topics ranging from emerging markets and innovation strategies to
stand-by power and consumer research, this
Appliance Technical Conference (IATC) proved to be more than your average
technical paper conference.
While the majority of the conference focused on technical presentations
covering recent advancements in areas such as appliance production, materials,
motors, controls, and testing, IATC 2003 also offered attendees a broad
scope of information that might be hard to get elsewhere: an international
appliance CEO giving pointers on how to enter the emerging, Eastern European
market; a leading appliance OEM discussing its global innovation strategies
and current initiatives; an entire session devoted to consumer research
findings; and a data-infused update on what technologies are really penetrating
the home automation market.
In a successful attempt to educate today's appliance OEMs, as well as their key suppliers, IATC 2003 managed to touch on some of the most pressing issues facing the appliance industry, giving attendees much to mull over until next year.
The Eastern Emergence
In the opening keynote address, Nedim Esgin, CEO of Turkish appliance maker Arelik, discussed how his company has been able to successfully design, manufacture, and market appliances for the diverse markets of Eastern and Western Europe.
Mr. Esgin began his presentation by defining the two markets. Western Europe, he said, is a mature market, although it is still very fragmented. Eastern Europe, however, he defined as "the emerging Europe," which includes Russia, the Community of Independent States (CIS), the Middle East, and some parts of Turkey.
IATC attracted 245 show attendees from around the globe, including:
Republic of China
According to Mr. Esgin, the latter of the two regions certainly offers the
appliance industry new opportunities, but it also presents a few obstacles.
Instability is one of the region's greatest challenges, he explained, and Turkey
is possibly one of the greatest examples of this. "Turkey's east and southeast neighbors are Iran, Iraq, and Syria," Mr. Esgin said. "I
don't think I have to tell you more about this unstable region."
In addition to political instability, an emerging market, he continued, faces a fluctuating economy. Turkey, for example, historically has seen 10-percent economic growth in one year and then a 10-percent drop the next. In 2001, Turkey's economy experienced a 9.8-percent drop in GNP. In that same year, appliance sales, Mr. Esgin said, fell a whopping 44 percent. "But Arelik survived," he noted.
The question, then, is how. "If you deal with a fox, think of its tricks," Mr. Esgin advised. "So when you go into an emerging market, you have to prepare and think of its 'tricks.'"
Because emerging markets have low purchasing power, Mr. Esgin said manufacturers have to enter the market from the low-end if they want to build brand recognition, something with which Arelik has been very successful. According to market research firm AC Nielsen, the company holds the top spot in terms of brand recognition in Turkey, with 33-percent brand awareness, Mr. Esgin said. The brand with the second highest awareness is far behind at only 6-percent awareness and just happens to be Beko, an Arelik brand.
Mr. Esgin said producers looking to enter Eastern Europe also have to be prepared for a different type of appliance distribution channel, which includes small, privately owned retail shops. "They may sell [appliances] in the market without invoices," Mr. Esgin said.
Other issues to keep in mind: transportation in some of the countries is not adequate; tariffs are often high in order to protect the local markets; and design issues such as electrical voltage and environmental conditions need to be considered. Kitchens in Russia, for example, can reach below-zero temperatures, and kitchen doors are only about 14-in wide.
The biggest challenge for Arelik, Mr. Esgin said, is serving both Eastern and Western Europe. As a mature market, Western European consumers expect mid- to high-end products, which means investing heavily in R&D. Arelik has responded by continually investing in its R&D efforts, and last year, it acquired some higher-end regional brands in Austria and France. The challenge lies-in the fact that Arelik is also serving the emerging markets of Eastern Europe, which require low-cost, entry-level products. "This really requires technology," Mr. Esgin said. "It is difficult, but this is what we have to do if we want to be in both markets."
In his luncheon keynote address, "Designing Desire," Philip Thompson, manager of the KitchenAid Brand Studio, outlined Whirlpool Corp.'s (Benton Harbor, MI, U.S.) intensive design philosophy and its recent push for innovation.
"Desire is a lifeblood," Mr. Thompson said. "It is something emotional, sometimes rational, sometimes obvious and clearly expressed, and sometimes hidden and difficult to pinpoint. And in a world of change, desire is a competitive edge, and designing it is really the challenge that we all face."
He explained that in today's appliance industry, the word design is seeing a transition from a noun to a verb. "Design is a powerful tool, a strategic tool, that should be used throughout the entire process," Mr. Thompson said. "In a consumer's eyes, design is what links the entire experience - the pre-purchase, the point of purchase, and the post purchase."
To explain some of Whirlpool's success in this area, Mr. Thompson touched on three key strategies - defining desire, delivering that desire, and experiencing desire.
In order to define desire, Whirlpool has implemented a detailed innovation process, he said, which begins with a brainstorming process that uses a conversion and a diversion approach. "So we expand ideas, and we narrow them down, then we expand them out again, and we narrow them down, and so on. We take that process, and ultimately, we come up with a holistic business opportunity, rather than simply a product solution," Mr. Thompson explained.
All of the ideas are stored and visible within what the company calls an "i-pipe," so that every person within Whirlpool Corp. can see the ideas, contribute to them, or add on to an existing idea. "The goal here is to keep the innovation pipeline constantly full," Mr. Thompson said. "It's expected and understandable that an awful lot of ideas will fail, but the challenge is to keep the ideas coming."
After the ideas go through the brainstorming process, they proceed through a series of steps, including creating a "dreamspace," which is based on short-term experiments focused on getting real-world results, before going through final review in the form of an "opportunity briefing."
One of Whirlpool's success stories of its innovation process is its new Gladiator series of garage storage solutions. "The customer insight here was a desire for improved storage solutions within the home. The 'dreamspace' for the storage system was built-in flexibility and functionality, and the opportunity space that was seen at time was the garage," Mr. Thompson explained.
The result, he said, not only gave Whirlpool some new product offerings, but also leveraged its existing offerings. "We noticed that a large number of people have second-hand refrigerators, and they didn't have second-hand dishwashers. They were actually washing motor bike parts in the dishwasher in the kitchen, so there was an opportunity here to sell extra product[s] we already make."
Delivering desire is "simply creating resources for efficiency and effectiveness that result in operational excellence," Mr. Thompson said. "So, in essence, think smart and act smart."
Whirlpool employs a "toll gate" approach, with set criteria to proceed at each stage. According to Mr. Thompson, traditionally, this process was used as a technology on manufacturing activity, but it is increasingly being seen as a collective business decision process.
"Design now has a seat at the decision table. Traditionally, the seat for design was part marketing or part technology, but more and more the focus is uniquely on the value the design brings to the table," he said. "It is by inclusion throughout the entire process [that] the designers are able to employ unique methodologies and enhance the project's result."
Finally, Mr. Thompson discussed Whirlpool's strategy for experiencing desire. "Users understand brands and the companies behind them through consistent experiences," he said. "These experiences can evolve to loyalty when they are relevant and different. Relevant in the connections with the consumer, and different in the uniqueness from the competition."
This, he added, is accomplished by establishing multiple one-on-one interactions with the consumer in the form of products, communication, and service. "The more diverse the number of and type of touch points, the more critical it is that the message is clear," he said. "The ultimate aim of any brand policy is to ensure profitable growth in a competitive marketplace. The brand does not only say, 'I am the maker of this product, but it also says, I am the maker of this promise.'"
Whirlpool's brand focus strategy is creating a visual brand language (VBL) for each of its brands. VBL, Mr. Thompson said, positively affects Whirlpool's return on investment by reducing the development costs, creating more efficient concept exploration, and building - over time - increased brand equity.
"Visual brand language builds equity through appearance," Mr. Thompson noted. "And although brand experts disagree on the precise measurements method, all agree that a consistent look and feel have a positive impact on the equity and, subsequently, sales figures."
The Connection Question
In an attempt to provide a few answers to the home automation questions that have been floating around the appliance industry for years, Jason Knott, editor of CE Pro and TecHome Builder magazines, presented IATC attendees with some hard industry data about the reality of what he called the "connected home."
In defining the connected home, Mr. Knott explained, "It is a residence with an electronic infrastructure and active environment, control, and communications components that deliver significant lifestyle benefits. A market of which home appliances are just one sliver."
The market, Mr. Knott said, includes structured wiring, audio, video, telecommunications systems, security, HVAC control and energy management, lighting control, whole-house automation/integration, PC networks and broadband access, as well as central vacuums, spa controls, and window covering controls. "Structured wiring is the engine that's driving this Internet or Ethernet connectivity in the home," he said.
For those who are questioning the market's success, Mr. Knott presented the following
statistics regarding the connected home:
- it is a U.S. $15 billion market (excluding
service revenues), growing at 9 percent
- audio visual growth is 28 percent annually;
- home networking has grown 666 percent
in the last 5 years;
- 25,000 installing/integrating companies serve the market
(CompUSA and Best Buy
are getting involved);
- 4,000 manufacturers serve the industry; and
- it has low market penetration rates,
and is just now surging beyond the earlier
The key to this industry, Mr. Knott suggested, is the home builder. "Home builders are getting more sophisticated in how they are offering the technology and the components within their homes to consumers," he said. "The home builder has the opportunity to build all of these components, all of these amenities, into the mortgage of the home. So what is a $2,000 or $3,000 dollar refrigerator, what is a $5,000 plasma screenÉhas now become $60 a month in their mortgage. That is the guiding forceÉwhy we are really seeing home builders adapt to the connected home."
Citing a report released by the National Association of Home Builders (NAHB) at this year's Consumer Electronics Show, Mr. Knott said, "Builders are now moving toward this way for the first time for competitive reasons." NAHB also expects modular wiring, high-speed data access, as well as security systems, multiple phone lines, energy management systems, and lighting control systems to be major trends for 2010 versus 2001.
The NAHB report also showed that there is indeed real market penetration happening right now. In 2002, 42.1 percent of new homes had structured wiring in them. "You think, that doesn't sound so amazing. Every house has electricity in it," Mr. Knott said. "But in 1996, the number was 1 percent. In 2001, that number was 35 percent and in 2000, it was 28 percent."
Other technology penetration rates include: 17.7 percent monitored security, 9.2 percent home theaters, 8.6 percent distributed audio, 1.0 percent lighting control, 0.8 percent energy management, and 0.4 percent home automation.
Mr. Knott also revealed that the NAHB study said that the number-one reason builders are offering these technologies is consumer demand; however, the number-one reason builders gave for not offering these technologies was lack of consumer acceptance.
According to Mr. Knott, this, especially for the appliance market, is the million dollar question: Will consumers buy connected appliances? "I don't know that it's the appliance manufacturers that are going to answer that question," he said. " I think it's through groups like the Consumer Electronics Association or through the NAHB, who areÉgauging what the consumers want. The bottom line is the consumer has to make the decision."
While he personally questioned the reality of consumer adoption and recognized the many technology issues surrounding the design of network-enabled appliances, Mr. Knott offered several reasons manufacturers should consider developing them. They can create increased product value though new features and capabilities, reduce product lifecycle costs for the consumer through diagnostic capabilities and efficiency savings, offer OEMs new revenue opportunities via online services and device integration, and give the opportunity to gather consumer data, he said.
"Where is the killer application for connected appliances? Where is the ESPN for cable? Where is the email for the Internet?" Mr. Knott asked. "It's not there yet. The opportunity for you is piggy-backing the connectivity of the appliance on top of all these other connected components that are going into the home, where there is huge market demand at this point."
The Conference Challenge
With a shaky global economy swallowing up travel budgets, appliance OEM attendance at this year's IATC was lower than years past, a trend that has been visible at industry tradeshows over the last few years. But if the goal, as evident in the keynotes given at this year's ITAC, is to "think outside the box" - whether that means getting into the minds of the Eastern European consumer, making innovation and design core competencies, or investing in home automation research - the question surfaces: how can you if you never leave the box?
Perhaps the bigger challenge lies before the companies that did attend IATC 2003: what are you going to do with the information now that you have it?
If there was one message bobbing beneath the surface of every speech and presentation given at this year's conference, it is this - the point is not just information, it's formation.
Several presenters at this year’s IATC were recognized
for outstanding technical papers and presentations.
In addition to APPLIANCE
Dana Chase, Sr. Memorial Award for the conference’s best paper,
awarded to Christiane Baum of Schott HomeTech North America, the following
received conference awards:
- Clark Gellings, Electric Power Research Institute
and Marek Samotyi, The Electricity Innovation Institute (Palo Alto, CA,
U.S.), received the
Award for the paper, Electric Power Requirements for a Digital Era.
Butturini, U.S. Consumer Product Safety Commission (Bethesda, MD, U.S.),
received an Award of Excellence for the paper, Sensor Technologies
Consumer Product Hazards.
- Craig Farnsworth and Brian Bukovec, Radix
Wire Company (Cleveland, OH, U.S.), received an Award of Excellence
for the paper, Selecting High-Voltage
High-Temperature Wire for Appliance Applications.
- Laurent Gonthier,
ST Microelectronics (Tours, France), received an Award of Excellence
for the paper, Single-Phase Induction Motor Drive
for a High-Performance Refrigerator.
- Patrick Sullivan, Agilent Technologies
Deutschland GmbH (Boeblingen, Germany), received an Award of Excellence
for the paper,
Optical-Based Analogue Front
End for Powerline Communications.
- Shao-Po Lin, Chih-Ming Huang, and Yu-Choung Chang, Energy & Resource
Laboratories, Industrial Technology Research
Institute (Chutung, Hsinchu, Taiwan), received
an Award of Excellence for the paper, PC-Based
Monitor and Control System for Developing Inverter-Controlled Room
- Bekir Özyurt, Asli Kayihjan, Cemil Inan, Nilüfer
Semih Gürel, Arçelik A.S., R&D Center
(Istanbul, Turkey), received an Award of Excellence
for the paper,
of an Electrical
- Nils Platt, BSH Bosch & Siemens
Hausgeräte GmbH (Bretten, Germany),
received an Award of Excellence for the paper,