BPL Colour Television

INTRODUCTION
British Physical Laboratory (BPL) is a private sector company, which is a
consumer durables major. Its turnover of Rs 1700 crores in 1994 increased to Rs
2500 crones in 1996. registering a 47/0' growth. BPL has just been through a major
restructuring exercise; the need to focus on its core business, consumer
electronic: and entertainment.. and gaining market leadership dominated the
exercise.
The company is divided into two broad areas-core business and new
business. BPL has six Strategic Business Units (SBUs) with the following profile:

BPL: SBUs
SBU Name Companies with SBU
SBU 1: Entertainment BPL, British Sanyo Technologies (BST)
Electronics and British Sanyo Utilities (BSU)
Appliances British Refrigerators Ltd. (BRL)
SBU 2: Components BPL Automation, BPL Engineering, Uptron
SBU 3: Soft Energy BPL-PTI Chemicals
SBU 4: Telecommunications BPL Mobile Communications, BPL US
West BPL Wireless Telecom
SBU 5: Power BPL Power Ventures, BPL Power Projects
SBU 6: Finance BPL Sanyo Finance
The present case study focuses only on the BPL colour televisions
market.

STRATEGIES FOLLOWED
BPL's grand strategy for growth combines intensive, integrative and
diversification strategies.

1. Intensive Growth
BPL adopts product development in current markets and also penetration in current
markets/products. It does not resort to much market development as such_
Diversification is resorted to, of late.

2. Integrative Growth
BPL has gone in for backward integration by indigenising component production
and reaped huge benefits by it. It also has done forward integration by establishing a
channel network of fully owned exclusive showrooms and galleries (160 in number)
which form the largest owned network in the industry. This gives around 10-20%
sales to BPL.

3. Diversification
The company has diversified into soft energy, telecom and power sectors.
Operations are yet to start in all these sectors in full swing. BPL is increasing its
capacity and constantly upgrading its technology and adopting it to Indian
conditions. Accessibility is sophisticated and the latest technology of Sanyo
Technologies enables BPL to use technology as an important, effective competitive
edge in the market. BPL Sanyo Finance (which is a 50-50 joint venture) has been
of great help for financial needs of the group companies.
PRODUCT QUALITY PHILOSOPHY

Strategic marketing is never complete without product planning. A clear product

quality philosophy is what gives long-term market share and loyalty. The
philosophy institutionalized in BPL has two core beliefs:
• Make your components yourself.
• Adapt technology to match conditions of the market.

Make Your Components Yourself

Three companies forming an SBU are meant only for manufacturing components.
BPL went in for colour TVs in 1983 and started producing key components by
1985. Today all components except picture tubes and semi-conductors are
produced by BPL in-house. Apart from meeting captive needs, this backward
integration enables BPL to meet 65% of its competitors' need too (flyback
transformers, deflection yokes).

Benefits from this step. This is the distinct strength of BPL in the
industry.
• Backward integration results in low cost of components.
• In-house production gives high control on quality.
• Low cost accrues from better quality (because quality is free).
• Easy inventory management and faster supply of components are possible.
• Flexibility, in changing features and models is possible.

In the market, it is perceived that this high degree of indigenization has given BPL a
competitive edge. superior quality, as also a corporate image of being a prestigious
Indian company.

Adapt Technology to Match Market Conditions

The company believes in "Thinking Global, Acting Local." This is not a

blind take off from the products of Sanyo but a careful adaptation. BPL has put in
place an elaborate system for new product development and technology
adaptation.

Steps for New Product Development

1. The Marketing Department gets inputs (ideas) from various
sources, viz.,
• Sanyo
• Survey of competitors' products
• Foreign customer requirements
• Domestic market survey
• Product exhibitions
• Product use feedback survey
2. Along with a new product planning department, it works out plans for
design development and specifications.
3. For joint product development following approval by management and
marketing, four parallel teams are set-up.
Team 1 works on base design, processes and training (Sanyo). Team
2 works on modifications, tool design, etc. Team 3 works on product
 mock-ups, prototypes and so on. Team 4 works on marketing and
advertising plans.
4. Simultaneous working results in lower' cycle time.
5. After approval, the concept is ready for manufacture.

Techniques Followed
1. Four parallel teams work together. This has cut down cycle time from
16 months to 4 months.
2. KANBAN (similar to just-in-time inventory) system.
3. Fast technology and flexible manufacturing system.
4. Adaptation criteria, like suitability to infrastructure realities, climate
acceptance, and aesthetics.

Examples of BPL's product adaptation

L Sanyo VCR could no: take the Indian voltage fluctuations. BPL added a
surge protector which enabled the VCR to operate at voltage as low
as 165 volts.
2. When power went off. the preset program of the VCR was erased. BPL
built a back-up system to overcome this.
3. After customer feedback. BPL reduced the freezer size in the refrigerators
and enlarged the vegetable tray. Also, it changed the conventional
capacities of 165 and 230 litres to 185 and 250 litres.
4. In audios, BPL built passive radiators in speakers for better bass
effect.

Benefits from the System

1. Lower time for new product development
2. Higher rate frequency of new product development. Annual
addition: 9 models (average) Annual deletion: 2 models (average)

Future Product Plans

Future product plans include: door phone, 3D TV, Internet TV massager and
system kitchen.

PRICING

BPL's pricing is premium pricing for all its products (15% premium is a must,
they say). This has led to a high price-high quality perception in the
market. Premium pricing has helped create a status for the brand, but at
the same time it has also given it an aura of `snob value'.
Though BPL does offer some models in the economy class on value for
money platform, these models are very few and BPL does not focus on them.

DISTRIBUTION
BPL has a wide channel network of multibrand outlets (dealers and
distributors) and also 160 exclusive outlets and galleries. This is the largest
fully owned network in the market as against Videocon's 27 and Onida's 6.
Competitors put a lot of stress on 'push'. Hence BPL casts a wide channel
network. Channels play a crucial role since it is found that 50% of
customers come to a shop with a brand preference but the dealer can
switch 70% of them. Hence channel losses can be substantial. BPI's
exclusive outlets and galleries bring in 10-20% of sales.

PROMOTION
BPL believes in `pull' rather than push. Hence there is more emphasis on
advertising and brand building than on sales promotion.
In 1997, the total budget for promotion was Rs 150 crores. The
advertising budget was around Rs 100 crores as against Onida's 100
crores, Videocon's and Philips' 150 crores each.
Typical market share by early 1997 of some major players of CTV's
is shown in Table 1.

TABLE 1 Market Share of Some Major Colour TV Manufacturers

Company Market share (%)
BPL 30.0
Videocon 18.4
Philips 12.7
Onida 10.8

In sluggish market conditions. BPL's penetration was 8% and exports

were 2.5 lakh units.
BPL's promotion campaigns have resulted in the following images
and choice factors as shown in Table 2.

TABLE 2 Images and Choice Factors

Brand image Corporate image Brand personality Choice factors

Wide range innovative Youthful High brand preference

(30%)
Next to Sony Indian Enthusiastic High top of the mind
(TOM) awareness (30%)
Customer care Customer oriented Sophisticated
After-sales Aggressive

Successful campaigns behind the high TOM awareness

and brand preferences are:
• Campaign involving Alisha (made in India)
• Clever use of elephant
• Amitabh Bachchan's endorsement

Weakness in promotion. BPL has adopted different ad

objectives. USPs and positioning for different products and
models. However, lack of a coherent strategy has resulted in
diffused image and blurred positioning across segments.
Solution contemplated. A strategic solution contemplated
attempts bringing TV, audio and appliances into one common
umbrella campaign for advertising. Advertising will be for all
three products. Where the
company perceives it is a leader (premium segment), the
strategic solution centres on a defensive strategy. For the
functionalism segment, the solution envisaged is a multiple
USP

Image leader and premium segment. This is the segment that

looks for important features. Here the importance of brand
equity is low. Hence a simple USP is suggested for this top
segment-a defensive strategy.

Functionalist segment. Here, the concept pillars are at work and

brand equity can be used. For an aggressive stance, a
multiple US formula is suggested.

CURRENT SCENARIO

BPL's P & L. account and Ratios from 1998-2001 are given in

Table 3 and Table 4.

TABLE 3 Profit and Loss Account

(Rs mn)
Period ended 03/98 03199 03/00 03/01
No. of months 12 12 12 12
Gross Sales 17,461.1 19,397.2 20,146.7
17,018.4
Excise Duty (1,380.3) (1,542.2) (1,639.7) (1,430.8)
Net sales 16,080.8 17,855.0 18,507.0
15,587.6
Other income 26.7 8.4 3.0 30.4
Total income 16,107.5 17,863.4 18,510.0 15,618.0
Raw materials 11,913.6 13,910.7 13,565.6
11,148.5
Stock adjustment (Inc)/Dec 327.7 (523.3) (61.7)
(98.5)
Cost of material 12.241.3 13.387.5 13.503.8 11,049.9
Employee cost 276.0 371.4 475.4 515.5
Power & fuel 37.4 56.0 68.3 64.2
Advertising/promotion/public 691.8 582.5 670.4
586.2
Freight & forwarding 284.4 388.3 399.8
258.8
Other, expenses 976.1 1.322.2 1,458.9
1,403.9
Cost of sales 14,506.9 16,107.7 16,576.5
13,878.5

PBIDT 1.600.6 1.755.7 1.933.4 1,739.5

interest & finance charges 524.5 404.2 484.8
518.9
PBDT 1.076.0 1.351.5 1,448.6
1.220.6
Depreciation 153.4 211.8 260.2
319.0
PBT 922.7 1.139.7 1.188.4
901.5
Provision for taxation 67.0 115.0 117.1 90.0

Adjusted PAT 855.7 1,024.7

1,071.3 811.5

Dividend payout 134.8 164.3 166.2

69.3
Forex inflow 874.7 1,180.1 1.183.2 1,144.7
Forex outflow 3.175.7 3.697.0 2.832.4 2,327.9
Investment in affiliate/subsidiary 361.9 325.9 527.9
777.9
Contingent liabilities 2,066.3 1,950.8
2.558.6 2,226.6

TABLE 4 Ratios as % of Net Sales

Period ended 03/98 03/99 03/00 03/01
No. of months 12 12 12 12
Gross sales 108.6 108.6 108.9 109.2
Excise duty (8.6) (8.6) (8.9) (9.2)
Net sales 100.0 100.0 100.0 100.0
Other income 0.2 0.0 0.0 0.2
Total income 100.2 100.0 100.0 100.2
Cost of material 76.1 75.0 73.0 70.9
Employee costs 1.7 2.1 2.6 3.3
Selling expense 6.1 5.4 5.8 5.4
Other expenses 6.1 7.4 7.9 9.0
Cost of sales 90.2 90.2 8 9.6 89.0

Profitability ratios (%)

PBIDT excl. other income 9.8 9.8 10.4

11.0
PBIDT 10.0 9.8 10.4 11.2
PBDT 6.7 7.6 7.8 7.8
Profit before tax 5.7 6.4 6.4 5.8
Profit after tax 5.3 5.7 5.8 5.2
Growth ratios ( % yoy)

Net sales 37.0 11.0 3.7 (15.8)

PBIDT 50.3 9.7 10.1 (10.0)
PBS 50.6 23.5 4.3 (24.1)
PAT 76.5 19.8 4.5 (24.2 )

Payout ratios (%)

Tax (% of PBT) 7.3 10.1 9.9 10.0

Dividend (% of PAT) 15.7 16.0 15.5 8.5

As can be seen, BPL's Gross Sales has declined sharply in 2001. This has
resulted in reduced income and profit after tax.
BPL Ltd. continues to be India's largest color television (CTV) manufacturer,
with substantial interest in other durable product lines such as home appliances,
B & W TVs. audio equipment, etc. The company's CTV market share is 20.3 0.
The CTV division contributes to about 57.5% of the company's revenues.
Currently about 20% of the company's products are exported.
However, the company is facing stiff competition from its competitors-
Videocon, Philips. Onida, Samsung, Sansui. LG. Sharp and Thomson. This is
likely to result in further reduced margins. Unless the company shows volume
growth in sales it may be difficult to survive.

SUMMARY

BPL has followed a combination of intensive, integrative and diversification

strategies for growth. It has been through a major restructuring exercise. It is a
close challenger in its core business segments and claims to be a leader in a few
(CTV and frost-free refrigerators and automatic washing machines). It follows
a clear product quality philosophy (indigenisation and technology adaptation),
premium pricing. strong distribution and promotion. BPL enjoys a high TOM
awareness and brand preference, but suffers from a blurred image. It is at
present contemplating a major change in promotion strategy.

ISSUES FOR DISCUSSION

1. What. according to you, are the main considerations for BPL going for
different strategies in different segments? Is its perception correct?
2. The common electronics market has undergone a sea-change with the entry
of brands like LG. Samsung, Sansui and Sharp. In the changed context how far
will BPL's USPs hold? Justify your answer.
3. Competition with MNCs has to be fought with technology.
Competition with domestic players is mainly price-based. Suggest a strategy
that reconciles both these concerns. Can BPL successfully adopt such a
strategy?