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Daily News

Foreign Home Appliance Giants in Price Wars in China
Mar 25, 2004
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For a long period of time, China's washing machine market was dominated by low-price products, and Chinese brands took the initiative in the market by pursuing their low-price strategy. However, now foreign brands have also picked up the localization skill of price competition.

Recently, with Japanese and Korean home appliance giants taking the lead, foreign brands took action in the Chinese washing machine market, staging unexpected low-price attacks.

A market researcher noted that "special-price machines" used to be a market operation approach often adopted by China's domestic home appliances makers. Since 2003, foreign brands, mostly Japanese and Korean ones, have also picked up domestic brands' practice to push ahead with their special-price lineups, which increased from three to four models in 2002 to five to six models on average.

In 2002, Panasonic, a high-end player, embarked on an attempt to revamp its market strategy in Beijing by rolling out low-end products. Last year, Panasonic slashed the price of its three major washing machine models in the "Love for Wife" by nearly 15 percent in Beijing. Thereafter, by cutting the price of a number of products in some areas to push the sales of its medium- and high-end "special-price machines," it intends to snatch market shares on all ends.

Always trying to take over the market with low price, LG does not want to lag behind. It quickly got in the game by offering low price under its strategic loss strategy. Retail price of LG washing machines is lower than China's domestic products. Its XQB42-28, a fully automatic turbo model sold at only 988 yuan (approx. U.S. $119) in October 2003.

Samsung went farther, cutting the price of its XQB45-20 to 898 yuan (approx. U.S. $108).

According to preliminary statistics, on the whole, the selling price of home appliances products dropped 6 percent in China in 2003. Although price of washing machines does not keep falling such as that of color TV sets and air-conditioners, the market experienced evident price cuts by a margin of 10 percent last year.

According to Mr. Liu Jianguo, vice general manager of Hangzhou Matsushita Home Appliance Co., Ltd., as a multinational brand, Panasonic always follows a rational price strategy, and it will not participate in competition by offering a very low price. It only engages in benign price competition, activating price with product life cycle and highlighting its price advantages through scale effect to achieve win-win and all-win results, he said.

Panasonic's top management announced that its new fully-automatic washing machines on the high and medium end will be launched at middle price in 2004, providing the most competitive price performance. Meanwhile, Panasonic will try to keep the normal market price system. By boosting the price competitiveness of part of its product lines, it aims to set a new staff gauge for the price of fully-automatic washing machines.

Relevant experts point out that in terms of market structure washing machines with a retail price below 1,500 yuan (approx. $181) get the lion's share, accounting for 57 percent in the total sales volume. Launching the price-cutting campaigns frequently entails risks. But these foreign players are attempting to take the initiative as much as possible, thereby nibbling and then swallowing the Chinese washing machine market.

Take Panasonic, the winner in the washing machine market last year, for example. Its sales volume of fully-automatic washing machines surged 25 percent from the previous year; twin-tub washing machines, 15 percent; dryers, 70 percent. By launching attacks in the low-, medium- and high-end markets, Panasonic washing machines gained a foothold in leading sales outlets like home appliances chain stores and department stores.

Follow-up study conducted by relevant research institutions shows that European, American, Japanese, and Korean home appliance giants are scrambling for the Chinese washing machine market. In March 2003, Toshiba moved its home appliance production bases to China. In December of the same year, Sanyo decided to relocate its plant in Malaysia to Dongguan in Guangdong, China and go all out to promote its home appliances products.

Lu Renbo from the Research Institute of Market Economy at the Development Research Center of China's State Council points out that under the pressure of global competition, multinational brands in the home appliances industry are taking two new moves in the China market. On the one hand, they continue to increase investment in this market. They start with massive shift of production bases and efforts to open sales channels, and then gradually set up R&D centers and build brand image.

On the other hand, with their future strategy in mind, they are accelerating the pace of incorporating the China market into their global planning and dramatically increasing the shares of procurement and exports. Meanwhile, they are gradually consolidating their businesses in China and revamp their market strategy. In re-launching their China strategy and engaging in brand wars, multinational home appliance makers aim to build new image and capture new shares.

The current low-price campaign comes at the right time because China's home brands are to revamp their strategy. Having been engaged in price wars and purely seeking quantitative expansion for years, most domestic brands now find themselves standing at a nonplus.

In recent years, four Chinese domestic washing machine brands have vanished. Relevant experts note that in the future the number of brands will gradually drop due to market competition, but on the whole the competition pressure posed by the domestic brands to their foreign rivals will not slacken in the short term.

Japanese and Korean washing machine brands' low price campaigns are backed by their global market share and profit sources from high-end products.

By keeping developing new products with high added value, improving the value per unit and relying on high profit margin from new products, they boost their technological superiority and turn it into core competitiveness while ensuring benign business operation cycle. (Chinese Economic Net/ce.cn)

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