麥肯錫_天津LG發(fā)展戰(zhàn)略咨詢報告.ppt

1、010326SH_120703_085v5i,CONFIDENTIAL,Developing a Winning Strategy for the Microwave Oven Business in China,LG Electronics Tianjin Appliances Co., Ltd,Final progress review,April 9,2001,This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for d

2、istribution outside the client organization without prior written approval from McKinsey it is not a complete record of the discussion,010326SH_120703_085v5i,1,THE JOINT LG/McKINSEY TEAM HAS COMPLETED THE PROJECT WITHIN 5 WEEKS,Modules,Key activities,Market Demand/Forecast,Forecast potential market

3、by segment through refining market segmentation, understanding key growth drivers, and modeling market growth,LGE performance assessment,Conduct internal data collection within LGE Develop sound understanding of value proposition based on available market research including branding and consumer sur

4、vey,Analyze different product mix options Gather information on branding and marketing Conduct channel diagnosis Analyze value chain costs,Develop competitive assessment for microwave oven competitors Conduct interviews with distributors, retailers, government agencies, competitors to collect compet

5、itor information,Conduct consumer survey via external research house in 6 specified cities and 1 rural area to understand consumer purchasing behavior,End products,Market demand forecast by areas and product type,Current organizations strengths and weaknesses Current processes and incentive systems

6、strengths and weaknesses LGE aspirations for future growth,High level recommendation on product mix Brand positioning status and recommendations Channel mix diagnosis and high level channel prioritization Detailed breakdown comparison on costs, COGS in particular,Analysis on overall competitive envi

7、ronment Detailed information on competitor performance including sales, branding, pricing, channel mix and incentives Key competitors COGS analysis Strengths and weaknesses of each competitor group and the implications,Detailed analysis on consumer purchasing pattern,010326SH_120703_085v5i,2,TODAYs

8、DISCUSSION,The Microwave oven market in China will continue its strong growth and should reach 7.5 million units in 2003. Primary regions will be Central China, followed by South and Southwest China. Other regions should develop as income grows. Computer grill and mechanical grill should further inc

9、rease their share as prices decline. Four customer segments are found from market research: Premium buyers, basic brand buyers, rational technophile, and generic buyers. All segments, except premium buyers, are highly price-sensitive, thus skewing market demand towards low-end products. At the same

10、time, reliable performance, ease of use, and good after-service are important across segments. The competition in China is already intense and will continue to increase, as Galanz and Midea have huge ambitions in the market. In addition, the severe overcapacity (about 45%) will continue to force pri

11、ces downwards thus threatening profitability for all but the lowest cost players. LG has built a successful platform for growth, becoming #2 in China, although far behind Galanz, by focusing on premium products and in the Beijing area. Faced with the issue of further growth and improving profitabili

12、ty, LG now needs to choose between a high growth strategy, with the objective of becoming the leading player and to reach breakeven in 2005, or to remain a premium niche player for the foreseeable future. To achieve the aspiration of becoming a profitable #1 Player in China, LG needs to launch 5 str

13、ategic initiatives: (1) launch a three step regional expansion, first from Beijing to Wuhan, (2) introduce entry products to cover all price points while continuing to introduce high end products to create margins, (3) improve channel coverage by increasing the distributor network and the sales forc

14、e resources, (4) increase significantly advertising spending while optimizing media mix, (5) reduce aggressively cost by leveraging economies of scale,010326SH_120703_085v5i,3,TODAYs DISCUSSION,The Microwave oven market in China will continue its strong growth and should reach 7.5 million units in 2

15、003. Primary regions will be central China, followed by South and Southwest China. Other regions should develop as income grows. Computer grill and mechanical grill should further increase their share as prices decline. Four customer segments are found from market research: Premium buyers, basic bra

16、nd buyers, rational technophile, and generic buyers. All segments, except premium buyers, are highly price-sensitive, thus skewing market demand towards low-end products. At the same time, reliable performance, ease of use, and good after-service are important across segments. The competition in Chi

17、na is already intense and will continue to increase, as Galanz and Midea have huge ambitions in the market. In addition, the severe overcapacity (about 45%) will continue to force prices downwards thus threatening profitability for all but the lowest cost players. LG has built a successful platform

18、for growth, becoming #2 in China, although far behind Galanz, by focusing on premium products and in the Beijing area. Faced with the issue of further growth and improving profitability, LG now needs to choose between a high growth strategy, with the objective of becoming the leading player and to r

19、each breakeven in 2005, or to remain a premium niche player for the foreseeable future. To achieve the aspiration of becoming a profitable #1 Player in China, LG needs to launch 5 strategic initiatives: (1) launch a three step regional expansion, first from Beijing to Wuhan, (2) introduce entry prod

20、ucts to cover all price points while continuing to introduce high end products to create margins, (3) improve channel coverage by increasing the distributor network and the sales force resources, (4) increase significantly advertising spending while optimizing media mix, (5) reduce aggressively cost

21、 by leveraging economies of scale,010326SH_120703_085v5i,4,THE MWO MARKET IN CHINA HAS GROWN TO 4.4 MILLION SETS,1997 - 2000 China MWO retail sales volume Thousand sets,1997,1998,1999,2000,CAGR = 32,source: Light Industry Information Center, component manufacturers, Galanz, LG, team analysis, SIC,Te

22、am estimation based on component purchases minus inventory and export volume for Galanz,MWO management estimation based on sales volume of Galanz 20 largest distributors,3,800,010326SH_120703_085v5i,5,PENETRATION IS DRIVEN BY INCOME INCREASE,2000 penetration rate by region RMB, percent,Penetration r

23、ate Percent,Annual disposable income RMB,1991 - 1999 SH penetration rate RMB, percent,Penetration rate Percent,Annual disposable income RMB,Shanghai,Beijing,Guangdong,Chongqing,Source:China Statistic Yearbook,010326SH_120703_085v5i,6,BASED ON THE EXPECTED INCOME GROWTH, 18% ANNUAL GROWTH RATE IS EXP

24、ECTED FOR TOTAL CHINA MICROWAVE OVEN MARKET IN THE NEXT 5 YEARS,Key assumptions,Increase of penetration rate in urban areas from 14% in 2000 to 30% in 2005 Increase of urban household numbers from 99 million in 2000 to 114 million in 2005,Total China microwave oven market forecast Thousand units,Sou

25、rce: Team analysis,2000,2001E,2002E,2003E,2004E,2005E,CAGR = 18,Low estimate = 3,800,Low estimate = 8,464,010326SH_120703_085v5i,7,HUA BEI (NORTHERN CHINA) REGION HAS BEEN THE LARGEST MARKET FOR MWO IN CHINA,Estimated by LG sales branches Source:SIC,Total China sales volume YYSCThousand sets, percen

26、t,Hua Bei and Hua Dong still account for more than 60% of the whole market However, sales in Xi-Nan, Dong Bei, and Hua Chung has grown even more rapidly,100,652,847,760,1,032,Beijing,Shanghai,Guangzhou,Shenyang,1997,1998,1999,2000,2000 total China sales revenue YYSC RMB thousands, percent,762,591,77

27、9,450,667,818,753,679,1997,1998,1999,2000,Chengdu,Wuhan,3.0,5.2,2.3,7.2,47.7,34.6,29.5,42.1,6.7,7.8,8.3,5.6,7.8,13.0,9.5,4.0,35.4,30.5,34.1,27.5,4.7,11.2,12.3,10.2,3.6,7.0,Beijing,Shanghai,Shenyang,Wuhan,Chengdu,Guangzhou,3.0,100,9.0,9.0,12.0,11.0,28.0,31.0,1,584,2000 plus selected hypermarkets,0103

28、26SH_120703_085v5i,8,BASED ON THE INCOME DEVELOPMENT, DEMAND FORECAST ANALYSIS SHOWED THAT CENTRAL AND SOUTHERN REGION WILL HAVE THE HIGHEST GROWTH,China total urban household number increase by 30% per annum from 2001 - 2005 Disposable income per capita in total China urban areas increase by 6% per

29、 annum from 2001 - 2005,Market size forecast by region Thousand sets; percent,100,1997,2005E,2000,CAGR Percent,Key assumptions,Source:Team analysis, China Statistic Yearbook,Beijing,Shanghai,Guangzhou,Shenyang,Wuhan,Chengdu,1,930,9,800,4,400,18,17,12,23,19,34,20,HIGH ESTIMATE,010326SH_120703_085v5i,

30、9,Market size of each region Thousand sets,BEIJING, SHANGHAI AND WUHAN WILL BE THE LARGEST MARKETS IN 2005,465,1,028,2000,2005,Chengdu region,453,1,983,2000,2005,Wuhan region,236,561,2000,2005,Shenyang region,1,055,2,233,2000,2005,Beijing region,754,1,853,2000,2005,Guangzhou region,1,399,2,177,2000,

31、2005,Shanghai region,HIGH ESTIMATE,010326SH_120703_085v5i,10,ALTHOUGH REGIONS OTHER THAN BEIJING ONLY ACCOUNT FOR SMALL SHARE CURRENTLY, TREMENDOUS GROWTH AND HEALTHIER MARGIN ARE EXPECTED THERE,2001 - 2005 growth potential CAGR,Profitability LG 2000 gross margin percent,Market size today,Shanghai,B

32、eijing,Guang-zhou,Chengdu,Shenyang,Wuhan,HIGH ESTIMATE,Source:LG, team analysis,010326SH_120703_085v5i,11,SALES FROM SINGLE FUNCTION PRODUCTS HAS SHIFTED TOWARDS MECHANICAL GRILL PRODUCTS,Estimated by LG sales branches Source:SIC,Total China sales YYSCThousand sets, percent,100,633,847,775,1,032,Sen

33、sor,Computer grill,Mechanical grill,Single,1997,1998,1999,2000,Sales revenue YYSC RMB thousands, percent,100,629,680,728,891,592,880,707,582,Sensor,Computer grill,Mechanical grill,Single function,1997,1998,1999,2000,22.0,1,584,31.0,47.0,2000 plus selected hypermarkets,010326SH_120703_085v5i,12,RECEN

34、T BUYERS TEND TO BUY MORE MECHANICAL GRILL PRODUCTS THAN BEFORE,Type of MWO bought Percent,Single function,Mechanical grill,Computer grill,Temperature* control,Dont know,All owners,Recent buyers,Those who purchased in past 12 months *Part is subset of computer grill Source:AMI customer survey,010326

35、SH_120703_085v5i,13,PRODUCT TYPE MIGRATION RELATES MORE TO THE PRICE DROP,1997 - 2000 product evolution,RMB,Percent,Sales of mechanical grill products has increased a lot due to the price drop. Computer grill products are expected to grow quickly for the same reason in near future,Price of mechanica

36、l grill product in YYSC,Price of single function products in YYSC,Percent of mechanical grill to single function products in YYSC,Source:SIC,010326SH_120703_085v5i,14,DEMAND FORECAST ANALYSIS SHOWED THAT COMPUTER GRILL PRODUCTS WILL HAVE THE HIGHEST GROWTH RATE FOR THE NEXT FIVE YEARS,Price of compu

37、ter grill products will go down to RMB 540 - 560 in 2005 Price of mechanical grill will go down to RMB 470 - 490 in 2005 Price of single function will go down to RMB 360 - 380 in 2005,Market size forecast by product type Thousand sets,100,1997,2000,2005E,2004E,2003E,2002E,2001E,Key assumptions,CAGR

38、Percent,Computer grill,Mechani-cal grill,Single function,1,900,4,400,9,800,8,600,7,500,6,400,5,400,18,20,19,14,Source:Team analysis, China Statistic Yearbook,HIGH ESTIMATE,010326SH_120703_085v5i,15,WITH THE OVERALL PRICES DROP, MECHANICAL GRILL PRODUCTS ARE GOING TO GAIN MORE IMPORTANCE OVERTIME,200

39、1 - 2005 growth potential CAGR,Profitability LG marginal profit in percent of sales,Market size today,Single function,Mechanical grill,Computer grill,HIGH ESTIMATE,Market size in 2005,Single function products have little room for further price reduction, with material cost reduced by 5 % p.a., thus

40、having improving profitability,010326SH_120703_085v5i,16,TODAYs DISCUSSION,The Microwave oven market in China will continue its strong growth and should reach 7.5 million units in 2003. Primary regions will be Central China, followed by South and Southwest China. Other regions should develop as inco

41、me grows. Computer grill and mechanical grill should further increase their share as prices decline. Four customer segments are found from market research: Premium buyers, basic brand buyers, rational technophile, and generic buyers. All segments, except premium buyers, are highly price-sensitive, t

42、hus skewing market demand towards low-end products. At the same time, reliable performance, ease of use, and good after-service are important across segments. The competition in China is already intense and will continue to increase, as Galanz and Midea have huge ambitions in the market. In addition

43、, the severe overcapacity (about 45%) will continue to force prices downwards thus threatening profitability for all but the lowest cost players. LG has built a successful platform for growth, becoming #2 in China, although far behind Galanz, by focusing on premium products and in the Beijing area.

44、Faced with the issue of further growth and improving profitability, LG now needs to choose between a high growth strategy, with the objective of becoming the leading player and to reach breakeven in 2005, or to remain a premium niche player for the foreseeable future. To achieve the aspiration of be

45、coming a profitable #1 Player in China, LG needs to launch 5 strategic initiatives: (1) launch a three step regional expansion, first from Beijing to Wuhan, (2) introduce entry products to cover all price points while continuing to introduce high end products to create margins, (3) improve channel c

46、overage by increasing the distributor network and the sales force resources, (4) increase significantly advertising spending while optimizing media mix, (5) reduce aggressively cost by leveraging economies of scale,010326SH_120703_085v5i,17,MICROWAVE CONSUMER SURVEY DESIGN,Urban area of Beijing, Sha

47、nghai, Guangzhou, Tianjin, Shenyang, Chengdu, Wuhan,Total 875 samples in urban area who are decision makers in microwave In each location In Beijing, Shanghai, Tianjin: 100 MWO owners, 50 MWO potential buyers (in next 12 months) each In Guangzhou, Shenyang, Chengdu, Wuhan: 60 MWO owners, 40 MWO pote

48、ntial buyers (in next 12 months) each,Door-to-door random sampling Face-to-face interview,March 9 - 16, 2001,Detailed explanation,010326SH_120703_085v5i,18,FOUR DISTINCTIVE CUSTOMER SEGMENTS ARE DERIVED FROM THEIR RESPECTIVE KEY BUYING FACTORS,100% = 875 microwave oven owners plus potential buyers,P

49、remium buyers Most care of performance, design and quality Least price sensitive and has highest incidence of using premium brands, e.g., National and sophisticated models, e.g., computer grill,1,Basic brand buyers Looking for reliable brand for quality assurance,2,Rational technophiles Knowledgeabl

50、e buyers who understand what they need from a microwave oven Care less about brand, more price sensitive, requiring a lot of product information to make the purchase decision,3,Source:AMI customer survey,010326SH_120703_085v5i,19,WHILE PRICE SENSITIVITY DIFFERS ACROSS SEGMENTS, RELIABLE PERORMACE, E

51、ASE OF USE, AND GOOD AFTER-SALES SERVICE ARE KEY FOR EACH SEGMENT,Ranking of KBFs,Reliable performance,Low price,Ease of use,Good after-sales service,Famous brand,Lots of features,Nice appearance,Advanced technology,Word of mouth,Product promotion,Premium buyers,Basic brand buyers,Rational technophi

52、les,Generic buyers,Top 5 KBFs,Source:AMI customer survey,Total urban,010326SH_120703_085v5i,20,CUSTOMER DEMAND IS SKEWED TOWARDS LOW-END PRODUCTS EXCEPT FOR PREMIUM BUYERS,MWO bought by current owners,Product type,Single function,Total urban,Premium buyer,Basic brand,Rational technophiles,Generic bu

53、yer,Mechanical grill,Computer grill,Temperature control,Dont know,Part is subset of computer grill Source:AMI customer survey,010326SH_120703_085v5i,21,TODAYs DISCUSSION,The Microwave oven market in China will continue its strong growth and should reach 7.5 million units in 2003. Primary regions wil

54、l be Central China, followed by South and Southwest China. Other regions should develop as income grows. Computer grill and mechanical grill should further increase their share as prices decline. Four customer segments are found from market research: Premium buyers, basic brand buyers, rational tech

55、nophile, and generic buyers. All segments, except premium buyers, are highly price-sensitive, thus skewing market demand towards low-end products. At the same time, reliable performance, ease of use, and good after-service are important across segments. The competition in China is already intense an

56、d will continue to increase, as Galanz and Midea have huge ambitions in the market. In addition, the severe overcapacity (about 45%) will continue to force prices downwards thus threatening profitability for all but the lowest cost players. LG has built a successful platform for growth, becoming #2

57、in China, although far behind Galanz, by focusing on premium products and in the Beijing area. Faced with the issue of further growth and improving profitability, LG now needs to choose between a high growth strategy, with the objective of becoming the leading player and to reach breakeven in 2005,

58、or to remain a premium niche player for the foreseeable future. To achieve the aspiration of becoming a profitable #1 Player in China, LG needs to launch 5 strategic initiatives: (1) launch a three step regional expansion, first from Beijing to Wuhan, (2) introduce entry products to cover all price

59、points while continuing to introduce high end products to create margins, (3) improve channel coverage by increasing the distributor network and the sales force resources, (4) increase significantly advertising spending while optimizing media mix, (5) reduce aggressively cost by leveraging economies

60、 of scale,010326SH_120703_085v5i,22,GALANZ IS THE LEADING COMPETITOR,Company name: Guangdong Galanz Enterprise (Group) Co. Main products: microwave ovens, electronic rice cookers, air conditioners Year of establishment: Galanz was established in 1978 under the name “Guizhou Feathers taking into cons