Home Appliance Company

C: So just to reiterate the client is an Indian home appliance company, and it wants us to suggest ways to increase margins only for its refrigerators, right?

I: Yes right! You can proceed with the case.

C: So, before I go into suggesting solutions, I would like to understand the company a bit more. Does it operate only in India? Where does it lie in the value chain? How long has it been in operation?

I: The Company has been in operation for the last 10-15 years and is an established player. It only operates in India. It manufactures the products and sells it through large and small distributors and ultimately through third-party retail outlets.

C: So just so I understand correctly, the client doesn’t own the end-to-end supply chain, it just manufactures the products and margins are dependent on the sale to distributors?

I: Yes, that’s correct

C: Understood. So what kind of refrigerators does the company manufacture? I’m assuming it would be different types of refrigerators, having different uses and margins, targeting different customers?

I: Yes, so the company produces 3 types of refrigerators – Single door, Double door and premium – having margins 10%, 15% and 20% respectively.

C: And do we know about the product mix? In terms of sales?

I: Yes, so the product mix is 40-40-20 for the single door, double door and premium refrigerators respectively.

C: Okay. I would like to understand the target customers for this product. Would it be fair to assume, the premium segment would be high-income urban customers?

I: Yes, that’s a fair assumption. The single door is the cheapest and is bought by low- and middle-income segments while the double door is predominantly for middle-income and high-income segment.

C: Okay. And what is the competitive landscape like in this market? Is this a price-sensitive market? Are the products differentiated? How many competitors are there?

I: So this is an extremely price-sensitive market, and assume we cannot increase prices to increase prices. There are 7-8 other competitors.

C: Now that I have gained an understanding of the client and the market, I would like to understand why the client wants to increase the margins. Is it need-based or purely aspirational?

I: The client would like its margins to be in line with competitors which are 1-2% higher.

C: And is there a specific timeline by which the client expects to increase margins?

I: You can consider around 1-2 years

C: So, considering the market is price sensitive, there would be more or less similar price for products of different companies and differentiation would be based on products and product features. Is that a fair assessment?

I: Yes, that’s fair.

C: And considering the client’s margins are lower than competitors’ margins with similar price, the clients’ costs are higher than the competitors?

I: No, the client is best in terms of efficiency and cost

C: Okay so considering the client is leading in terms of cost efficiency, I would like to focus on the product mix of the company. And although the cost is already the lowest among peers, I would still like to explore whether there are any opportunities to further reduce the same.

I: Why don’t you focus on product mix part only?

C: Sure. Currently, the client is operating at a 14% margin, and the target margin is 15-16%. The single-door fridge is sold at a margin of 10% while the double is sold at a 15% margin. Increasing the sale of either would not help the cause. So, I think the client should focus on increasing the sale of its premium refrigerators having a 20% margin. Is that a fair approach?

I: Yes. How can the client increase the revenue of the premium refrigerators?

C: While increasing sales, considering we can’t increase the price, I will focus on increasing sales volumes. In doing so, I would like to understand a bit more about the product features and the perception of the product. Is the client’s premium refrigerator lacking in some features as compared to competitors?

I: No, the features are best in the that segment

C: So, if price is similar and features are better and still sales are low, it would probably mean there is an issue with the distribution or the communication of these product features. I would first like to focus on the distribution aspect – mainly online and offline. So, if the Company does not sell its products through the online channel, then that is one thing that it can expect considering a lot of its consumers would be urban high-income consumers. They could use 3rd party platforms or even their own website for the same. The Company can look at optimizing its distribution chain and target areas with a bigger target audience and can expand into Tier 2 cities as well to acquire more market share. It could look at introducing more of its own stores and showrooms, which would enhance the brand and help connect with the urban consumers. Does that seem fair?

I: Okay that’s good, you can go ahead

C: Next I would like to focus on the promotional strategy of the company. And I would like to divide that again into online and offline channels. The Company can use online channels to connect with younger audience and young families to promote its products. When it comes to sales through brick-and-mortar stores, it can use targeted ads, hoardings, billboards, loyalty benefits for customers while exchanging their existing refrigerators, and having own sales team in 

premium retail stores to push its products. The Company can also target newer customers in Tier 2, Tier 3 cities to expand volumes.

I: Okay that’s fair enough. Anything else you can think of?

C: One more thing the Company could do is regarding the actual purchase of the product. It can add more financing options for customers that would help customers to easily finance these big purchases

I: Okay that’s fine. Now assume the client adopted these strategies and it doubled the sales of its premium refrigerator. Now what is the overall margin, other sales being constant.

C: 15%

I: Now the client wants to increase the sales of its washing machines, and it has approached you again. You have a proposal ready that you are going to present to the management. How would you structure that proposal?

C: Do you want me to give a strategy as well or just the structure of the proposal?

I: Just the structure.

C: Okay. I will have the first section explaining the current variants of washing machines of the client, historical sales growth, profit and volumes. The second section would focus on industry growth, competition level, and growth drivers. The third section would deal with growth opportunities and possibilities for the client specifically, based on the above 2 sections. Fourth would be the challenges in implementing solutions listed in Section 3. The final section would focus on final recommendations based on Sections 3 & 4.

I: Okay that’s what I was looking for! I think we are done here, so thank you!