity done. Thus, they
can attract new customers.
LG needs to keep their products in the low-cost range keeping the quality good. In this way,
they can increase their sales because low price is what the customers want.
They need to incorporate more technology to their products line.
Innovations is a must to sustain in the market.
More variation in the product line can be added. Introduction of newer appliances will be
appreciated.
The company should focus more on expanding their distribution network throughout the
country.
More promotional activities can boost their sales. Promotions such as newspaper
advertisements, billboard advertisement, online pop-up ads, gift vouchers, buy-one-get-one
offers etc.
LG needs to have more outlets all over the country. The number of showrooms must be
increased.
More appliances should be manufactured locally so that the productions cost cuts down.
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Chapter 4
Conclusion
The result of success in today’s highly charged competitive market depends not only in product
innovation and level of productivity but also in hands of efficient service network with technological
advancements and more adaptability towards information edge.
It has been seen that companies are trying to lower the cost of production and trying to give more
emphasis in creating value added customer base and customer service. It has led to extreme innovation
and cost reduction to the marketer. It is also seen during last few years that the companies, which have
more, efficient, and meaningful service network and also the companies who have controlled the cost
of distribution have eventually controlled the market. Companies are finding that they can attract more
customers by giving better service or lower prices through better physical distribution. On the other
hand, companies may lose customers when they fail to provide service to its customers at the right
time because a satisfied customer brings five new customers while a dissatisfied customer takes away
fifty.
LG brand has ceased to be a major differentiator at least in metro, with almost all companies offering
similar brand. As a result, now marketers have to find out some innovative ways products of LG brand
to differentiate from competitors.
Promotional scheme tools are very useful in the short term as it increases sales and induces in first
time trials. These types of products schemes should be consistent and changed from time to time
depending upon season and competitor’s schemes.
With the increasing number of supermarkets and hypermarkets, the branded packaged goods work as
silent sales persons. Therefore, in such stores, LG products play an effective role in stimulating
consumer’s demands.
LG’s proper marketing skills and strategies have set an example for other multinationals who want to
set their industry. LG has proved its mettle by providing its customers with vale for money along with
customer satisfaction and also increasing its profit at times.
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References:
[Link]
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refrigerators-and-air-conditioners-in-bangladesh-1548484
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plant/2018-03-16
[Link]
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