Corporate Social Responsibility – Whirlpool

Whirlpool is the largest maker of home appliances in the world today. It is a fortune 500 company with annual turnover of around $ 20 billion. It has more than 70 000 employees and more than 70 manufacturing and research centers all over the world. It is now the manufacturer and marketers of home appliance brands like Whirlpool, Maytag, Kitchen Aid, Jenn-Air, Amana. It has the strategy of globally acquiring the local brand and drives it by innovation by understanding the local customer better and delivering innovative solutions to them. Thereby they focus on increased brand loyalty of the customer by serving them well. It pioneered the energy efficient home appliances in the 1970s by researching and developing along with government agencies. It is also known today for energy efficient appliances, and environmental friendly manufacturing, packaging, design. They have also been active in Corporate Social Responsibility measures even before it became the marketing norm in today’s world. They have been continuous donors to environment friendly activities thereby creating a sustained eco system of social deliverance.

It was founded in 1911 by Lou Upton with his brother and uncle, when he decided to manufacture and sell motor driven washers to a small market. With his dedication to the product development, it grew steadily until 1949, when the company was renamed to “Whirlpool”. Since then the company has grown to 170 countries and 200 million households with its focus on innovation, social dividend, and product development. 2007 was the best year in company’s history, after it became the largest home appliances company in 2006 going past Electrolux.

After the economic crisis in 2008, the consumer sentiment was on the fall and the market was shrinking. In Europe alone they had managed to increase the net sales by 4.4% despite decreasing demands, increased raw material prices and the oil prices. Despite the unexpectedly good performance in 2008, the future outlook is even more challenging with 8% decrease in demand projected in 2009. The strategy of the company to counter this crisis was laid in it principles of four pillars. The principles focused on the bringing in innovative products; increasing consumers’ confidence, and expanding the brand’s presence in foreign markets. Using the company’s international network of resources to cut costs and to achieve quality improvements was also done. Besides that, true to its commitment towards consumer’s welfare, environment and social advancements, it was also investing in social dividends. However the greater challenge is to manifest the policies in practice by introducing a product in sync with the principles of innovation. The product development team proposed the idea of “GreenKitchen” as one of the ideas to be implemented in European market on these lines. The integrated kitchen appliances are rolled in one concept in which 60% of the water and heat generated from appliances is “diverted” to fuel other appliances or functions in the eco-kitchen. It optimises the use of heat and water with processes that increase energy efficiency up to 70%. Before launching the product in the market with a marketing and communication strategy, it’s prudent to a competitor analysis, Market analysis and environmental analysis (economic, trends etc).

Competitor Analysis

Electrolux

Electrolux is the major competitor in Europe as well as globally. Its major share of revenue (49%) came from the European markets mainly Germany, France and the UK. It was also investing in eco friendly technologies. It introduced a complete range of green products and then it also cut on energy consumption on production activities and also communicated the eco values and benefits to the consumers. Its positioning was clearly on quality, innovation and eco-friendliness. Authur Martin (“Thinking of you”) was the flagship brand, AEG(“Perfect in form and function” ) was high end technologically advanced and Zanussi was the mid ranged product positioned on high performance.

FagorBrandt

FagorBrandt was formed when Fagor took over Brandt in 2005.The main products of the group were large appliances and France, with 60% of sales, was the major market. The brand enjoyed high level of recognition and it was identified with innovative products, performance and dedication to corporate social responsibility (eco-friendliness).AION was a multi functional kitchen appliance with innovative designs and useful features wit recycling features. It was positions as a premium product with excellence and status.

Indesit

The Italian company was the second largest player in the European home appliances market with product portfolio of almost all household equipments, with slight emphasis on washing equipments. Sustainable development was part of its strategic actions like carbon emission limitation, waste reduction, eco friendly products with less energy consumption. Indesit (We work, we play) was the brand with position of family friendly, happy brand for all. Hotpoint Ariston was positioned as the international brand with touch of modernity and traditionalism. Scholtes (“Taste the perfection”) was the high end premium brand positioned on exclusivity, innovation, sophisticated performance.

Bosch

It is a leader in the automotive, industrial technology, consumer goods and leading manufacturer of house hold appliances. It sells under the same brand name of Bosch for heating, cooling, washing and cooking products; there by leveraging the image of German technological expertise.

The Green Consumers

The demographic and psychographic profile of a green consumer is important for GreenKitchen to start formulating it marketing and communication plan because it’s principle selling point is energy saving by re-processing water resources and using more energy efficient technology. The profile of the green consumer that came out in the study done by the team of marketers in Whirlpool threw some interesting conclusions. Female were more likely to spend more on green products than male (80% to 66%).Young customers (24-34 years) were more likely to pay for green products a premium of 20-25 %. High income white collared young employees would want Green products to reduce utility bills. Psychographic profiling will manifest itself in – “sense of duty towards the environment” and “self image associated with green movement”. Mainly four characteristics were attributed to the consumer behavior of a green consumer done by the Whirlpool team- they were anti- consumerism, wanted professional standard in comparison and purchase, referred to eco labels and paid a value on that ; and espouse pro-environmental attitudes even in their every day personal and professional life. Although green consumer look like a homogeneous bunch, but there are differences, however subtle in attitude of the consumers.

These differences will make of segmentation of the green consumers. On the basis of level of involvement, the greens can be divided in 4 shades- the dark green are the ones who are committed to the sense of responsibility and pride to the planet, the light Greens are the ones who are young affluent parents who are worried about the health and future of children (hope and preservation) ; light greens are price sensitive and are buying green products for self expression and status (trendy); and the non- Greens are the ones who do not care about the green considerations and look for best value for price. Another basis of segmentation is nature of ecological interest- Planet Lover, Animal Lover or Health Fanatic. A third basis for segmentation is Technology and Lifestyle. One segment is into Yoga, organic farming, local food production; and another one is interested in Hybrid cars, latest energy efficient laptop and branded organic premium (health) food products.

Green Market and the Home appliance industry in Europe

The market for green product is a relatively new and emerging market. Few years ago it was a niche market but now with increased climate sensitivity, pollution control policies, global awareness; it has become main stream and expanding at a fast rate. A green market is an ecologically sustainable market where as a “green product, in turn, would be a product that conserves natural resources, eliminates waste and sustains the ecological balance”. With the increased public concern there was a shift in the production with least harm inflicted to the environment. The green products were priced at a premium due to increased operational cost and expensive technology. There was a wave of “green products” which were marketed green but gave no or little ecological preservation. It is called “green washing”. Then there had to be accreditation companies that would test and verify the claims of the product and mention with clear terms the ecological impact or ecological foot print on the packaging of the product.

Belief Importance Attitudinal model

Predicting consumer preference is the point of studying consumer behavior. But the question is, can it be predicted with reasonable certitude? Does the consumer preference depend on many calculable factors? If yes, can the relationship between preference and these factors be established and what are those factors? What are the specific attributes of those factors? In this model, the author proposes that the consumer behavior is dependent on the factors specific to preference alternatives instead of more general socio-economic and personality characteristics as normally and institutively understood. The earlier studies have shown that the brand preferences based on demographic, personality traits are inconclusive in correlation. The Brand preference of the consumer is related to the attitude of the customer based on the beliefs about and relative importance of product specific attributes. He goes on to establish a mathematical model on testing a sample. He gave six product categories and 5 associated attributes to them to a group of interviewees, and does the Discriminant analysis (a statistical tool) for attitude, beliefs and demographics. The results establish the relation between brand preferences and attitudinal measurements based upon belief and relative importance.

This analytical framework can be used in the context of GreenKitchen to understand the segmentation of the market. There are demographic and psychographic segmentation data but the model proposes that the best analysis of consumer behavior is by the attitude of the customer. Thus the segmentation based on the attitudinal differences is the segmentation that must be considered for targeting.

Thus in the case of Green Kitchen the target segments are: the ardent eco fans with the sense of community and responsibility and pride towards the planet (Dark green), young affluent parents who are worried over the health and future of children (Medium Green), highly price sensitive people adopting some eco friendly causes because it is cool and trendy for self expression (Light Green) and ones who don’t think at all about green consideration (Non Green)

In my opinion this model of determining consumer preference will be much more accurate as behavior (predictable or unpredictable) is more related to attitude than socio-economic factors especially in case of Green products which are essentially for aware consumers with some attitude. However it is also difficult to segregate and measure the market potential because of the qualitative nature of the factors. So one had to deduce a quantitative attribute and then measure and calculate the potential. E.g. Medium Greens will be between 25 and 40 years of age in white collar job with 60,000 $ of annual income.

Intertemporal Pricing Approach

How does a monopolistic producer with no competitive pricing can price its product in a heterogeneous market full of consumers with different valuation of the product? On top of that it does not know the preferences or valuation of each consumer so can nor do price discrimination. In this paper of Intertemporal Pricing by Besako and Winston, they postulate a model of pricing where the consumers are rational and can find the producers’ equilibrium price. Some other assumptions made to develop the model are that there is no impact of word of mouth or advertising on the consumer. A sub game Nash equilibrium price is arrived at which acts as temporary equilibrium. Price Skimming, extracting consumer surplus by differential pricing over time, also takes place. The pricing will change if the assumption of rationality is dropped and vary hugely. Another interesting scenario considered by the author is when the consumers are Myopic (irrational) and are thought to be rational by the producers.

The managerial implications of the models help the marketers to set a price that maximizes the price skimming in the market. The price elasticity of Myopic consumers are higher than the rational consumers. If the producers think that the consumers are mostly Myopic, it will keep very high price to start with and then gradually drop it. But as the case example suggests such assumptions have lead to disastrous results in pricing. Consumers have shown to be more rational, but there are both types of consumer in the market.

Another implication is that the longer the producers’ commitment to a price level, more the consumers think prices will not drop. Hence more and more customers will buy at a given level and maximize price skimming. And more the prices drop the consumers will expect further fall and thus the skimming will be not maximized. But it is difficult to convince consumers about the price stability. Some examples are dismantling the manufacturing facility which gives marketers a lot of scope to play with pricing as the products become rarer.

In the context of GreenKitchen of Whirlpool, let’s look at the target audience. These are educated, aware, and sensitive and efficiency demanding consumers who are more rational than any other set of consumers can be. Hence the best pricing strategy for Intertemporal pricing would be to wait for the consumers to show their expectation of the equilibrium price and then price slightly higher, making room for a couple of changes. Besides the main constraining factor for Eco products were that they were premium products normally priced very high, thereby losing a large chunk of Green consumers.

Innovation Diffusion Paradigm

Despite many tools and promising forecasts, the diffusion and adoption rate of new ICT products are not encouraging. The reasons for such failures are notoriously inefficient marketing and introduction strategy hamstrung by inaccurate knowledge of adoption potential and adoption segments. That is because the tools used to identify the target segment and the target potential is obsolete and unusable in the dynamic environment such as ICT. Hence the questions to answers like whom to target, when to target with what communication strategy become redundant.

The best way to go about is to identify the adopters, understand their needs and then build a marketing and communication strategy to cater to them. PSAP (Product Specific Adoption Potential) is a tool made by De Marez and Verley for prior-to-launch segmentation tool.

PSAP Scale

Price-Quality Inference Model

The role of price in the evaluation of a multi attribute product by the consumer is the point of this empirical study by Erickson and Johansson. According to the laws of economics, price is a constraint and a negative motivation. It is a sacrifice made to have the “bundle of attribues” the product has to offer. However, price also works as an indicator of the quality of the product as established by many studies. Price gives character of a product “attribute”.