Inevitable Challenges GD Midea Needs to Overcome
GD Midea Holding Co Ltd, the world’s third largest consumer appliances manufacturer, is currently undergoing a period of transition in an effort to build itself a global brand image. Heavily dependent on its domestic Chinese market, its presence outside China is negligible despite attempts over the last couple of years to expand its production and sales footprint internationally. In 2012, the company made the bold decision to reposition its image to that of a mid-upper-priced brand, investing significant capital in expanding its product portfolio. Unfortunately, despite these efforts, GD Midea did not enjoy successful sales in 2012 compared to the previous year. So, what has gone wrong?
Dilemma with regard to established brand image
Up until 2011, GD Midea posted strong year-on-year sales growth in China thanks to benefiting from the Chinese government’s subsidy programme for mass appliances, thus placing it consistently as the leading manufacturer in the country. With the programme now at an end, in 2012 GD Midea sought to improve its margins and profit levels by investing in R&D to improve the features of its refrigeration and home laundry appliances and air treatment products. The company, however, failed to take into consideration consumers’ ingrained perception of its brand as being low to mid-priced and thus reluctance to suddenly start paying a premium for its products. In addition, products which were purchased under the subsidy programme did not require such quick replacement, having a further negative impact on the company’s 2012 sales performance. These factors, along with its high dependency on the Chinese market, which accounts for 95% of its total sales, saw GD Midea post a 14% volume sales decline globally in 2012.
In contrast, Haier Group, Midea’s biggest rival in China, recorded 6% volume sales growth in 2012 despite facing a similar operating environment. Chinese consumers consider Haier’s brands to have a mid to higher priced positioning. Hence, Haier has a wider range of prices at which to position its products and so runs less risk of losing customer loyalty. Alongside its stable domestic sales base, Haier Group’s geographical expansion has steadfastly taken shape since 2010, with numerous acquisitions such as that of the Sanyo brand in Japan and Southeast Asia and the more recent Fisher & Paykel Appliances Ltd. These acquisitions have helped Haier to gain share in countries including Australia, Japan, Indonesia, the Philippines, Thailand and Vietnam. The sales contribution of countries outside China for Haier increased from 13% in 2011 to 22% in 2012.
GD Midea Holding Co Ltd versus Haier Group: Consumer Appliance Volume Sales 2006-2012
Source: Euromonitor International
Time to move forward
So, what must GD Midea do now to reverse the sales decline of 2012? The company must continue to focus on its domestic market even though the outlook for the Chinese economy is tempered by the absence of any further government stimulus. To change consumers’ ingrained perception of the company’s mass positioning, GD Midea must adopt a long-term marketing strategy to promote its new image, complemented by investment in enhancing product features and quality so that its products are on a par with brands such as Philips and LG.
What GD Midea lacks in comparison with Haier Group is geographical spread and international exposure. GD Midea needs to accelerate its expansion beyond China and into emerging markets such as India and Brazil, ideal locations where the company already has production sites and a joint venture with Carrier to give it a foothold. As a new entity/brand within emerging markets, GD Midea can avoid the low/mass-market perception of its brand in China by strategically developing a marketing and pricing plan aligned with demands in each new market, particularly with regard to its best-selling products such as air conditioners, freestanding hobs and rice cookers. The company’s recent strategic changes have not paid off as yet, and the next 1-2 years will be crucial in determining whether the company moves forward or back in both the domestic and global markets.