CASE STUDY:

PEL’S APPLIANCES LEADS TO SUCCESS OVER THE TIME

Pak Elektron Limited (PEL) is the pioneer manufacturer of electrical goods in

Pakistan. It was established in 1956 in technical collaboration with M/s AEG of

Germany. In October 1978, the company was taken over by Saigol Group of

Companies..

Since its inception, the company has been working for the advancement and

development of engineering know-how in Pakistan. The company has produced

hundreds of engineers and skilled workers and technicians through its apprenticeship

schemes & training programs.

PEL has been continuously adding new products to its range. As a result, PEL has

registered a significant increase in its sales volume, during the last ten years

In 1978, the Saigol Group of Companies purchased major shares of Pak Electron

Limited. At that juncture, the company was only manufacturing transformers and

switchgears. With the Saigols in management, PEL started expanding its product

range by entering into Air Conditioner manufacturing.

In 1981, PEL window type air conditioners were introduced in technical collaboration

with General Corporation of Japan.

In 1986-87, the company started manufacturing of refrigerators in technical

collaboration with M/s IAR-SILTAL of Italy.

In 1987, PEL deep freezers were also introduced in technical collaboration with M/s

Ariston of Italy.

In 2006, the Company has started manufacturing of split type air conditioners of

various capacities as the customer choice has shifted from window type to split type.

The product has been well received in the market. This encourages the company to

multiply its production in the coming year.

Today, PEL has become a household name. Its products are not only in great

demand in the local market but the Company has started exporting its appliances

The company comprises of two divisions:

Appliances Division

Power Division

Pak Elektron Limited (PEL) is the pioneer manufacturer of electrical goods in

Pakistan. It was established in 1956 in technical collaboration with M/s AEG of

Germany. In October 1978, the company was taken over by Saigol Group of

Companies. Since its inception, the company has always been contributing towards

the advancement and development of the engineering sector in Pakistan by

introducing a range of quality electrical equipments and home appliances and by

producing hundreds of engineers, skilled workers and technicians through its

apprenticeship schemes and training programmes.

The company comprises of two divisions:

Appliances Division

Power Division

APPLIANCES DIVISION

This Division of PEL consists of appliances manufacturing.

PEL Air Conditioners

PEL window-type air conditioners were introduced in 1981 in technical collaboration

with General Corporation of Japan. Ever since their launch, PEL air conditioners have

a leading position in the market. PEL air conditioners cooling performance has been

tested and approved by Copeland and ITS USA. With the shift of users preference

from window type to split type air conditioners, PEL has started manufacturing split

type air conditioners.

PEL Refrigerators

The manufacturing of refrigerators started in 1986-87 in technical collaboration with

M/s IAR-SILTAL of Italy. Like the air conditioner, PEL's refrigerators are also in great

demand. Today, PEL Crystal has 30% market share. Its cooling performance is

tested and approved by Danfoss, Germany and its manufacturing facility is ISO 9002

certified by SGS Switzerland.

PEL Deep Freezers

PEL deep freezers were introduced in 1987 in technical collaboration with M/s Ariston

of Italy. Because of durability and high quality, PEL deep freezers are the preferred

choice of companies like Unilever.

POWER DIVISION

PEL Power Division manufactures energy meters, transformers, switchgears, Kiosks,

compact stations, shunt capacitor banks etc. All these electrical goods are

manufactured under strict quality control and in accordance with international

standards.

PEL is one of the major electrical equipment suppliers to Water and Power

Development Authority (WAPDA) and Karachi Electrical Supply Corporation (KESC),

which are the largest power utilities in Pakistan.

Over the years, PEL electrical equipment has been used in numerous power projects

of national importance within Pakistan. PEL has the privilege of getting its equipment

approved and certified by well-reputed international consultants such as:

Preece, Cardew and Rider, England

Harza Engineering Company, USA

Snam Progeti, Italy

Societe Dumezm, France

Miner & Miner International Inc. USA

Ensa, France

In spite of stiff competition from emerging local and multinational brands, PEL

Group's appliances and electrical equipments have remained in the spotlight due to

constant innovation. Strategic partnership with multinationals of repute have enabled

the PEL Group to incorporate new technologies into existing product ranges, thus

giving the Pakistani market access to innovative, affordable and quality products.

PEL was 16th Company in Pakistan which got ISO 9002 Certification in 1997, since

then PEL Management is applying this International Standard Practices for

Effectively Managing Quality of Products and Services that Company Offers. The

International Standard Practices in PEL have been Upgraded as per the Revised 

ISO 9001 Standards and its  Scope of Application  is expanding ever since and Top

Management is Committed to make PEL a Total Quality Management (TQM)

Company.

In this Company Quality is the Subject of Management at all Levels. We focus on

continuous improvement in our Systems thus establishing Good Management

Practices that ensure Product and Services Standards, we are committed to and

making continuous efforts in developing and strengthening our internal and external

customers and suppliers, employees training and development and their participation

are the KEY forces which are Increasing the Organization's Capabilities thus making

it more competitive and fast growing Company.

And thus going for State-of-the-art production facility reflects management Vision and commitment for Quality. Having around Fifty years of Manufacturing experience with a cooperative and dedicated employees and now coupled with efficiency monitoring processes and Data Analysis enable management to take Preventive Actions before things really go wrong. Elimination of wasteful activities,

practices, processes, norms and behavior are the top management's priorities that need to be managed so that the philosophy of ZERO DEFECT can be taken on board. Benchmarking with National and International repute Organizations will be in our road to manufacturing excellence to prove PEL as a World Class Manufacturer.

Future Outlook:

The economy is expected to perform well in the next year however it is exposed to

certain challenges like current account deficit, lower exports, increased competition in

the international market and lack of technological advancement as compared to

competing nations. It is still hoped that national economy will continue to grow and rising

prosperity will bring expanding opportunities for the Engineering Industry and for your

Company.

The company will continue to focus on cost effectiveness, quality standards and best after

sales services to our valued customers. We expect to go farther, faster and higher than we

have ever been in serving the interests of our customers, shareholders and employees.

Dawalance

Threat of Substitute

BargainingPower OfSuppliers

NEW ENTRANTS

BargainingPower OfBuyers

MODEL APPLICATION

The final out come of the research was that PEL has lost its competitive edge

when it comes to other brands. I shall now discuss why is this so in the light of the

Porter’s Five Forces Model. These five forces are following.

The risk of new entry by potential competitors

Rivalry among established firms

The bargaining power of the buyer

The bargaining power of the supplier

The threat of substitute products

DIRECT COMPETITORS

The direct competitors of PEL are Dawlance, Waves, LG, and Haier etc. The

Dawlance is market leader in the refrigerator and PEL is still on second number. But

in window room air conditioner (WRAC) the PEL is market leader

REFRIGERATORS.

Total market sale of refrigerator in 2003 was 367000 units. Last year sale was

256900 units. These figures show 30% market growth. But the average growth was

13% to 17%. And the PEL sale growth is 70%, which is a great achievement.

Dawlance is a market leader in refrigerator with 46% share.

PEL has 32% market share.

Waves has 11% market share.

11% shares are others.

WINDOW AC.

PEL is a market leader with a market share of about 60% in local manufacturing

industry. And overall has 35% market shares for this product.

LG has about 32% market share and stands on number two.

And rest of the manufacturers have 23% marker share.

Indirect Competitors:

The indirect competitors for PEL in this industry are Samsung, Orient, Mitsubishi,

Sabro, Nobel and others Chinese brands available in the market. The PEL has no big

threat from all these companies. But the Sabro pioneer for introducing the split air

conditioner in Pakistan. Now days the sabro has lost its market share to other

companies for the business of Split AC.

RISK OF NEW ENTRY BY POTENTIAL COMPETITORS

High Investments.

Threat for new entrants is high in this industry, partly due to the fact that this industry

is a lucrative industry and is very attractive for foreign companies. But in order to

really make a mark in this industry, you need to have strong investment and funding.

For this matter, PEL is at risk of the influx of foreign investments in this sector.

Foreign Brands.

Foreign brands like LG, Sony, Samsung, Mitsubishi and Haier etc. are a big threat for

local brands. The quality and brand image of foreign brands is high as compared to

local brands. Foreign brands have captured the market of split AC and television. LG

and Sony are the market leader in television sector. Local brands can’t compete with

these companies in this sector.

THE BARGAINING POWER OF THE BUYERS

Company’s buyers are the people who ultimately purchase and consume its

products. If there are so many brands and products available in the market at

different prices, the bargaining power of the buyers will be high because they have

many alternatives, they can demand to lower the prices. On the other hand if there

are few brands or companies in the market, then the buyers will be in a weak position

to bargain. As a result, the company can raise its prices and earn greater profits. If

we see the Pakistani industry the bargaining power of the buyers is very high

because a variety of products are available in the market at different prices. So the

buyers can choose the product according to his requirements.

THE BARGAINING POWER OF THE SUPPLIERS:

Suppliers can be viewed as a threat when they are in few numbers in the market. In

that case, the suppliers are able to force up the price of inputs. The after effects of

that can result in the reduction in the quality of inputs. If the suppliers of PEL

Company are weak then company will force the suppliers to reduce the prices of

input and demand for higher quality. If the suppliers are selling the products that have

very few substitutes and are differentiated from others, then the suppliers are always

in good bargaining position.

SUBSTITUTE PRODUCTS

There is no real substitute for the products of this industry. Refrigerators and deep

freezer have there own attributes. Cold stores can be substitutes for these products,

but these substitutes are more costly and can’t be easily approached.

The strengths, weaknesses, opportunities and threats of PEL are discussed below:

Strengths:

PEL has the following strengths.

Brand Name

Strong Dealer Network

Quality Products

Best Sales Services

Market leader in WRAC

Number 2 in Refrigerators in Pakistan

Strong Management Team

Distribution of Authority

Research and Development Department

Free Customer Service

Brand Name:

PEL has created a strong brand image in the mind of the customers through

higher quality and low prices. The customers of PEL always prefer its home

appliances like Window AC, split AC and refrigerators, during the time of purchase.

PEL is a popular company in Pakistan and every one knows about the PEL products

and its brand name. That’s why PEL is a market leader when it comes to Window AC.

Strong Dealer Network:

It is also the plus point for PEL that it has developed a strong dealer network in

the market. The dealers always try to sell the PEL products to the customers

because, the company for its products, gives them a high margin. The management

of PEL also provides more incentives to their dealers than their competitors. Dealers

are very conscious about the PEL products and always guide the customer in buying

the PEL products.

Quality Products:

PEL is also in a strong position because it provides superior quality products to

customers. So it gives an edge to company over its competitors. Due to best quality,

guarantee of products of PEL is more than its competitors.

Best Sales Services:

PEL provides the after sale service to customers which increases the

customers satisfaction. The biggest strength of services department is that it handles

a complaint within 24 hours in any part of the country, that helps in increasing the

satisfaction level of customers.

Market leader in WRAC (Window Room Air Conditioner):

It is also strength of PEL that it is a market leader in WRAC. Costumer always

gives preference to PEL in window AC market because of low price, high quality and

durability.

Number Two in Refrigerators in Pakistan:

After the Dawlance refrigerators, PEL has the second position in the

refrigerators market. PEL is gradually coming up in refrigerator market and increasing

its market share. Due to improved quality, innovative features and good sales

services PEL is becoming the first choice for customers.

Strong Management Team:

It is another plus point that PEL has a strong management. Its employees are

competent, efficient, skilled and knowledge. They always cooperate with the top

management in achieving of goals that are assigned to them. Employees are well

aware about the company objectives and are committed to the development of

company.

Distribution of Authority:

Top management of PEL delegates the power to the subordinates for

achieving the marketing objectives in a specified time period. So every manager has

an authority to take decisions to achieve the goals of company. In this way they save

the time and react quickly.

Research and Development Department:

PEL has a strong research and development department that is continuously

trying to develop new features for the products. R&D department spends huge

amount of money for the development of new products.

Free Customer Service:

PEL provides free customer service for one year to its customers. The

customers who buy the PEL products become brand loyal due to this facility.

Weaknesses of PEL:

Like other companies PEL has some weaknesses. If PEL overcomes these

weaknesses then it can become a market leader in home appliances. PEL looses

some competitive edge in the following areas:

Financial Problems

Lack of advertisement

System variations

Lack of Product range

Less Utilization of capacity

Financial problems:

Sometimes PEL faces the financial problems because its stocks are so much

piled up in the stores that creates problem of cash flow because when the stocks are not

sold and the production is in process for 24 hours a day then the company faces such

problems.

Lack of advertisement:

It is a second major weakness of PEL that it is not a vigorous advertiser. Only recently

has PEL invested a considerable amount in advertisement, but when we look at its

competitors, PEL still has to do a lot in this sector.

System variations:

It is also the main weakness of PEL that there is a rapid change in polices of

selling the products. That creates problems for the selling team to sell the products to

the dealers because the top management requires urgent amount of money. Thus

the products are sometimes sold on hard cash that reduces the prices of products

that creates problems for the management.

Lack of Product Range:

PEL has introduced more products of consumer items but there are more needs to

develop new consumer items like PEL washing Machines, Vacuum cleaner and other items.

Less utilization of capacity:

Due to lack of finance a company cannot utilize all its resources on its full

capacity. It increases the cost of products per unit that decreases the profit margin of

each consumer item. Sometimes, the company cannot allocate the resources

according to the requirements of the production department, which later on becomes

a problem for the complete utilization of resources.

Opportunities for PEL:

For PEL, there are more opportunities for expansion in business. Following are the

opportunities for the PEL.

Exploration of market in Pakistan

Increase in product range

Export opportunity

Increase in production capacit

Exploration of market in Pakistan:

PEL has the opportunity to explore the market in all over the Pakistan. Even

though PEL has introduced its products in many cities of Pakistan but there are so

many places that are yet to be exploited.

Increase in Product Range:

PEL can increase its product range that will be more profitable for the

company. There are more needs to develop new consumer items like PEL washing

Machines, Vacuum cleaner and other items.

Export opportunity:

PEL has also the opportunity to export their products in other international

countries like UAE, SAUDI ARABIA, and other Arabic and African countries.

Increase in production Line:

Company can also increase its production line at the maximum level that will

increase the efficiency of the employees and will also reduce the total cost.

Threats for PEL:

Following are the main threats for the PEL:

Strong competition

China’s product introduction in the market

Price war

Slow growth rate in Pakistan

Instability of government

Tax department

World Trade Organization

Strong competition:

There is very strong competition in the home appliance division. Every company

adopts different strategies for selling of the products. It reduces the profit margin of

each company and increases the bargaining power of the buyers who will demand

higher quality of products at lower cost.

China’s product:

China’s products are another threat for the Pakistani companies because these

products are cheaper than the Pakistani products. China products stress the

indigenous companies to lower the quality and prices that will not be profitable in the

long run.

Price war:

As there is stiff competition in the home appliance market that will cause the price

war.

Slow growth rate in Pakistan:

There is also slow growth rate of home appliance in Pakistan that will increase

the stocks of the company. Although, this industry is in the growth phase, but the

speed of the growth is very slow.

Instability of Government:

The rapid changes in governments will become a threat for the companies

because every government adopts new policies for the industries. So it increasesthe

uncertainty for the investors who want to invest heavy amounts in their new projects.

Tax department:

Tax department is another major threat for the company that will restrain the

business expansion. There is a most complicated tax procedure operating in the

country that creates hurdle in the production and smooth functioning of different

companies in Pakistan.

World trade organization:

World trade organization will give the permission in 2005 to each company of

home appliance to export their products after paying less duties or duty free products.

That will increase the pressures for the indigenous companies to reduce the prices

and increase the quality. It will increase the competition among the foreign

companies and indigenous companies.

BCG stands for Boston consulting group. It is a portfolio planning method that

evaluates the company’s strategic business unit .Using this model an organization

classifies each of its separate business units (SBU) according to two factors:

Market share relative to competition and growth rate of the industry in

which SBU operates

When these factors are divided into high and low categories, a 2 x 2 grid is

created as displayed in following figure:

STAR:

Star is a business unit that has large market share in fast growing industry. Such unit

requires more investment to generate more cash. If due to more investment it will

become successful and become cash cow and it will reach at maturity stage. For star

product the strategy is called harvest

Refrigerator of PEL is the product having high market share and high annual

growth rate.

Cash Cow:

It is the business unit sometimes known as problem child. It has a large market

share and low annual growth. Each cash cow requires little investment and it

generates more cash that can be used for investment purpose in other business

units. For cash cow the strategy is called HOLD, you must preserve market

Split air conditioners is the product of PEL having high market share and low

annual growth rate.

Question Mark:

It is the business unit that has a low market share and high annual growth. These

business unit requires resources to grow market share but if they succeeded that will

become STAR. For question mark the strategy is called BUILD, you try to make up

the market share.

Washing machine and microwave oven are the products of PEL having low

market share but high annual growth

Dog:

Dog is the business unit that has small market share as well as low annual market

growth rate. A company normally would be unwise to invest substantial funds in

SBUs in this category. Marketing strategies for dogs are intended to maximize any

Question Mark

Star

.

potential profits by minimizing expenditures or to promote a differential advantage to

build market shareAnd the company can diverts or liquidate the dog product

Deep freezer is the product of PEL having low market share plus low annual growth

share.

STRATEGIES OF PEL AS MARKET CHALLANGER

In competitive environment challengers strategies are very significant to survive in the

market. Firms in this category can adopt one of the following strategies:The leader is

Cash Cow

Dog

Deep freezer of PEL has low market share in low market growth rate. So it regarded as a dog. So company should drop this product.

attacked but it is very risky and high payoff.Company can attack unprogressive and

under financed firms, it is less risky and less payoffIt can also attack on small local and

regional firms, it is neither risky nor high payoff

Choosing A General attack strategies:

Frontal attack:

The attacker matches its opponent price, product, advertisement and distribution. The principle of force says that side with greater manpower (resources) will win

Flank Attack:

The attacker can attack along two dimensions:

Segmental. Geographical

Technological leap fogging:

Challenger patiently researches and develops the next technology then launches its attack

Guerrilla Warfare:

It consists of small but continuous attacks to harass and demoralize the opponents.

Encirclement attack:

It involves launching grand offenses on several fronts attack on every feature of opponents products

As far as PEL is concerned, it uses technological leap fogging strategy to attack. PEL is launching products having several innovative features to differentiate its product from competitors

Water dispenser refrigerator is the product having innovative feature of getting cool water without opening refrigerator

TimeProduct

Develop-

ment

Introduction

Profits

Sales

Growth

Maturity

Decline

Losses/Investments ($)

Sales andProfits ($)

6- Series refrigerator is the product having differential feature of light bulb in freezer

PEL Genset Aircon Power Electric generator is the product having following differential features:

Performance capable of running following items continuously for 10 hours.

One 1.5 ton split One television Six tube lights One computer One fridge Five fans One deep freezer

PRODUCT LIFE CYCLE

A product life cycle consists of aggregate demand over an expected period of time for

all brand comprising a generic product category. A life cycle can be foraged by

plotting aggregate sales volume for a product category over time usually years

Stages of product life cycle:

Management must be able to recognize what part of life cycle its product is in at any

given time. The completive environment and marketing strategies that should be

used ordinarily depends on the particular life cycle stage

There are four stages of product life cycle and explanation of each is given below

Introduction:

This stage some times known as pioneering stage in which a product is

launched into the market in a full scale marketing program it has gone through

product development, including idea generation, idea screening, prototype and

market tests. For new products normally there is very little direct competition.

GENERATORS are on introduction stage.

Growth:

Growth stage also called market acceptance stage.

In this stage sales volume and profits rises and

competitors enter the market. At the end of growth

stage , profit starts to decline.

Water Dispensers are on growth stage.

Maturity:

During Maturity stage, sales continuous to increase but

at decreasing rate. When sales level off, profits of both

producer and middlemen decline. The primary reason is

intense price competition

Refrigerators of PEL on the maturity stage.

Decline:

This stage is inevitable. In this stage profit and sales volume of the product both

decrease rapidly and finally its life comes to an end.

Longest life cycle:

As far as PEL is concerned, the longest product life cycle is of crystal classics

refrigerators having three years duration.

Shortest life cycle:

Life cycle of crystal classic 2009 refrigerator is the shortest among the portfolios of

PEL appliances.

Conclusion PEL has great strengths and opportunities Should takes risk and go to other markets Management philosophy is the hurdle in the progress of the company Take the advantage of today’s media power to capture market Future of PEL is very bright as it is grabbing opportunities and has the potential to compete with challenges