Indian Air Conditioner Market Analysis and Growth Strategies
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This document analyzes the air conditioner market in India. It categorizes different types of air conditioners and provides figures on the industry structure and major players. LG leads the market with a 33.3% share, followed by Voltas and Samsung. The document recommends strategies for industry growth such as increasing penetration in offices, reducing running costs through design and education, and shaping supportive government policies. It predicts rapid future growth in the Indian air conditioner market.
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Indian Air Conditioner Market Analysis and Growth Strategies
- 2. 2 Agenda Product categorization Industry structure – Indian Scenario Facts and figures Major players • Market share • Strategies Demand side Supply side Strategies for growth Future prospects
- 3. 3 Product Categorization Room air conditioners: (RAC) • Window air conditioners • Split air conditioners Packaged air conditioners Central air conditioners
- 4. 4 Industry Structure (2005-06) More of a utility item rather than a luxury item A robust 19% growth volume aggregating 1.5 million units Significant price reductions over the past 2 years Market dynamics: Negligible rural demand Key drivers of growth • GDP/Capita growth • Reduced indirect taxes • Import duties
- 5. 5 The AC Market in India 20.40% 11.20% 25.60% 42.70% Industrial Ducted, Split and Packaged Central Room Data pertaining to FY2006 Net Value: Rs 46.79 billion
- 6. 6 The RAC Market in India 30.20% 69.80% Split Window
- 7. 7 Sectorwise RAC Demand 15% 15% 15% 20% 20% 5% 10% Small pvt sector Public sector Govt Med and large pvt cos Household Hospital Small business
- 8. 8 39 27 22 32 28 28 12 10 01020304050 North East West South Split Window Regionwise Distribution of RACs
- 9. 9 Share of Organized Sector in RACs
- 10. 10 Major Players: Units Sold and Market Share Company Units Percentage share LG 500,000 33.3% Voltas 200,000 13.3% Samsung 180,000 12.0% Videocon 130,000 8.7% Hitachi 100,000 6.7% Carrier 80,000 5.3% Others 310,000 20.7%
- 12. 12 Focus • Product development • Aggressive promotion, has been the cornerstone of LG’s strategy Positioning • Health Air system as a USP New Initiative • Launched a range of commercial ACs targeted at the corporate segment Major Players #1 : LG Electronics
- 13. 13 Focus • More on engineering excellence Positioning • As an original equipment manufacturer for global brands like LG and Electrolux New Initiatives • Launched new models targeted at the consumer segment. • Entered into a contract manufacturing agreement with Haier for refrigerators and ACs Major Players #2 : Voltas
- 14. 14 Focus • To differentiate itself on the basis of product features Positioning • Target the higher-value commercial market segment New Initiative • Recently announced plans to invest US$5 million to manufacture heat exchange components for ACs Major Players #3: Samsung Electronics
- 15. 15 Videocon International Limited • Differentiated its products by the launch of `Quadra Heat Exchanger Technology’, which claims to provide better cooling and economy Carrier Aircon Limited • Commenced distribution of Toshiba ACs Hitachi Home and Life Solutions Ltd. • Expanded product range - launched new models with technology support from Hitachi, Japan • Implementing a new branding exercise at select dealer shops and multiplexes in India, with the objective to enhance brand visibility Major Players: Others
- 16. 16 Market Share in 2005-06
- 17. 17 Strategies for Growth Facilitate growth in the domestic market • Position the AC as a productivity enhancer to deepen penetration in offices • Educating consumer on running cost of AC and ways to reduce it • Tie-up with contractors, architects to optimally design rooms for least AC running cost Facilitate growth in exports • Benchmark Indian plants to the best in the world • Understand best practices in operations and educate Indian players • Participate in tradeshows, conferences in target markets Work with government to shape policies • Ensure implementation of safety standards • Ensure national level quality/performance standards • Define clear procedures/paperwork for imports/exports
- 18. 18 Future Prospects Rapid growth • Affordability • Higher temperatures More value added models Higher competition • Global players • Removal of restrictions • Higher R&D
Notes de l'éditeur
- Room ACs (RACs) cater to relatively low cooling requirements typically in households and small offices RACs can again be divided on the basis of the mounting principle Windows ACs are single, compact units, which are mounted onto windows Split ACs are named as such because the condenser portion and the compressor are mounted separately, and connected to each other through a coil. Packaged ACs cater to higher cooling requirements of 5-15T, and generally find use in office buildings, hotels and large restaurants and cinema theatres, where it would be uneconomical to install separate window or split units for different rooms. Unlike RACs or packaged ACs, which are unitary systems, in a central air conditioning system there is a central cooling (or heating) plant
- Significant price reductions over the past 2 years, complemented by increased disposable income and the rise inthe affordability of consumer durables, have continued to drive sales. Also, the fact that urban India has now started viewing ACs more as an utility item rather than a luxury item, has had a positive impact on sales growth The rural contribution to AC demand to date remains low at around 2-3 per cent on account of high running costs, long scheduled and unscheduled power cuts, the lack of rural electrification, voltage fluctuations in many parts of the country and the continued perception of AC as a luxury product.
- Among the four regions, North India has accounted for the greatest proportion of RAC sales, followed by the West. While North India accounts for 37-38% of RAC sales, West India accounted for 27-28%. This is because of the higher summer temperatures in the Northern parts; the Southern (25% of RAC sales) and Eastern regions (12% of RAC sales) experience a maritime climate because of their proximity to the sea. The skew towards the North can also be attributed to the relatively higher affordability levels there, especially in the three States of Punjab, Haryana and Delhi. new entrants came up with products incorporating several other innovative differentiating features and started aggressively promoting them
- organized segment, the entry of multinational players likes LG and Samsung during the 1990s has resulted in older established players like Carrier and Fedders losing market share over the past few years. LG is now the market leader in both the window and split AC segment. In the window AC segment, Carrier which was the market leader till the late 1990s, has lost its leadership position, with its market share in the window AC segment declining
- Focus: rapidly and emerge as the market leader. it has redefined the key need of the market from cooling capacity to air purifying capacity The company sold an estimated 0.4 million air conditioners in 2004.
- After losing market share to multinationals because of a relative lack of marketing initiative, Voltas had revised its positioning
- Focus: hence, it initially went for importing and launching its global product range, rather than setting up a domestic facility
- Starting off with a low penetration base, the RAC market has seen a rapid growth in India over the last few years. The increase in affordability levels and the high ambient temperatures experienced in the summer months, especially in the Northern and Western parts of the country, have been the key demand drivers. With a reduction in RAC prices facilitated by a reduction in excise duties—combined with the extreme summer conditions, rising incomes, and easy availability of consumer financing—ACs have come to be accepted as a utility item rather than a luxury one in many households. This has led to a trend wherein the share of the household sector has been increasing as compared with the commercial and institutional sector in the total AC sector; this trend is likely to continue in future. The government sector has been a major buyer of ACs in the past, but its share is likely to decline with the increasing demand from the household sector Another trend in AC demand is likely to be a movement towards more value-added models. The demand for aesthetically superior models, especially split ACs, is expected to rise. A corollary of this would be a further shrinkage of the unorganised sector, which may not have the technical wherewithal to incorporate value added features in their ACs. The Indian room air-conditioning business is highly competitive. Although market growth has been high during the last several years, profitability has been impacted because of rising material costs, and intense price competition. With the developed countries like Japan and the US already having reached a very high level of AC penetration, in future, the arena for global competition is expected to shift to developing countries in the tropical zone, like India. With the removal of quantitative restrictions, the market has started witnessing the entry of new global players in the Indian market, pointing to a further intensification of competition in the near future. The entry of new global players is likely to lead to a reduction in the margins available to existing players. With the shift from price-based to value-based competition, the players are likely to incur higher costs on product development (to incorporate advanced features) and promotion campaigns (to aggressively communicate their USPs).