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issue: July 2004 APPLIANCE Magazine

New Delhi Report
Indian Air-Conditioner Market is Hot


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by Adite Chatterjee, India correspondent, APPLIANCE magazine

Keeping consumers cool in what is turning out to be one of the hottest summers in recent times is no child’s play.

But air-conditioner companies are confident that the hot weather will lead to some cool profits. Traditionally, air-conditioners have been considered to be “luxury” appliances, and therefore, the demand for air-conditioners have either come from the institutional segment or from affluent homes in the top metropolitan cities of India. That’s no longer the case. While easy finance options have made air-conditioners more affordable, companies are also going that extra mile to make air-conditioners a “must-have” appliance in more and more middle class India homes.

Price cuts as a strategy to increase sales volumes is definitely in the cards of appliance companies. Voltas India Ltd. became the first player in the air-conditioner market to offer consumers an air-conditioner in the
Rs 10,000 (approx. U.S. $220) price range. Keen on roping in the first-time air-conditioner buyer, Voltas has launched two models—a 0.6-ton air-conditioner priced at Rs 9,990 (approx. $218) and a 0.8-ton model at Rs 11,000 (approx. $242). For a 0.8-ton air-conditioner with a remote control, a buyer would have to shell out an additional Rs 1,000 (approx. $22). These models are ideal for families who live in the “chawls” (tenements) and small-size flats of Mumbai, where the average room size can be 70 to 100 sq ft. Since the peak temperature in the cities of western and southern India hovers around 35°C, the sub 1-ton air-conditioners would be more than adequate in terms of cooling power. Clearly the company is not hoping to garner huge margins from the sales of these air-conditioners but is looking at growing sales volumes.

Growing sales volume is crucial for air-conditioner companies. During the last 4 years, the cost of inputs—including steel and plastics—have been rising steadily while competition too has become intense. This has led to a squeeze on margins. On the positive side, a reduction in excise duties has helped the air-conditioner market to grow rapidly. Last year, the air-conditioner market grew by 15 percent, and this year companies are confident that market growth will register an increase of nearly 25 to 30 percent from last year. While the key players in the popular segment of the air-conditioner market are LG, Voltas, Carrier, and Samsung, the premium segment is dominated by Japanese brands such as Hitachi, Daikin, and National.

One Japanese brand that is still trying to make its mark is Mitsubishi, which entered into an exclusive arrangement with the Mumbai-based Nova Industries to sell its products in India. However, Mitsubishi is now reinforcing its marketing and distribution strategies and is introducing new models in the 300,000 split air-conditioners segment. Though this segment is small, it is currently growing at almost 30 percent per year compared to the 15-percent growth rate in the window air-conditioners segment. Mitsubishi is also planning to aggressively sell its window air-conditioner models, which are priced between Rs 32,000 and Rs 70,000 (approx. $704 and $1,541).

The spurt in sales of air-conditioners has led to a rush of launches in the premium segment as well. Not surprising, as the high-end air-conditioner segment comprises nearly 12 percent of the total market. Companies feel product differentiation and innovative features will be key to selling premium air-conditioner brands. LG has launched a premium brand of window air-conditioners, Whisen, for Rs 45,000 (approx. $991). To set the air-conditioner to any temperature, you can place a phone call to the landline that is connected to the appliance and set the temperature after using an access password. Innovative features such as these are being launched by other air-conditioner manufacturers as well. Samsung’s Hurricane promises to reduce the presence of fungi and bacteria in the room within 5 min of operation, while LG is planning to introduce a model that will help clear the room of cigarette smoke.

So even as the outside temperatures soar to 45°C this summer, a wider choice of air-conditioners—both in terms of product features and price range—will help consumers keep their cool indoors.

 

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