Financial Daily from THE HINDU group of publications
Wednesday, Apr 07, 2004
Industry & Economy
Marketing - Strategy
Consumer electronics: Price war hotting up
New Delhi , April 6
A `PRICE WAR' is raging in the consumer electronics and durables market, as the sector gets flooded with new players, latest models, fresh features and newer technologies.
"With so many players fighting for consumer attention, pricing has been under pressure and going downwards," says Mr Viraag Agnihotri, Vice-President, TNS India, a market research company.
In concurrence with the views of Mr Agnihotri, a Consumer Electronics and TV Manufacturers Association (CETMA) official said, "The market has been seeing a price erosion of about 8 per cent every year in three main categories: colour televisions, air-conditioners and refrigerators."
Elaborating on the current market scenario, Mr Agnihotri said, "The players have offset consumer fatigue by new offerings and re-launches. In simple terms, there is enough action to keep customers' interest going. However, in the future, pressure will increase both on pricing and distribution."
Says Mr Raj Jain, Managing Director, Whirlpool of India Ltd, "The appliance industry has been flat to registering minimal growth for the past 18 months, with the penetrations of all categories continuing to remain extremely low. ACs and to some extent microwave ovens are the only categories that have seen healthy growth."
On whether there has been any change in pricing (upward or downward), Mr Jain said, "With growth being scarce, some players had resorted to playing the pricing game. The average price decline in the industry has been approximately 5 to 6 per cent."
The value erosion that the industry has seen over the past two years, especially in refrigerators, makes a further price reduction economically unviable, Mr Jain pointed out.
Besides, with commodity prices going up over the past couple of months, manufacturers have no option but to increase prices, he stated.
According to a senior LG Electronics India Pvt. Ltd official, as far as ACs are concerned there has been negative pricing of about 10 per cent. The reason for the decline has been reduction in excise duties, with companies passing on the benefits to consumers. With the prices coming down in the segment, the pressure is also on dealers. In fact, dealers are indulging in discounts due to cutthroat competition, the official said.
However, unlike the AC segment, the spiralling costs of steel and other raw material will prevent any cut in prices in the refrigerators category. With no cut in prices in the category, dealers also do not indulge in hefty discounts, as their margins are low, industry insiders reveal. "Due to cutthroat competition, margins are under pressure," the LG official said.
The CTV market in 2002 was 6.75 million units and 2003 closed at eight million units. The industry is expecting a 20 per cent growth in the category this year.
"This category has also seen an average decrease of 10 per cent in prices," he said.
According to a Samsung India Electronics Ltd official, "The price drop this year would be to the extent of around 6-7 per cent in the CTV segment. In refrigerators and washing machines, the price drop this year is minimal - to the extent of 2-3 per cent."
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