From Chulhas to Defibrillators: Can Philips India Be All Things to All People?Published: July 30, 2009 in India Knowledge@Wharton
Philips India was once unchallenged in India's lighting and electronics arena. With more than 75 years in the country, the nearly wholly owned subsidiary of the Dutch multinational Royal Philips Electronics boasts impeccable parentage. But competition eroded its vaunted position, and today Philips has redefined itself as a "health and well-being company."
"Through consumer insight, we understood that people perceive health and well-being as a combination of superior lifestyle and availability of relevant health care options. This was the beginning of the transformation in the company," says Philips India CEO Murali Sivaraman.
What remains after two years of strategic acquisitions and divestitures of non-core businesses -- by both parent and subsidiary -- are three areas of focus: health care, lighting and consumer lifestyle. "We have simplified our organizational structure to fully align with these markets," Sivaraman notes. "We refer to our new organizational units as 'sectors' rather than 'product divisions,' because 'sector' refers to sectors of the market rather than products. The names of the sectors also focus our attention on the needs we aim to meet, rather than on the products and services with which we might meet them."
Philips takes sufficient license in defining itself. "Health" refers not only to the medical aspects of personal maintenance, but also to diet and fitness. "Well-being" is a general sense of fulfillment, a sense of comfort, safety and security in daily environments, according to the company. But for marketing and branding experts, Philips' shift in focus raises a red flag about the value of "umbrella marketing," or offering notably diverse products under one name. Can one brand be all things to all people?
Certainly, Philips' offerings of the last two years make for a curious collection. "In India, the health and well-being story began with the global launch of the Philips Intelligent Water Purifier in 2007," Sivaraman says. "This was closely followed by various other launches, based on local consumer insights, such as the Intelligent Food Processor and the Rip-all Sound Machine," which enables easy conversion from CDs and cassettes to an MP3 format. Several launches have been scheduled for 2009, including cutting-edge medical devices, a range of high-end juicers and a revolutionary home decorative lighting range. "The coordinated launch of [our products] has definitely made our consumers sit up and take notice of the diverse offerings," Sivaraman notes. "Our launches are a good blend of the Philips international range complemented with for-India production."
A Focus on Two Indias
Rural India is part of Philips' strategy, and two important launches are planned for that market: the smokeless chulha, or stove, and lighting products in the Philips Sustainable Model in Lighting Everywhere (SMILE) range. The first two SMILE products will be the Uday, a rechargeable portable lantern, and the Kiran, a hand-cranked LED flashlight. "At Philips, we have a strategy in place to address the needs of consumers at the bottom of the pyramid," Sivaraman says. "We look at this section of society as a viable market and have developed products catering to their needs."
At the other end of the spectrum is the home health care business -- the Philips Respironics range of products for management of obstructive sleep apnea and home respiratory care. Products are priced from US$800 to US$5,000. Eindhoven-based Philips N.V. acquired Respironics in 2008; India is the first country in which the product portfolio is being launched post-acquisition. "Over 4.5% of the middle-age population suffers from sleep apnea," notes Anjan Bose, senior director and business head for health care. The Respironics line adds to existing product segments such as cardiovascular equipment systems, high-end cardiac and radiology ultrasound systems, patient monitoring systems and defibrillators. "We have an installed base of 24,000 pieces of equipment."
Bose adds that India is "a market with a huge population that should surpass that of China in size by 2030. The Indian health care technology market could be worth more than US$250 million by 2012. The expanding middle class is ready to spend more, and medical tourism is growing. India is also a strong base of know-how, a strong base of resources." Philips' innovation campus in Bangalore, set up in 1996, has more than 1,000 engineers and services Philips' global businesses.
In addition to the Respironics purchase, Philips has acquired two Mumbai-based companies -- Alpha X-Ray Technologies (in November 2008) and another maker of X-ray equipment, Meditronics Healthcare (in March 2009). "They have been integrated into our Indian business," Bose says. "Meditronics gave us access to an Indian installed base of more than 8,000 systems, and a potential source for service revenues and [equipment] upgrade business. It added approximately 150 employees in India while Alpha added 60. The portfolio that we've been building contains products that we've developed ourselves and products that we have recently acquired. We're committed to continuing this approach. Today, Philips is present throughout the cycle of care; we are bridging the hospital and home."
Bose isn't concerned that the thrust into health care addresses a different segment -- business-to-business -- than lighting's business-to-consumer, and at a different price point. "Philips has successfully traversed the B2C, the B2B and the B2G [business-to-government] audiences globally and in emerging markets like India," he says. "By virtue of us being in the consumer goods marketing space, we are in a better position to understand the needs of our consumers. When we say consumer, our focus is not just the health care provider whom we are selling our products to; we focus on the needs of the patients as well."
Lighting the Way
Lighting, however, still accounts for nearly half of Philips India's revenues, taking in US$300 million in 2008. Consumer lifestyle added US$200 million, health care US$70 million, and the innovation campus US$50 million. Sales grew 8.2% in the year. Profit after tax, however, declined from US$38 million to US$27 million. "This was a defining year for the company with a number of important milestones achieved in lighting," chairman S.M. Datta says. The sector grew 18%, the sixth consecutive year of double-digit growth.
Rajeev Chopra, head of the lighting sector, estimates that Philips has 30% of the Indian market. The company recently launched a home decorative lighting range, with prices from US$5 to US$400. It introduced Living Colors, a home ambient lighting solution using the latest LED technology. It launched enhanced energy-efficient products. And it expanded its reach to rural and poorer populations through a wider channel-partner network.
Consumer lifestyle sales, meanwhile, were little changed in 2008, and sales in the audio segment have declined. But the company hasn't been standing still. "In 2007, Philips came out with Vision 2010, which entailed integration of its erstwhile consumer electronics and domestic appliances and personal care businesses into a single consumer lifestyle sector," says Mahesh Krishnan, vice president and sales organization leader in India for the consumer lifestyle segment.
Krishnan is fitting his strategy to Philips' health and well-being message. "'My Mind,' 'My Space,' 'My Appearance' and 'My Body' are the four domains of our strategy, which reflects the consumer's holistic interest in better well-being," Krishnan says. "This is a dramatic difference from the traditional view of electronics. Via these domains, Philips is taking consumer lifestyle much further, making home life more enjoyable through convenience, safety and environmental friendliness."
This has translated into products such as the Philips Intelligent Water Purifier, which uses its ultraviolet technology expertise; the Rip-all Sound Machine; the ALU Juicer (which Krishnan says "extracts up to 70% extra juice" compared with other juicers on the market); and the Arcitec range of electric shavers, hair straighteners and epilators.
Appealing to Everyone
But can a smokeless chulha be sold under the same brand as high-tech medical equipment? Krishnan doesn't see a problem. "Philips is perceived as a technologically advanced company that constantly aims at improving the quality of people's lives through timely introduction of meaningful innovations. These innovations are for people from all classes and categories, ranging from high-end electronic gadget lovers, to people in need of innovative health care solutions, to the masses needing energy-efficient lighting solutions. The smokeless chulha specifically is part of our rural market initiative in India."
Says CEO Sivaraman, "As a company, we are driven by technology, innovation and design and would like to leverage our strength in the three focus sectors to develop offerings for all kinds of consumers. The smokeless chulha is a fantastic example of both technology and innovation at work. We have catered to all segments and continue to do so even now. Philips radios and lightbulbs are products that the rural audiences have been buying for a long time now, and Philips is a reputable brand with this audience." All future products, he adds, "will be covered under the Philips umbrella."
Does such umbrella branding work? "That's a long-standing debate," says Prakash Iyer, CEO (Cards) at Future Group. "In general, umbrella branding can work when the products are similar and not too far apart in the consumer's mind. Also, where core values are the same, and there are no strong conflicts in product attributes. What a brand like Philips -- or Siemens -- does is provide lineage [for] and a rub-off of the core values, which could be technology, or engineering or trust. The risk is that sometimes the values could conflict and create dissonance in a consumer's mind. Medical equipment has a ring of sophisticated, advanced technology, while a smokeless chulha probably lights up a slightly different image. A good way to test umbrella branding is to check reversibility of attributes, so it might be nice to say that the smokeless chulha is a new innovation from the people who bring you the sophisticated medical equipment. But would it be as reassuring to say that the medical equipment is brought to you by the guys who make smokeless chulhas?"
The cost of establishing a brand is high, and umbrella brands can work when "the scale of the potential new launch [is] not big," Iyer notes. "It makes sense to put an umbrella brand on a range of … midsize products. But if you think you have a blockbuster in the works, it probably helps to give it a new name. Also, in the long run, umbrella brands could be under threat from specialist brands. Focus pays, most times."
"Umbrella branding has worked well for many companies globally in the durables sector and other diversified sectors," says Pankaj Gupta, practice head, consumer and retail, at Tata Strategic Management Group (TSMG). "Look at Sony, GE, Samsung. The key is whether the company is able to ensure that the brand values are relevant to the diverse range of product categories. Umbrella branding will work for a combination of products which seek to communicate a similar set of benefits to the consumer. This is dependent on having a consistent and clear brand identity across products."
Santosh Desai, CEO, Future Brands, says umbrella branding does work in this category. "In technology-driven products, because there is a sense of newness, and consumers are constantly seeking product upgrades, the source credibility of the product becomes very important." But it would be interesting to know Philips' logic behind the specific products it has chosen in various categories. "From the outside, it is not very clear to me."
"These are not just products, but solutions that are designed to simplify our lives," CEO Sivaraman responds. "These solutions are closely grouped around the evolving needs of the modern, lifestyle-oriented consumers and have been developed on the basis of deep consumer insights."
An Image Issue
Brands aside, Philips has a more pressing image issue. Several makeover attempts have failed. The company renamed itself Peico Electronics & Electricals at one stage, because its foreign parent wanted to remain at arm's length from a subsidiary that wasn't wholly owned. The company plans again to buy back shares, as it first did in 2000. At its June 12 annual general meeting, Philips set aside US$30 million for the buyback. Philips N.V. now holds nearly 96.4% in Philips India, while the remaining 3.6% is held by individual shareholders, foreign institutional investors, banks and mutual funds.
In the meantime, Philips has delisted in India, which the law allows once a 95% ownership threshold has been reached. Has this made a difference to its profile? The media tend to limit their coverage of private companies. "In general, it is true that it is better to have local investors," says Desai of Future Brands. "If you are serious about a market, you allow yourself to become part of its ecosystem. Participating in the local market allows you to build linkages of another kind that embed you in the market further. But having said that, there are enough multinationals that are not listed in India."
Krishnan of Philips says delisting has made no perceptible difference. "Our brand track studies have consistently indicated Philips brand awareness being in excess of 90%," he says. Adds D. Shivakumar, Nokia India managing director, who was CEO of Philips consumer electronics from 2003 to 2005: "Delisting in India does not mean there has been a change in the way of working. But the role of the [India] board has gone down while the role of the management in aligning to the parent firm has gone up."
Has the new Philips India, now toeing the parental line more closely, finally found its groove? "It's early days yet to say whether Philips' transition has been successful or not," says Desai of Future Brands. "Historically, Philips has been an underachiever in India. If one looks at where Philips was when the whole consumer durable explosion took place in India, it was the best-positioned international brand. It had been in India for a long time, had a good network and so on. But it was a slow mover and allowed the Koreans to steal a march. This was probably due to its management structure, insufficient understanding of the local market, and a lack of desire to cater to the local market. It is only now, for the first time, that we are seeing seriousness in intent. Whether it is product launches or the way they are engaging with the market, it is clear that Philips is taking the local market much more seriously."
"As a diversified company," says Gupta of TSMG, "Philips has chosen a broad definition of the health and well-being theme to integrate its various businesses. The new theme is articulated in customer-relevant attributes rather than in product-segment terms. This is a superior way to guide the company's decision making and provide direction to employees working across a number of countries. The success of the strategy in the Indian market should be measured in terms of the leadership position the company is able to achieve in its selected lines of business. Given that it made the shift last year, it is too early to comment on its success or failure."
"Philips is a brand with a lot of history attached to it, built over several decades," says Iyer, who was with Infomedia and Pepsi before joining Future Group. "Any transition will almost certainly take a lot more time. It is important for brands to remain relevant and contemporary so as to appeal to a new generation of customers. Several brands that failed to evolve and adapt have bitten the dust. In that sense, the Philips team has done well to try to hitch its fortunes to the health and well-being platform. It will take consistent effort, strong focus and a few winner product launches in that space for consumers to start noticing the change. For Philips, as for any other business, standing still was not an option."