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It may sound counter-intuitive, but patience was the quality that best served LG Electronics during its seemingly rapid transformation during the last 10 years from a relatively obscure maker of commodity goods to a premium brand with growing shares of the U.S. home appliance and flat-screen TV market.
During a recent Wharton Leadership Lecture, Michael Ahn, who guided the branding effort for LG Electronics North America before stepping down as the group’s president and CEO last year, described a seemingly impossible situation early in the last decade when the Korea-based company — after four decades of marketing low-cost products under the Goldstar name — first tried to go upscale as the re-christened LG brand. (Ahn further discussed how LG became a global player in the consumer electronics market in a Q&A with Knowledge@Wharton.)
According to Ahn, while executives on the manufacturing side were pushing for high factory volumes, the American retailers that Ahn had targeted for the company’s premium push — such as Sears, Best Buy, Home Depot and Lowe’s — initially balked at carrying LG’s product, citing lack of a track record and low customer awareness. The strategy that Ahn, who continues to serve as senior advisor to LG, then developed and implemented took several years to carry out. Part of the delay was caused by the need for Ahn to explain to anxious company executives “that this is the way to build the brand, that you … should be patient.”
LG’s plan involved aggressively wooing the heads of well-established regional retailers of consumer electronics such as P.C. Richards in the New York and New Jersey area, Fry’s in California, and Hhgregg in the mid-south. Even that was not easy at first, and Ahn said the firm eventually flew the CEOs of these smaller companies and their wives to Korea to learn more about LG first-hand. “We took care of those couples like they were [our] parents,” Ahn noted. Within a couple of years, LG’s sales figures with these regional chains were so impressive that the large retailers the firm had originally targeted, such as Sears and Best Buy, came to LG eagerly seeking to carry the firm’s popular lines of plasma TV sets and front-loading washers and dryers.
During the six years that Ahn was in charge of LG Electronics’ North American unit, based in Englewood Cliffs, N.J., the group saw annual revenues increase by about 20% every year, more than doubling from $5.6 billion to over $13 billion. The subsidiary of the Korean giant is particularly strong in North America in sales of washer and dryers and refrigerators, with a 24% market share that makes it No. 1 for both products.
To achieve that level of success, Ahn said, LG Electronics — which is also now No. 2 worldwide in television and a growing player in mobile phones — needed to meet targets on a number of fronts. While some of the company’s notable growth in brand awareness is clearly tied to its extensive advertising, including the memorable “Life’s Good” slogan and sponsorship of popular sporting and entertainment events, those efforts would have fallen flat if LG had not also worked to provide premium quality customer service and bring highly innovative products to the marketplace. Indeed, one of the firm’s biggest success stories was its effort to sell American consumers on front-loading washers, which less than a decade ago were only 5% of the U.S. market. A big part of that push was introducing bright color schemes at a time when virtually every washer and dryer sold in the U.S. market was white.
“Customers were tired of white,” stated Ahn, adding that LG’s engineers also recognized that most American washing machines were situated in laundry rooms that lack a specific décor or color scheme, which encouraged the company to sell washers and dryers with bright hues such as cherry red or navy blue. But the rich colors were just one of a series of innovations that LG introduced to the American market. The company also brought in steam dryers that claim to reduce wrinkles; a washing machine with a higher temperature cycle that aids germ-sensitive customers with asthma or other allergies, and a new “6Motion” technology designed to attack stains without damaging clothing.
Selling Electronics with a ‘Cheery Face’
While millions of American consumers are familiar with the company’s “Life’s Good” motto, few realize that the LG initials actually stand for the consolidation in the 1990s of two long-time Korean brands, Lucky and Goldstar. The Goldstar brand, which dates back to 1958, had long been marketed in the United States as a low-cost, commodity-type maker of TV sets and appliances. Its purchase of the last remaining American-based television manufacturer, Zenith Electronics, in 1995 was also an impetus for the firm to establish a new image in the United States.
But that took several launches and a number of years to accomplish, as Ahn pointed out in his Wharton presentation. The initial efforts by LG Electronics to lobby executives at other companies to sell LG-branded products in higher-end retailers earned praise from those executives. But the problem for LG was largely one of perception among both retailing executives as well as the customers of their stores. Some said LG “couldn’t be trusted” — that is, the firm had not yet established a reputation for reliable customer service, on-time delivery or product quality.
According to Ahn, the breakthrough in establishing LG’s reputation as a premium brand was not only a function of its decision to go after the regional retailers like P.C. Richards. It was also because LG agreed to pay a larger percentage of sales to its distributors — 30% as opposed to the more typical 25%, although the rate eventually slid back down as LG’s American sales increased. The company also provided sales staffers at the major retailers with expanded training and other incentives so that those employees would be more likely to recommend LG to buyers.
But one of the most important decisions by LG executives, according to Ahn, was to avoid “the path of least resistance” during that critical period in the early 2000s, which would have been to sell LG Electronics through high-volume, mass-market retailers such as Wal-Mart, Sam’s Club and Kmart. That move would have pleased the manufacturing plant managers back in Korea, but would have thwarted Ahn’s long-term goal of building a perception in America that LG was strictly a high-end brand.
A large increase in advertising spending was also critical for LG’s broader strategy. Ahn said the company has strived to adhere to a communications approach of “One Voice, One Brand” across every platform, from print and television ads to in-store promotions and online branding. In the last couple of years, extensive use of the “Life’s Good” motto has been critical to building U.S. awareness of the new LG brand, Ahn noted, citing one study showing that the “Life’s Good” tagline was familiar to 35% of consumer electronics shoppers. He added that LG scored much higher than rival slogans from Panasonic (“Ideas for Life”, which was familiar to 10% of consumers) or Sony (“Like No Other,” which was recognized by 7% of respondents).
Last October, a survey on “Breakaway Brands” in Forbes magazine ranked LG at No. 4 overall, behind Clif Bars, Facebook and BlackBerry. In highlighting what helped LG land on the top 10 list, the magazine cited a factor that Ahn also emphasized in his Wharton speech: Selling electronics with a human face. In fact, LG accomplishes that task quite literally with its now familiar round logo that turns the “L” and the “G” into a “cheery face.” “LG was successful in humanizing its brand, instead of insisting on [a focus on] technology,” Ahn noted. “We humanized LG with the ‘cheery face’ and the ‘Life’s Good’ slogan.”
Another key part of that strategy has been an extensive list of sponsorships, such as the highly rated NCAA college basketball tournament. The company also gave away 350 “refrigerators of the future” — which include built-in 15-inch, high-definition TVs providing recipes and weather reports — to the audience of Oprah Winfrey’s annual “favorite things” show. In addition, LG has been aggressive about placing its TVs in hotels and motels and even has a joint sponsorship with CNN providing TV monitors in a number of major airports.
Ahn, who stepped down last March after 34 years with the company, said that during his years in charge, he always made a point of visiting the company’s design center and pushing hard for new products and features. However, he also lobbied for major improvements in the area of customer service, which he felt would be essential for LG Electronics to become a premium brand. “Brand building is every employee’s job — not just the marketing manager,” Ahn said. From 2006 to 2009, the percentage of LG products in North America requiring service calls dropped from 7.9% to 4.4%, according to Ahn, while the average wait time at the company’s call centers dropped from 85 seconds to 20 seconds.
Today, LG Electronics has positioned itself in a place where the company is no longer trying to make people aware of the brand, but now must continue to stay on top of the market. Around the time that Ahn left his post as North American CEO, the unit made the decision to begin selling some of its flat-screen TV models through Wal-Mart and Sam’s Club. Company officials said the change in strategy was an acknowledgement that increasingly shoppers are viewing what was once seen as a high-end product as more of a commodity.
According to Ahn, such a move would have been damaging to the company seven years ago. But today, he said, it is a step that LG Electronics can take more comfortably after establishing itself as an upscale brand name for Americans. To Ahn, it is more proof of his mantra: “There is no short-term gain in brand building.”