Reference no: EM131380506
Whirlpool and the Global Appliance Industry
Within a few months after becoming CEO of Whirlpool Corp., David Whitwam met with his senior managers to plot a strategy for securing future company growth. At the time, Whirlpool was the market leader among U.S. appliance makers, but it generated only weak sales outside North America. Operating in a mature market, it faced the same low profit margins as major competitors like General Electric and Maytag. In addition to price wars, especially in mature markets, the industry had started to consolidate, and consumers were demanding more environmentally friendly products.
Whirlpool and Its Options
Whitwam and his management team explored several growth options, including diversifying into other industries experiencing more rapid growth, such as furniture or garden products; restructuring the company financially; and expanding vertically and horizontally. The group sharpened its focus to consider opportunities for expanding the appliance business beyond North American markets.
After all, the basics of managing the appliance business and the product technologies are similar in Europe, North America, Asia, and Latin America. As Whitwam put it, "We were very good at what we did. What we needed was to enter appliance markets in other parts of the world and learn how to satisfy different kinds of customers." Whirlpool industry data predicted that, over time, appliance manufacturing would become a global industry.
As Whitwam saw it, his company had three options: "We could ignore the inevitable-a decision that would have condemned Whirlpool to a slow death. We could wait for globalization to begin and then try to react, which would have put us in a catch-up mode, technologically and organizationally. Or we could control our own destiny and try to shape the very nature of globalization in our industry. In short, we could force our competitors to respond to us." Whitwam and his team chose the third option and set out on a mission to make Whirlpool "one company worldwide." They aimed much higher than simply marketing products or operating around the globe. For decades, Whirlpool had sold some appliances in other countries to buyers who could afford them.
Whitwam wanted to expand this reach by establishing a vision of a company that could leverage global resources to gain a long-term competitive advantage. In his words, this effort meant "having the best technologies and processes for designing, manufacturing, selling, and servicing your products at the lowest possible costs. Our vision at Whirlpool is to integrate our geographical businesses wherever possible, so that our most advanced expertise in any given area-whether it's refrigeration technology or distribution strategy-isn't confined to one location or one division.
We want to be able to take the best capabilities we have and leverage them in all of our operations worldwide." As its first step in transforming a largely domestic operation into a global powerhouse, Whirlpool purchased the European appliance business of Dutch consumergoods giant, Philips Electronics. Philips had been losing market share for years, running its European operations as independent regional companies that made different appliances for individual markets. "When we bought this business," Whitwam recalls, "we had two automatic washer designs, one built in Italy and one built in Germany.
If you as a consumer looked at them, they were basically the same machines. But there wasn't anything common about those two machines. There wasn't even a common screw." The Whirlpool strategy called for reversing the decline in European market share and improving profitability by changing product designs and manufacturing processes and by switching to centralized purchasing. The change reorganized the national design and research staffs inherited from Philips into European product teams that worked closely with Whirlpool's U.S. designers. Redesigned models shared more parts, and inventory costs fell when Whirlpool consolidated warehouses from 36 to 8. The transformation trimmed Philips's list of 1,600 suppliers by 50 percent, and it converted the national operations to regional companies.
Whitwam believed that the drive to become one company worldwide required making Whirlpool a global brand-a formidable task in Europe, where the name was not well-known. The company rebranded the Philips product lines, supported by a $135 million panEuropean advertising campaign that initially presented both the Philips and Whirlpool names and eventually converted to Whirlpool alone. Another important component of the Whirlpool global strategy-product innovation-sought to develop superior products based on consumer needs and wants. "We have to provide a compelling reason other than price for consumers to buy Whirlpool-built products," says Whitwam. "We can do that only by understanding the consumer better than anyone else does and then translating our understanding into clearly superior product designs, features, and after-sales support. Our goal is for consumers to prefer the Whirlpool brand because it offers greater overall value than competing products."
One successful product innovation led to the Whirlpool Crispwave microwave oven. Extensive research with European consumers revealed a desire for a microwave that could brown and crisp food. In response, Whirlpool engineers designed the VIP Crispwave, which can fry crispy bacon and cook a pizza with a crisp crust. The new microwave proved successful in Europe, and Whirlpool later introduced it in the United States. Whirlpool's global strategy includes a goal to become the market leader in Asia, which will be the world's largest appliance market in the twenty-first century. In 1988, it began setting up sales and distribution systems in Asia to help it serve Asian markets and to make the firm more familiar with those markets and potential customers.
The company established three regional offices: one in Singapore to serve Southeast Asia, a second in Hong Kong to handle the Chinese market, and a Tokyo office for Japan. Through careful analysis, Whirlpool marketers sought to match specific current products with Asian consumers. They studied existing and emerging trade channels and assessed the relative strengths and weaknesses of competitors in the Asian markets. The company set up joint ventures with five Asian manufacturers for four appliance lines with the highest market potential: refrigerators, washers, air conditioners, and microwave ovens.
With a controlling interest in each of the joint ventures, the newly global company confidently expects to excel in the world's fastest-growing market. Whirlpool has come a long way since embarking on its global strategy. By 2000, revenues had doubled to more than $10 billion. The company now reaches markets in more than 170 countries, leading the markets in both North America and Latin America. Whirlpool is number three in Europe and the largest Western appliance company in Asia. For building its integrated global network, "Whirlpool gets very high marks," says an industry analyst. "They are outpacing the industry dramatically." Global Success Factors From a global perspective, there are two success factors that affect all of the different geographic regions. The first key success factor on a global scale is successful branding.
Each of the large global manufacturers has been very successful in developing a branding strategy. Most of these players sell a variety of brands, where each is targeted to certain quality and price levels. In addition, the strong brand reputation has been necessary for the major manufacturers either to expand operations into new regions or to launch new product lines. For example, Maytag did not have a line of products in the dishwasher category but had a large brand presence in the washer/dryer category. To expand its product line, Maytag decided to launch a new line of products in the dishwasher segment. Through a successful branding campaign, in less than two years Maytag captured the second-largest market share in the segment. It leveraged its successful brand image in one segment to quickly steal share from less successful competitors.
The second key success factor on a global scale is price sensitivity. Given the large cost of these goods, large-scale manufacturers have been able to lower prices to meet the demand of customers. While there is little price elasticity, some manufacturers have been able to raise prices on their high-end goods, but for the most part, most manufacturers have lowered prices, and thus margins, to stay competitive with other brands. With razor-thin margins across each segment, only manufacturers that have the size to realize economies of scale have been able to remain competitive and lower prices to meet demands of their customers. This price sensitivity and the need to continually lower prices made up one of the major forces driving the consolidation within the industry. Many smaller brands were not able to compete and therefore were sold to the larger appliance brands.
China and Asia
Aside from the global key success factors, two key success factors within China and Asia are very important. First, appliance manufacturers must have access to distribution channels and therefore the ability to provide the products across several different Chinese regions. The access to Chinese distribution channels can be very limiting for international corporations, whereas China-based companies, such as Kelon and Haier, have a definite competitive advantage.
Second, large appliance manufacturers must have a large scope of products for success. Specifically, it is the number of different segments in which a company sells products that will lead to success in China, not the scope of products within a given segment. Kelon manufactures 112 different types of air conditioners, but it is not a fullline supplier of appliances to its customers. Contrarily, Haier is a full-line supplier that manufactures products in each product segment and so provides its customers with a variety of appliances under one brand name. The Japanese market has a different set of criteria for success than China and the rest of Asia.
Instead, the Japanese market closely resembles certain aspects of the European and U.S. markets. Aside from the global success factors, success in the Japanese market is based on two key factors. First, due to the size of dwellings in Japan, innovation with regard to product size is very important. Japanese customers are looking for product innovations that will fit into smaller spaces while providing the most use of cabinet space. Second, to be successful in Japan, a manufacturer must sell a product that is very high in quality. Japanese customers are very demanding in regard to product quality, and they expect their products to last decades. Therefore, manufacturers selling products that are very high in quality will have a competitive advantage.
United States
Within the United States, two key success factors outside of the global factors are necessary for a company's success. First, a company must develop innovative products that incorporate new features while still operating effi- ciently. U.S. customers are very aware that energy consumption of a product will have a long-term effect on their utility bills, so they look for products that operate more efficiently. In addition, customers are willing to pay a premium for innovative features on a high-end product. Many manufacturers were surprised that Maytag was able to raise its prices for its front-loading washer not once, but twice. Customers were not as concerned with the price as they were concerned with the convenience of the product. The second key success factor within the U.S. market is product quality, in respect to durability. U.S. consumers are willing to pay more for a product, but they expect it to operate for well over a decade with little to no maintenance. Therefore, for an appliance manufacturer to succeed in the United States, it must deliver products that are of high quality and of innovative design.
Europe
Outside of the two global success factors, the European market has two distinct factors that are required for success. First, to succeed in Europe, manufacturers must develop innovative products. In this context, innovative products are defined as products that are efficient and environmentally friendly. The "green" movement within Europe is very strong, and therefore a manufacturer that does not sell "eco-products" will not succeed when compared to a company that offers that type of product. Second, quality is a key success factor for Europe. Similar to other markets, in this context quality refers to durability. European consumers are looking for products that are durable and will last over a long period of time. In this regard, the European market is very similar to the U.S., Japanese, and Latin American markets.
Latin America Within Latin America, there are two additional success factors for a manufacturer to consider outside the global success factors. First, Latin American companies that provide excellent service to customers will have an advantage over the competition. The amount of time that the average consumer owns an appliance in Latin America is somewhat longer than in other global regions, so consumers are looking for excellent service. The economy in Latin America has had several challenges in recent history, and so consumers would much rather repair an existing product than buy a new appliance. Second, quality is another success factor for Latin America. This key success factor ties directly into the service success factor. Initially, Latin Americans are looking for a durable product that will last for over a decade; then through customer service, the product will be repaired to extend its life for several more years.
Question
1. Whirlpool's marketing goal is to leverage resources across borders. How is this evident in its marketing approach? Consult https://www.whirlpool.com for additional information.
2. The challenge facing Whirlpool is not only external in catering to local customers' needs worldwide, but also internal-all the regional and local units have to "buy in" to the global vision. What types of particular issues (such as product or technology transfers) may arise, and how should they be dealt with?
3. Visit the Web site of the Association of Home Appliance Manufacturers, https://www.aham.org, and suggest some of the global trends among the major manufacturers of household appliances.