麦肯锡—天津LG发展战略咨询报告

1、010326SH_120703_085v5iCONFIDENTIALDeveloping a Winning Strategy for the Microwave Oven Business in ChinaLG Electronics Tianjin Appliances Co., LtdFinal progress reviewApril 9,2001This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distrib

2、ution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.010326SH_120703_085v5i1THE JOINT LG/McKINSEY TEAM HAS COMPLETED THE PROJECT WI

3、THIN 5 WEEKSModulesKey activitiesMarket Demand/ForecastForecast potential market by segment through refining market segmentation, understanding key growth drivers, and modeling market growthLGE performance assessmentConduct internal data collection within LGEDevelop sound understanding of value prop

4、osition based on available market research including branding and consumer surveyStrategic development opportunitiesAnalyze different product mix optionsGather information on branding and marketingConduct channel diagnosisAnalyze value chain costsCompetitorDevelop competitive assessment for microwav

5、e oven competitorsConduct interviews with distributors, retailers, government agencies, competitors to collect competitor information ConsumerConduct consumer survey via external research house in 6 specified cities and 1 rural area to understand consumer purchasing behaviorEnd productsMarket demand

6、 forecast by areas and product typeCurrent organizations strengths and weaknessesCurrent processes and incentive systems strengths and weaknessesLGE aspirations for future growthHigh level recommendation on product mixBrand positioning status and recommendationsChannel mix diagnosis and high level c

7、hannel prioritizationDetailed breakdown comparison on costs, COGS in particularAnalysis on overall competitive environmentDetailed information on competitor performance including sales, branding, pricing, channel mix and incentivesKey competitors COGS analysisStrengths and weaknesses of each competi

8、tor group and the implicationsDetailed analysis on consumer purchasing pattern010326SH_120703_085v5i2TODAYs 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

9、 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 technophile, and generic buyers. All segments, except p

10、remium 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 and will continue to increase, as Galanz and Midea hav

11、e 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 in China, although far behind Galanz, by focusing on

12、 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, or to remain a premium niche player for the foreseea

13、ble 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 points while continuing to introduce high end produc

14、ts 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 of scale.010326SH_120703_085v5i3TODAYs DISCUSSION T

15、he 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 increase their

16、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 time, reliab

17、le 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 prices downwards

18、 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 profitability, LG now ne

19、eds 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 strategic initia

20、tives: (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 force resources,

21、(4) increase significantly advertising spending while optimizing media mix, (5) reduce aggressively cost by leveraging economies of scale.010326SH_120703_085v5i41,9002,3003,4004,400THE MWO MARKET IN CHINA HAS GROWN TO 4.4 MILLION SETS 1997 - 2000 China MWO retail sales volume Thousand sets 199719981

22、9992000CAGR = 32%source: Light Industry Information Center, component manufacturers, Galanz, LG, team analysis, SIC Team estimation based on component purchases minus inventory and export volume for Galanz MWO management estimation based on sales volume of Galanz 20 largest distributors3,800010326SH

23、_120703_085v5i5PENETRATION IS DRIVEN BY INCOME INCREASE 2000 penetration rate by region RMB, percent Penetration rate Percent Annual disposable income RMB 1991 - 1999 SH penetration rateRMB, percent Penetration rate Percent Annual disposable income RMB 0102030405060708002,0004,0006,0008,00010,00012,

24、0000102030405060708090400060008000100001200014000ShanghaiBeijingGuangdongChongqingSource: China Statistic Yearbook010326SH_120703_085v5i64,4005,4006,4007,5008,6009,800BASED ON THE EXPECTED INCOME GROWTH, 18% ANNUAL GROWTH RATE IS EXPECTED FOR TOTAL CHINA MICROWAVE OVEN MARKET IN THE NEXT 5 YEARS Key

25、 assumptionsIncrease of penetration rate in urban areas from 14% in 2000 to 30% in 2005Increase of urban household numbers from 99 million in 2000 to 114 million in 2005Total China microwave oven market forecast Thousand unitsSource: Team analysis 20002001E 2002E 2003E 2004E 2005ECAGR = 18%Low estim

26、ate = 3,800Low estimate = 8,464010326SH_120703_085v5i7HUA 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, percent Hua Bei and Hua Dong still account for more than 60% of the whole marketH

27、owever, sales in Xi-Nan, Dong Bei, and Hua Chung has grown even more rapidly 100% = 6528477601,032Beijing Shanghai GuangzhouShenyang19971998199920002000 total China sales revenue YYSCRMB thousands, percent 8.311.114.314.440.034.431.224.530.930.732.16.39.812.510.911.74.66.97.35.439.1%762,591779,45066

28、7,818753,6791997199819992000ChengduWuhan3.05.22.37.247.734.6%29.542.16.77.88.35.67.813.09.54.035.430.534.127.54.711.212.310.23.67.0Beijing Shanghai ShenyangWuhanChengduGuangzhou3.0100% = 9.09.012.011.028.031.01,5842000 plus selected hypermarkets*010326SH_120703_085v5i81111101010201717193232223024236

29、55BASED 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 - 2005Disposable income per capita in total China urban areas increase by 6% per annum from 2001 - 2

30、005Market size forecast by regionThousand sets; percent100% =19972005E2000CAGR Percent Key assumptions Source: Team analysis, China Statistic Yearbook BeijingShanghaiGuangzhouShenyangWuhanChengdu1,9309,8004,40018171223193420HIGH ESTIMATE010326SH_120703_085v5i9Market size of each regionThousand setsB

31、EIJING, SHANGHAI AND WUHAN WILL BE THE LARGEST MARKETS IN 20054651,02820002005Chengdu region4531,98320002005Wuhan region23656120002005Shenyang region1,0552,23320002005Beijing region7541,85320002005Guangzhou region1,3992hanghai regionHIGH ESTIMATE010326SH_120703_085v5i10ALTHOUGH REGIONS

32、OTHER THAN BEIJING ONLY ACCOUNT FOR SMALL SHARE CURRENTLY, TREMENDOUS GROWTH AND HEALTHIER MARGIN ARE EXPECTED THERE510152025303540452025303540452001 - 2005 growth potential CAGRProfitability LG 2000 gross margin percent Market size todayShanghaiBeijingGuang-zhouChengduShenyangWuhanHIGH ESTIMATESour

33、ce: LG, team analysis010326SH_120703_085v5i11SALES FROM SINGLE FUNCTION PRODUCTS HAS SHIFTED TOWARDS MECHANICAL GRILL PRODUCTS * Estimated by LG sales branches Source: SIC Total China sales YYSCThousand sets, percent 79644340912313423222312410%3100% = 6338477751,032SensorComputer grillMechanical gri

34、llSingle1997199819992000Sales revenue YYSCRMB thousands, percent 70553826912283732283121610%6100% = 629,680728,891592,880707,582SensorComputer grillMechanical grillSingle function 199719981999200022.01,58431.047.02000 plus selected hypermarkets*010326SH_120703_085v5i12RECENT BUYERS TEND TO BUY MORE

35、MECHANICAL GRILL PRODUCTS THAN BEFOREType of MWO boughtPercentSingle functionMechanical grillComputer grillTemperature* controlDont know41292184284617010All ownersRecent buyers* Those who purchased in past 12 months* Part is subset of computer grillSource: AMI customer survey010326SH_120703_085v5i13

36、PRODUCT TYPE MIGRATION RELATES MORE TO THE PRICE DROP1997 - 2000 product evolution RMBPercentSales 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 mechanical grill product in YYSC

37、Price of single function products in YYSCPercent of mechanical grill to single function products in YYSC 04008001,2001997199819992000Source: SIC010326SH_120703_085v5i1479403937363534343637373737132625262728299DEMAND FORECAST ANALYSIS SHOWED THAT COMPUTER GRILL PRODUCTS WILL HAVE THE HIGHEST GROWTH R

38、ATE FOR THE NEXT FIVE YEARS Price of computer grill products will go down to RMB 540 - 560 in 2005Price of mechanical grill will go down to RMB 470 - 490 in 2005Price of single function will go down to RMB 360 - 380 in 2005Market size forecast by product typeThousand sets 100% =199720002005E2004E200

39、3E2002E2001EKey assumptionsCAGR PercentComputer grillMechani-cal grillSingle function1,9004,4009,8008,6007,5006,4005,40018201914Source: Team analysis, China Statistic YearbookHIGH ESTIMATE010326SH_120703_085v5i15WITH THE OVERALL PRICES DROP, MECHANICAL GRILL PRODUCTS ARE GOING TO GAIN MORE IMPORTANC

40、E OVERTIME 1015202501020302001 - 2005 growth potential CAGRProfitability LG marginal profit in percent of sales Market size today Single functionMechanical grillComputer grillHIGH ESTIMATEMarket size in 2005 Single function products have little room for further price reduction, with material cost re

41、duced by 5 % p.a., thus having improving profitability 010326SH_120703_085v5i16TODAYs 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

42、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 technophile, and generic buyers. All segments, except premium buyers, are hig

43、hly 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 and will continue to increase, as Galanz and Midea have huge ambitions in th

44、e 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 in China, although far behind Galanz, by focusing on premium products and

45、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, or to remain a premium niche player for the foreseeable future. To achieve

46、 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 points while continuing to introduce high end products to create margins,

47、(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 of scale.010326SH_120703_085v5i17MICROWAVE CONSUMER SURVEY DESIGNGeograph

48、y coverageUrban area of Beijing, Shanghai, Guangzhou, Tianjin, Shenyang, Chengdu, WuhanSample sizeTotal 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) eachIn Guangzhou, Shenyan

49、g, Chengdu, Wuhan: 60 MWO owners, 40 MWO potential buyers (in next 12 months) eachMethodologyDoor-to-door random samplingFace-to-face interviewField periodMarch 9 - 16, 2001Detailed explanation010326SH_120703_085v5i18FOUR DISTINCTIVE CUSTOMER SEGMENTS ARE DERIVED FROM THEIR RESPECTIVE KEY BUYING FAC

50、TORS25332021100% = 875 microwave oven owners plus potential buyersPrice sensitive consumers take up more than half of the marketPremium buyersMost care of performance, design and qualityLeast price sensitive and has highest incidence of using premium brands, e.g., National and sophisticated models,

51、e.g., computer grill1Basic brand buyersLooking for reliable brand for quality assurance2Rational technophilesKnowledgeable buyers who understand what they need from a microwave ovenCare less about brand, more price sensitive, requiring a lot of product information to make the purchase decision3Gener

52、ic buyersBuyers who are nervous to handle the microwave ovenLook for simple machine and need good after-sales support4Source: AMI customer survey010326SH_120703_085v5i19WHILE PRICE SENSITIVITY DIFFERS ACROSS SEGMENTS, RELIABLE PERORMACE, EASE OF USE, AND GOOD AFTER-SALES SERVICE ARE KEY FOR EACH SEG

53、MENTRanking of KBFs10025676262714872331683687071100294834482188100634654934348283100967875413151373422Reliable performanceLow priceEase of useGood after-sales serviceFamous brandLots of featuresNice appearanceAdvanced technologyWord of mouthProduct promotionPremium buyersBasic brand buyersRational t

54、echnophilesGeneric buyersTop 5 KBFsSource: AMI customer survey100817569655751503724Total urban010326SH_120703_085v5i20CUSTOMER DEMAND IS SKEWED TOWARDS LOW-END PRODUCTS EXCEPT FOR PREMIUM BUYERSMWO bought by current ownersProduct typeSingle functionTotal urban41292184Premium buyer29243697Basic brand

55、47271990Rational technophiles39332363Generic buyer46311384Mechanical grillComputer grillTemperature control*Dont know* Part is subset of computer grillSource: AMI customer survey010326SH_120703_085v5i21TODAYs DISCUSSION The Microwave oven market in China will continue its strong growth and should re

56、ach 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 increase their share as prices decline. Four customer segments are found from market research:

57、 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 time, reliable performance, ease of use, and good after-service are important across segmen

58、ts.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 prices downwards thus threatening profitability for all but the lowest cost players. LG has bui

59、lt 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 profitability, LG now needs to choose between a high growth strategy, with the objective of becoming th

60、e 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 strategic initiatives: (1) launch a three step regional expansion, first from Beijing to Wuhan, (2) introduce ent