【正文】 CONFIDENTIAL Developing a Winning Strategy for the Microwave Oven Business in China LG Electronics Tianjin Appliances Co., Ltd Final progress review April 9,2023 This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client anization without prior written approval from McKinsey Company. This material was used by McKinsey Company during an oral presentation。 it is not a plete record of the discussion. 010326SH_120703_085v5i THE JOINT LG/McKINSEY TEAM HAS COMPLETED THE PROJECT WITHIN 5 WEEKS Modules Key activities Market Demand/Forecast ? Forecast potential market by segment through refining market segmentation, understanding key growth drivers, and modeling market growth LGE performance assessment ? Conduct internal data collection within LGE ? Develop sound understanding of value proposition based on available market research including branding and consumer survey Strategic development opportunities ? Analyze different product mix options ? Gather information on branding and marketing ? Conduct channel diagnosis ? Analyze value chain costs Competitor ? Develop petitive assessment for microwave oven petitors ? Conduct interviews with distributors, retailers, government agencies, petitors to collect petitor information Consumer ? Conduct consumer survey via external research house in 6 specified cities and 1 rural area to understand consumer purchasing behavior End products ? Market demand forecast by areas and product type ? Current anization’s strengths and weaknesses ? Current processes and incentive systems strengths and weaknesses ? LGE aspirations for future growth ? High level remendation on product mix ? Brand positioning status and remendations ? Channel mix diagnosis and high level channel prioritization ? Detailed breakdown parison on costs, COGS in particular ? Analysis on overall petitive environment ? Detailed information on petitor performance including sales, branding, pricing, channel mix and incentives ? Key petitors’ COGS analysis ? Strengths and weaknesses of each petitor group and the implications ? Detailed analysis on consumer purchasing pattern 1 010326SH_120703_085v5i TODAY39。s DISCUSSION ? The Microwave oven market in China will continue its strong growth and should reach million units in 2023. Primary regions will be Central China, followed by South and Southwest China. Other regions should develop as ine grows. Computer grill and mechanical grill should further increase their share as prices decline. ? Four customer segments are found from market research: Premium buyers, basic brand buyers, rational technophile, and generic buyers. All segments, except premium buyers, are highly pricesensitive, thus skewing market demand towards lowend products. At the same time, reliable performance, ease of use, and good afterservice are important across segments. ? The petition in China is already intense and will continue to increase, as Galanz and Midea have huge ambitions in the market. In addition, the severe overcapacity (about 45%) will continue to force prices downwards thus threatening profitability for all but the lowest cost players. ? LG has built a successful platform for growth, being 2 in China, although far behind Galanz, by focusing on premium products and in the Beijing area. Faced with the issue of further growth and improving profitability, LG now needs to choose between a high growth strategy, with the objective of being the leading player and to reach breakeven in 2023, or to remain a premium niche player for the foreseeable future. ? To achieve the aspiration of being a profitable 1 Player in China, LG needs to launch 5 strategic initiatives: (1) launch a three step regional expansion, first from Beijing to Wuhan, (2) introduce entry products to cover all price points while continuing to introduce high end products to create margins, (3) improve channel coverage by increasing the distributor work and the sales force resources, (4) increase significantly advertising spending while optimizing media mix, (5) reduce aggressively cost by leveraging economies of scale. 2 010326SH_120703_085v5i TODAY39。s DISCUSSION ? The Microwave oven market in China will continue its strong growth and should reach million units in 2023. Primary regions will be central China, followed by South and Southwest China. Other regions should develop as ine grows. Computer grill and mechanical grill should further increase their share as prices decline. ? Four customer segments are found from market research: Premium buyers, basic brand buyers, rational technophile, and generic buyers. All segments, except premium buyers, are highly pricesensitive, thus skewing market demand towards lowend products. At the same time, reliable performance, ease of use, and good afterservice are important across segments. ? The petition in China is already intense and will continue to increase, as Galanz and Midea have huge ambitions in the market. In addition, the severe overcapacity (about 45%) will continue to force prices downwards thus threatening profitability for all but the lowest cost players. ? LG has built a successful platform for growth, being 2 in China, although far behind Galanz, by focusing on premium products and in the Beijing area. Faced with the issue of further growth and improving profitability, LG now needs to choose between a high growth strategy, with the objective of being the leading player and to reach breakeven in 2023, or to remain a premium niche player for the foreseeable future. ? To achieve the aspiration of being a profitable 1 Player in China, LG needs to launch 5 strategic initiatives: (1) launch a three step regional expans