Water purifier report

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Business plan for Whirlpool’s innovative water purifier product 2012 Leveraging iPerformance WHIRLPOOL OF INDIA LTD

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Transcript of Water purifier report

Page 1: Water purifier report

Business plan for

Whirlpool’s

innovative water

purifier product

2012

Leveraging iPerformance

WHIRLPOOL OF

INDIA LTD

Page 2: Water purifier report

A case s tudy on Commercia l water puri f ier in India

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Whirlpool, a 100 year old global leader in home appliances has also been a leader in this industry

(Rs. 30000 Cr market for white goods) in India since many years.

It is a leading player in India in Refrigerators and Washing Machines – which are also the top 2

categories in the home appliances industry.

It entered the fast growing but intensely competitive water purifier segment in 2008 with a view

to leveraging some of its key assets – a well-known brand, a wide service network of more than

700 service centres, a strong product organization that can design, source/engineer, test and

manufacture electrical appliances within a 1-2 year time span and a strong distribution network

that enabled Whirlpool products to reach more than 30000 home appliance sellers across India.

What made water purifiers lucrative was that they ensured a significant trail of revenues through

filter replacement required for each product – as high as 20-30% of initial value of the product

could be gained every year from each installation.

This strategy banked on introducing a line of RO purifiers, with low technology differentiation

but targeted at the higher end of the market and high on aesthetics, usage and convenience

features that leveraged its brand, distribution and service network. It hoped to gain advantage as

the transactions shift to buying from retail as a natural move from the more expensive and

tedious door to door selling.

After 4 years of using this strategy, Whirlpool has a market share of 3% in household purifiers

by value - far below its initial estimation. Continued prevalence of the door to door and direct to

home models of selling; intensifying competition and low differentiation in its products were

some of the key drivers.

As the Category Manager heard the MDs address to the executives urging them to focus on core

performance in each of its appliances (this was called iperformance in Whirlpoolspeak) - he

started thinking about how this would be relevant to his category. The product that gave the best

performance vis-a-vis competition was the Platinum RO purifier – a product that the company

had struggled with because of low sales – but this was a product that was most suited for

commercial applications, he wondered what go-to-market would be needed to market this

product to Commercial establishments – as the sales system in Whirlpool was used to selling to

Retail outlets that were visited by individual consumers. He also wondered if adding another

product, the UTS RO purifier would strengthen this line-up and give a low cost option to the

sales force. Another issue worth considering was whether leasing this product to restaurants for

an initial installation cost and charging them a usage fee per month, a model that was successful

in Whirlpool-Brazil, would be a right approach to use in India.

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A case s tudy on Commercia l water puri f ier in India

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Background – Water Business in India

The domestic water purification appliances business in India started with the introduction of

electrical UV purifiers by Eureka Forbes in 90s, who sold it through a door to door sales

network.

Between 2000-2005 other players like Kent, Zero B, HUL launched household purifiers with

different technologies and price points and around 2008 when Whirlpool entered it had

become a 1500 Cr. Market growing at 20-25% p.a. (Refer Exhibit 1)

All major players were banking on selling a proprietary technology and so had to still use

direct to home approach to seed their technologies.

Whirlpool entered the household purifiers market with a line of purifiers based on RO

technology and chose to take the retail route for distribution. (Refer Exhibit 6)

Features of Whirlpool Platinum RO and Whirlpool UTS RO

Features Whirlpool Platinum RO Whirlpool UTS RO

Filtration Capacity 72litres/hr 14litres/hr

Certification WQA gold seal Best in class

Mounting Counter top and Wall mount Under the sink

Purification Removal up to 2500 TDS Removal up to 2500 TDS

Advantages of Whirlpool Platinum RO and Whirlpool UTS RO

Whirlpool, the global leader in Home Appliances markets the most innovative water purifier in

India- the Platinum RO Water Purifier. It is the only online RO Water Purifier in India, with an

electronic system that automatically cleans the filters and also informs the consumer when to

change the filter. With an unprecedented recovery rate of 40% and a purification rate of 72 litres

per hour, it is the most powerful and environment friendly RO Water Purifier in India. Through

its 1000 installations in high volume applications, it drives saving of 1 million litres of fresh

water every day. The Platinum RO purifier can work directly with coolers and with water

dispensing refrigerators.

Whirlpool UTS RO has best in class certifications and high aesthetic appeal with its

chrome and gold styled faucet and is ideal for pairing with modern kitchens and works as a

direct attachment with coolers and water dispensing refrigerators.

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Business Case

Based on the facts attached in the case study suggest:

1) Three year business plan for Whirlpool commercial purifier category highlighting:

Market size estimation

Proforma P&L

2) Marketing plan for Platinum & UTS RO purifiers targeting out of home consumption

addressing

Segmentation/Targeting/Positioning

Pricing (Outright sale/Leasing/Hire purchase)

Distribution channels (Own/Franchisee/Third Party)

3) Innovative Ideas to increase adoption

Please state clearly the assumptions considered while responding to above questions.

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Exhibit 1: Water purifier technologies

Type Price range Description

Residential

Gravity fill Rs. 499-3500

Basic type of water purifier which is Non-

Electric water purifier (Non EWP). They

rely on chemicals (chlorine) and activated

carbon to kill germs.

UV Rs. 4000-8000

Electric water purifiers are perceived to be

more effective than gravity fill drip

methods. They rely on UV radiation to kill

bacteria/microbes.

RO Rs. 9000-20000

Reverse osmosis (RO) based water purifiers

is the largest segment and used in areas with

higher water salinity – it is perceived as the

best water purification technology due to its

performance – it can remove

germs/pesticides and salts.

Commercial RO/UV Rs. 22000+

For commercial usage, usually higher

capacity RO and UV plants are used; the

choice depends on salinity in water. In

areas like Delhi NCR, TN, Gujarat, Punjab

RO filtration is preferred while Mumbai

Region, Kerala where water salinity is low

UV plants are preferred.

Exhibit 2: Whirlpool Sales and service organogram

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Exhibit 3: Steps in decision making process in large organizations (staff strength > 300)

1) Felt need – During new office construction/renovation/expansion/increase in facilities

provided. Key decision makers and influencers likely to be Top Management and

Administration unit head.

2) Defining performance and cost – Executed by Administration executives with decision from

Administration Head and Top Management.

3) Sending out RFQ (Request for Proposals) in a formal organization or direct contact with

vendors in an informal organization – Short listing of candidate products/offerings by

Administration executive.

4) Finalization of product by Administration executive

5) Installation by Vendor/Service Provider

6) Post installation feedback from staff gets channelled through to Administration executives

7) Servicing by Vendor/ Service Provider

8) Decision for replacement during renovation/expansion/increase in facilities

Exhibit 4: Commercial segments

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Division by outlet Division by type Division by method of installation

Commercial outlets

Commercial (15%)

Food chain , Gyms , Restaurants,

Hospitals (70%)

Airports , Railways , Malls ,

educational inst (30%)

Commercial Type(84%)

Residential type (16%)

Counter Top/Wall Mount (98%)

Under the Sink (2%)

Residential(85%)

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Exhibit 5: Whirlpool RO vs. Competitor RO and Bottled water

Specifications

Whirlpool

PURAFRESH

PLATINUM

RO

Whirlpool

PURAFRESH

UTS RO

KENT ELITE

II ZERO B INTELLO

Image

Purification

Capacity 72 litres/ hour 14 litres/ hour 50 litres/ hour 25 litres/ hour

Dimensions

(WDH)

240*410*420

(mm)

400*200*260

(mm)

260*450*870

(mm)

445*275*410

(mm)

Purification

Capacity 5 stage 4 stage 4 stage 5 stage

TDS removal Upto 2500 Upto 2500 Upto 750 Upto 750

Certifications WQA Gold

seal NSF, USA - -

Mounting

Counter

top/Wall

mounted

Versatile Wall mount Counter Top

Warranty 1 year 1 year 1 year 1 year

In-House

Manpower

Consumption

Litre/day

No. of 20 L

jars annual#

No. of jars

5 years

Premium jar cost 5

years @ Rs. 70/20L jar

25 32 480 2400 168000

50 64 960 4800 336000

100 130 1950 9750 682500

300 400 6000 30000 2100000

Water consumption per Person per day in controlled environment of 20 -24 deg C –is 1250 ml in

8 hours.

#assuming 300 working days in a year. Jars are 20 litre packs of water sold in plastic containers.

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Platinum filter cost

Filter Cost(Rs.) Usable

upto(litres)

Flow amount

in litres/day

Neo sense 1200 7200 30

Membrane 8000 8100 15

Post carbon 1200 8100 15

Recovery rate: 50%

UTS filter cost

Filter Cost(Rs.) Usable upto(litres)

(average value)

Flow amount

in litres/day

PRE-FILTER 410 14400 60

PLUS SEDIMENT 400 10800 60

PRE-CARBON 400 14400 60

MEMBRANE 2100 5400 15

POST-CARBON 750 5400 15

Recovery rate: 25%

*Recovery rate is a measure of purified water a RO water purifier provide

Exhibit 6: Initial line of products and proportion of unit sales from 2008-2010

Whirlpool Purafresh Deluxe RO 80%

Whirlpool Purafresh Elite RO 19%

Whirlpool Purafresh Platinum RO 1%

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Exhibit 7: Report on Water purifier market in India by Adi media-Veopar journal

The water purification business in India is undergoing major changes, not just in terms of

technology, but also in terms of pricing and competition. Innovation and product differentiation

seem to be the key mantras in the business. The drivers include scarcity of clean drinking water,

low penetration of water purifiers, increasing urbanization, and waterborne diseases, while

challenges faced are the lack of standards and low awareness levels. There would be tie-ups for

enhancing distribution, increasing product portfolio, and rural expansion. Competitive landscape

identifies major players in the market. The market has also started evolving in the offline

category for consumers who do not have access to running water and electricity and at a lower

price point. With the market opening up, it is only helping a larger base of India get water

purifiers.

As per World Bank, 80% of communicable diseases in India are water related. With the

population size of 1.17 billion, only less than 15% people have access to safe drinking water. It is

estimated that about 10 million illnesses and 700,000 deaths in India could be attributed to

diarrhoea of which 400,000 are children under the age of five. Moreover, due to over

exploitation of ground water, the levels of mineral contaminants such as arsenic and fluoride in

water drawn from wells have increased dramatically.

About 50 million people in West Bengal are presently affected by arsenic poisoning while an

additional 70 million people are affected in neighbouring Bangladesh, which according to the

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World Health Organization (WHO) is the largest mass poisoning in human history. In addition,

about 60 million people across India, mainly in Rajasthan, Gujarat, and Andhra Pradesh,

consume water with high fluoride content. Given the gravity of the situation, there is an urgent

need for deploying technologies for removing microbiological, arsenic, and fluoride

contamination from drinking water before it is consumed.

Nearly 30% of rural India has no access to safe drinking water. Awareness of health risks linked

to unsafe water is still low among the rural population. But the rising prosperity in rural India

means people may be willing to pay more for safe water. One clear indicator is the thrust that

conventional packaged water companies such as Parle, Bisleri and Coca-Cola are giving to rural

distribution.

Governments too are now willing to work with private parties. For instance, California-based

Water Health International is in the process of setting up 225 water treatment plants for

panchayat blocks in Andhra Pradesh on a build-own-operate-transfer (BOOT) basis. Water

Health will make its money from user fees.

There certainly exists an opportunity. But it is a long haul. A number of things from the business

model to community acceptance of safe water for a price have to fall into place for these

ventures to turn into stable, sustainable operations. The period and amount of returns are

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uncertain and most companies are still nascent.

As more households switch to water purifiers, there is an urgent need for stringent standards for

the equipment. In India, unlike producers of natural mineral water and packaged drinking water,

who are required to meet Bureau of Indian Standards (BIS) norms, there is no such mechanism

for ensuring safety of potable water purification devices.

Some leading consumer organizations in India observed the World Water Day in Delhi to attract

the attention of the government, policy makers, and media to ensure access to safe potable

drinking water to the citizens and take immediate steps to bring reforms in its distribution in an

equitable manner.

They believe the domestic water purifier market is aggressively marketing the chemical-based

technology to purify water, which is a serious public health issue. There is also a huge

unorganized market in India, which is misleading the consumers. There are no regulatory

mechanisms mandated to check the standard of water consumed by the ignorant and helpless

consumers.

The use of chemicals including chlorine in these purifiers should be carefully governed and

regularly monitored to ensure that the dosage is administered under safe level. Also some other

chemicals used in the cleaning process by these purifiers decompose themselves during filtration

and treatment of water and produce products which when combined with other routinely used

material can be harmful to health.

There is also a growing fear that water will be cornered by the highest bidder to be sold to those

who can afford to pay, leaving large parts of India outside the net. Does this mean that people

who cannot afford are destined not to get safe water?

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Market Dynamics

The Indian water purifier market is on a high growth trajectory. It is estimated at Rs.2000 crore

with total sales of about 5 million units. TV Veopar for the sake of total accuracy has considered

top 5 brands, which together constitute 3,627,759 numbers, estimated at Rs. 1142.44 crore. The

five brands are Aquaguard, Hindustan Unilever Limited, Kent, Zero B, and Whirlpool.

Eureka Forbes has the highest turnover in the segment, estimated at over Rs. 510 crore. It is

present in all the three categories – RO based, inline/UV based, and offline purifiers – through its

brand AquaSure.

Hindustan Unilever Limited dominates the offline water purifiers market and has some presence

in the inline category with Marvella OGT and Auto fill purifiers. Its turnover from water

purifiers division is estimated at Rs. 300 crore.

Kent with its focus primarily on the premium RO-based purifiers had a sales turnover of Rs. 240

crore in 2010-11. Kent moves ahead with its vision toward making the world a healthy and

happy family.

Ion Exchange had sales of Rs. 54.57 crore in 2010-11 from its direct sales and retail counters for

Zero B water purifiers for domestic use. The company is present in all the categories, with inline

being solar-based purifiers. Ion Exchange is a specialist and offers total water solutions for

industry, homes, and communities. Integrating process technology, design engineering, and

project management capability, Ion Exchange takes end-to-end responsibility – planning,

integrating and managing water supply, quantity, quality, discharge, and environmental fronts.

The company has provided installations for diverse industries in India and abroad, from nuclear

and thermal power plants, fertilizer, refinery, automobile, electronics, and textile industries.

Whirlpool, Tata Chemicals, Usha Brita, Bajaj, and Philips are the other aggressive brands. Many

other brands are making a foray into this segment. Some regional ones have a stronghold in their

respective areas. These include LG, IFB, Godrej, and Kelvin catering to the Delhi market; and

Gilma, Moniba, Morf, and Nasaka from the Okaya Power group, and many more in the southern

parts of India.

The Indian market has tremendous potential, which is evident from the fact that global majors in

the water purifiers segment have stepped in and are looking to increase their share of the market.

The principal players today are Hindustan Unilever, Kent RO, Eureka Forbes, Ion Exchange

(Zero B), Whirlpool, Philips, Tata Chemicals, and Usha Brita. Many regional brands are

successful in their respective geographical areas. In the years to come, many others may enter the

fray.

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The low-cost offering of high-end durables targeted at households in small towns and rural India

are the water purifiers from the house of Eureka Forbes and Hindustan Unilever. Both are

becoming increasingly popular because they are effective and affordable. Also, they do not run

on electricity or require continuous water supply and, therefore, are ideal for locations where

water and power supply is unpredictable. Other aggressive brands available in the offline

category are Kent, Zero B, Bajaj, and Tata.

The Global Scenario

The market for water purification was USD 85 billion in 2010 (only equipment and products)

and is growing on an average over 6–10 percent per year depending on the country. The highest

growth is to be expected in China with an annual growth rate of over 15 percent followed by

Brazil, South-East Asian countries, and the Middle East. The European market is generally on a

high level and is dominated by membrane technologies, accounting for approximately 50 percent

of the total market in Europe.

Breakthrough in Technology

Researchers at the North Carolina State University have developed a new material that can

remove radioactive contaminants from drinking water, a discovery that could help Japan deal

with its unfolding water crisis. The new material is made of forest by-products and crustacean

shells. The material works like foam. It absorbs water and can soak up contaminants in water and

salt from seawater. In future, the new material could be packaged in a small bag or it can be used

as a filter to clean up large areas.

As we are currently seeing in Japan, one of the major health risks posed by nuclear accidents is

radioactive iodide that dissolves in drinking water. Because it is chemically identical to non-

radioactive iodide, the human body cannot distinguish it – which is what allows it to accumulate

in thyroid and eventually lead to cancer. The newly developed material binds iodide in water and

traps it, which can then be properly disposed of without risk to humans or the environment.

Not only can the new material remove radioactive iodine, but can also strip heavy metals like

arsenic from drinking water. If the material is eventually used in disaster situations, it could help

clean water when there is no electricity source to tap. The current situation in Japan is a good

example of how this material might help clean up the water supply.

Water availability is a major issue in many parts of the world; not only drinking water demands

are increasing but also water is invaluable for the industry and community uses. Currently in

India, every company is striving to make its products available at different price brackets, thus

making it possible to provide safe drinking water to every Indian.

Based on Research conducted by TVJ in July 2011.