The genius in LG

WHILE YOU WERE ASLEEP, the refrigerator gave the microwave instructions on cooking breakfast. It then contacted the grocer and ordered the food needed for Saturday night’s party. Sounds spooky or sci-fi? Actually, it’s beginning to happen. From the confines of geeky presentations, consumer electronics expositions, and science fiction, intelligent appliances are making their way into homes in South Korea, the U.S., and some countries in Europe. And if everything goes according to the plans of Moon-Bum Shin, executive vice president of LG Electronics and CEO of its home appliance division, they will debut in India by the end of 2013, starting with refrigerators.

A 10% jump in smart appliance sales last year in LG’s largest market, South Korea, where it is headquartered, has convinced Shin that wealthy Indians will add these devices to their wish lists once they are launched here. India’s poor broadband connectivity is in stark contrast to South Korea’s omnipresent, high-speed Internet access, which makes the country the ideal test bed for connected devices, but this doesn’t deter Shin. He believes that launching intelligent appliances would be a strategic move to double LG’s revenue (Rs 16,200 crore in 2011) in India by 2015. During his six years as managing director of LG Electronics India, before taking over as the global head of LG’s home appliance division, Shin watched the brand acquire market leadership. Now, backed by research data and first-hand customer experiences in India, Shin says it’s time to shape LG’s future as a premium technology leader here. High volumes aren’t expected, but LG believes it must take up the challenge of upgrading its customers. It will go all out to woo high-end consumers who may have seen these aspirational products abroad.

“Though it will be less than 1% of our sales, it will give us technology leadership and increase the customer’s confidence in the brand,” says Y.V. Verma, director (home appliances), LG Electronics India. The cost of introducing new technology is huge, and so the premium on the products could be as high as 300%. A smart fridge could cost more than Rs 2.5 lakh. There’s room for LG to play the volumes game in the low and middle ranges given the low penetration of appliances in India (1% for microwaves, 6.5% for washing machines, and 15% for refrigerators).

Last year, LG India missed its Rs 20,000 crore sales target by almost 20% despite its focus on volumes. That sent the management team back to the drawing board. While rivals such as Samsung have restricted their latest smart technologies to mobile phones and tablets in India, LG has decided to take the competition higher. “We will launch high-end products [double-door refrigerators, 12 kg washing machines with steam cleaning, microwave ovens with charcoal-based cooking, and robotic vacuum cleaners] equipped with Smart ThinQ technology [which connects them to the Internet]. It will gradually be introduced in the other ranges,” says Shin. His team believes that stylish, ultramodern products are more likely to draw new customers and retain loyalty than low pricing.

Destined to be more than dumb hardware, home appliances will soon be diagnosing their own problems and alerting the service centres. When connected to the grid, the appliances can be programmed to consume less power during peak hours. Smartphones and tablets will have apps to control them remotely—say, to instruct the vacuum cleaner to clean up. LG’s tall Styler, which looks like a wardrobe with hangers inside, senses how dirty your garment is, and then proceeds to clean it, remove odour, and steam spray if it has wrinkles. It’s not a washing machine but a “smart cloth manager”. No need to worry about planning meals, either. The smart refrigerator does a recce of what’s inside and gives options about dishes along with recipes. It reads barcodes and sends alerts about food products nearing expiry dates. Some of these products won’t be seen in India immediately: the Styler, for instance, would have the desired results only for people who barely dirty their clothes. And appliances can’t be connected to power grids until electricity boards permit it and offer cheaper rates during off-peak hours.

Only 40 to 50 LG stores will showcase its smart products at first. “We can’t stock them at all our outlets. It means investments by our trade partners. Even the sales staff will be different,” says Rajeev Jain, business head of home appliances, LG Electronics India. The company has begun training its customer care staff in India to deal with alerts from connected devices. LG doesn’t have Samsung’s advantage in the smartphone and tablet categories of creating mobile applications that connect to appliances, but it could use third-party apps to create a converged environment.

Though all leading appliance makers, such as Samsung, Panasonic, and Whirlpool, have showcased such devices at consumer electronics shows, LG is the first to declare an India plan. LG’s Japanese competitor Panasonic is the only other company which has something close to a “smart strategy” but its central theme is to conserve and manage energy consumption. Panasonic is working with builders to introduce EcoNavi products that use sensors to reduce energy use. Manish Sharma, managing director, Panasonic India, says, “The first step is to go from analogue to digital. I find that customers who come to our stores have evolved a great deal and are willing to explore a lot.” EcoNavi products, which carry a 100% premium at times, contribute almost 5% in segments such as refrigerators, he adds, which indicates the acceptability of these products even at a premium. Panasonic is readying for the shift with at least 10 stores that will showcase its technology and target retail and enterprise customers.

But with LG’s smart strategy being much more ambitious than Panasonic’s, how well will it work without adequate broadband connectivity and infrastructure? “The real convergence of devices will need a robust and stable infrastructure. This will take at least five to six years,” says Sharma. Erratic power supply, and India’s heat and dust (which reduces the longevity of these appliances) are other challenges. But LG hopes to make the most of its first-mover advantage, even if it means delving into a space where others fear to tread.