Priming a difficult market
After winning in premium pumps, Grundfos is ready for the value-for-money segment. Replicating its success will be tough.
If there is one core value that Grundfos, the world's largest manufacturer of pumps, takes pride in, it is its global mindset. The Danish company's annual production of 16 million pumps comes from 14 production facilities across the globe, employing over 16,000 workers.
And if there is one market that has tested Grundfos's adherence to its core value, it is India. The Indian pump market, in the 1990s, was a manufacturer's worst nightmare. It was extremely fragmented, highly price sensitive, cared little for technology or brands and, on top of it, witnessed rampant violations of intellectual property rights. Over 80 per cent of sales came from scores of small players.
The structure of the pump industry and its unorganised nature spooked Grundfos so much that it refrained from entering India even though the market for pumps here was expanding at 30 per cent a year. Even attempts to get Grundfos to distribute its products in India failed. Finally in 1999, Grundfos took the plunge by setting up a small assembling unit in Chennai. It soon realised that managing this notorious market was not as difficult as it had initially feared. Eleven years later, today, its products have created a Rs 500-crore market for premium pumps, of which Grundfos controls half. Grundfos pumps start at Rs 5,000 and go up to Rs 50 lakh - representing a mark-up of two times over the nearest equivalent, especially in industrial applications. It is now present in all segments except marine pumps.
Grundfos India, wholly-owned by the Danish parent, closed 2009 with revenues of Rs 208 crore and 203 workers. Its revenues are expected to touch Rs 270 crore this year. That is still a tiny sliver in Grundfos's global revenues of $4.5 billion, or Rs 20,500 crore, but the Indian unit is strongly positioned in an economy where construction continues to boom.
One of the earliest decisions the management took was to swim against the tide and offer products with significant energy savings and minimal servicing requirement. "We were convinced that there was a market for such products. If people did not buy them earlier, it was because they did not have a choice,'' says N.K.Ranganath, Managing Director.
But selling an expensive pump in a thrifty market proved challenging. Customers and dealers were sceptical and feared Grundfos would close shop, leaving them in the lurch. V. Venkataramanan, Grundfos India's Marketing Head, recalls how he slogged for six months without notching up a single sale. For instance, the company struggled to sell in Hyderabad despite the construction boom and its industry base.
So Grundfos went about building a distribution and servicing network at the same time. Venkataramanan made detailed presentations to prospective customers, comparing Grundfos pumps with other brands, to establish their superiority on energy efficiency, payback time, technology and durability. He installed pumps free on a trial basis for three months at the premises of prospective customers.
This technique worked. Orders initially came from original equipment manufacturers, or OEMs. Thermax fitted only Grundfos pumps in its boilers; Bosch remains a loyal buyer even today. When the first full year of its operations ended, Grundfos had Rs 5 crore in turnover with just seven people on its rolls.
Ranganath also did something unusual in the industry then - he invested in the brand. Grundfos made it clear to the market that it will never compromise on price or quality. It made pumps in stainless steel and refused to opt for the cheaper and less reliable cast iron. It refrained from undercutting the competition but chose to spur demand by improving product knowledge - a value it sticks by even today. "I can touch Rs 500 crore tomorrow, but that is not our intention,'' says Venkataramanan. Slowly, customers and distributors began to understand its logic. Says Hasmukh Patel, proprietor of Ahmedabad-based Jay Pumps and a seller of pumps for 25 years: "I've dealt with many pump brands but I gradually phased out all of them to become a Grundfos distributor.'' The local pumps gave him much better margins but frequent service calls from customers ate into his time. With Grundfos, he could spend more time selling and landed several new clients. He expanded his business to three major cities in Gujarat, and got a large base of reference customers. "Grundfos pumps were maintenance-free and my business has grown since,'' he says, adding his peers have pretty much remained where they were then.
The competition, too, acknowledges Grundfos's strengths. "It is the only player to provide customised solutions,'' says an executive of Kirloskar Brothers, requesting anonymity. Kirloskar Brothers makes a wide range of pumps for the Indian market and is a key Grundfos competitor.
Once Grundfos established its brand strongly, its worst fears came true. Lookalikes began to flood the market at a third of the price. "We found that hunting them down each time was beyond us. We decided to just focus on our sales,'' says Ranganath.
He also found that the parent company's penchant for exceptional quality led to over-designing of the pumps well beyond Indian requirements. It took the Indian management all its persuasive skills to convince headquarters to allow it to source some non-critical components and manage the software systems locally. The company also began to assemble pumps. These measures helped Grundfos India reduce costs further and offer better pricing.
Having made a mark in a difficult market and after establishing a strong brand name, this reluctant entrant into the Indian pump market wants to expand its offerings. It wants a share in the Rs 3,000-crore mid-size pump market - typically, pumps starting upwards of Rs 3,000. Can Grundfos, with its rigid pricing policy and global quality standards, win over this price-conscious segment? "This segment needs different products, which are not necessarily aspirational. Pumps with good plastic parts will do but Grundfos avoids the use of plastic,'' says the Kirolskar Brothers executive. Also, energy efficiency will not cut ice with the household segment, he adds.
Agrees B. Chandra Sekaran, Business Director at Grundfos. "Talking of energy efficiency does not make sense to a retail customer who is going to use a pump for perhaps 20 minutes to four hours a day.'' So the company has tied up with DAB Pumps, made by Italy's DWT, a Grundfos Group company. DAB makes pumps with quality plastic parts and they are more durable than most other similar products in India. These pumps are positioned for the mid-size segment and have got a favourable response. "We think that in two years sales of the DAB range will contribute 50 per cent or even more of our sales," says Chandra Sekaran. DAB Pumps will be sold as a separate brand and will be marketed by Grundfos through its network.
This could lead to other challenges as well."If a player in the premium segment wants to tap the wider mass segment, it has to clearly define its strategy. A mass market approach can hurt the 'premium sheen' and make the brand look more down-to-earth. The balancing act will be difficult,'' says Chirag Rathi, a programme manager at consultancy firm Frost and Sullivan.
Ranganath is aware that the future will not be a cakewalk. "We will have to think out of the box if we have to garner a larger market share while maintaining our lead in the premium segment,'' he says. He is also keen on getting some research and development work done out of India, which could result in further cost improvements. "We have to lower costs. Copycats are biting at our heels and we don't want to get into a price war,'' Ranganath says.
And if there is one market that has tested Grundfos's adherence to its core value, it is India. The Indian pump market, in the 1990s, was a manufacturer's worst nightmare. It was extremely fragmented, highly price sensitive, cared little for technology or brands and, on top of it, witnessed rampant violations of intellectual property rights. Over 80 per cent of sales came from scores of small players.
The structure of the pump industry and its unorganised nature spooked Grundfos so much that it refrained from entering India even though the market for pumps here was expanding at 30 per cent a year. Even attempts to get Grundfos to distribute its products in India failed. Finally in 1999, Grundfos took the plunge by setting up a small assembling unit in Chennai. It soon realised that managing this notorious market was not as difficult as it had initially feared. Eleven years later, today, its products have created a Rs 500-crore market for premium pumps, of which Grundfos controls half. Grundfos pumps start at Rs 5,000 and go up to Rs 50 lakh - representing a mark-up of two times over the nearest equivalent, especially in industrial applications. It is now present in all segments except marine pumps.
One of the earliest decisions the management took was to swim against the tide and offer products with significant energy savings and minimal servicing requirement. "We were convinced that there was a market for such products. If people did not buy them earlier, it was because they did not have a choice,'' says N.K.Ranganath, Managing Director.
But selling an expensive pump in a thrifty market proved challenging. Customers and dealers were sceptical and feared Grundfos would close shop, leaving them in the lurch. V. Venkataramanan, Grundfos India's Marketing Head, recalls how he slogged for six months without notching up a single sale. For instance, the company struggled to sell in Hyderabad despite the construction boom and its industry base.
So Grundfos went about building a distribution and servicing network at the same time. Venkataramanan made detailed presentations to prospective customers, comparing Grundfos pumps with other brands, to establish their superiority on energy efficiency, payback time, technology and durability. He installed pumps free on a trial basis for three months at the premises of prospective customers.
This technique worked. Orders initially came from original equipment manufacturers, or OEMs. Thermax fitted only Grundfos pumps in its boilers; Bosch remains a loyal buyer even today. When the first full year of its operations ended, Grundfos had Rs 5 crore in turnover with just seven people on its rolls.
Ranganath also did something unusual in the industry then - he invested in the brand. Grundfos made it clear to the market that it will never compromise on price or quality. It made pumps in stainless steel and refused to opt for the cheaper and less reliable cast iron. It refrained from undercutting the competition but chose to spur demand by improving product knowledge - a value it sticks by even today. "I can touch Rs 500 crore tomorrow, but that is not our intention,'' says Venkataramanan. Slowly, customers and distributors began to understand its logic. Says Hasmukh Patel, proprietor of Ahmedabad-based Jay Pumps and a seller of pumps for 25 years: "I've dealt with many pump brands but I gradually phased out all of them to become a Grundfos distributor.'' The local pumps gave him much better margins but frequent service calls from customers ate into his time. With Grundfos, he could spend more time selling and landed several new clients. He expanded his business to three major cities in Gujarat, and got a large base of reference customers. "Grundfos pumps were maintenance-free and my business has grown since,'' he says, adding his peers have pretty much remained where they were then.
The competition, too, acknowledges Grundfos's strengths. "It is the only player to provide customised solutions,'' says an executive of Kirloskar Brothers, requesting anonymity. Kirloskar Brothers makes a wide range of pumps for the Indian market and is a key Grundfos competitor.
Once Grundfos established its brand strongly, its worst fears came true. Lookalikes began to flood the market at a third of the price. "We found that hunting them down each time was beyond us. We decided to just focus on our sales,'' says Ranganath.
 The right moves
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Having made a mark in a difficult market and after establishing a strong brand name, this reluctant entrant into the Indian pump market wants to expand its offerings. It wants a share in the Rs 3,000-crore mid-size pump market - typically, pumps starting upwards of Rs 3,000. Can Grundfos, with its rigid pricing policy and global quality standards, win over this price-conscious segment? "This segment needs different products, which are not necessarily aspirational. Pumps with good plastic parts will do but Grundfos avoids the use of plastic,'' says the Kirolskar Brothers executive. Also, energy efficiency will not cut ice with the household segment, he adds.
Agrees B. Chandra Sekaran, Business Director at Grundfos. "Talking of energy efficiency does not make sense to a retail customer who is going to use a pump for perhaps 20 minutes to four hours a day.'' So the company has tied up with DAB Pumps, made by Italy's DWT, a Grundfos Group company. DAB makes pumps with quality plastic parts and they are more durable than most other similar products in India. These pumps are positioned for the mid-size segment and have got a favourable response. "We think that in two years sales of the DAB range will contribute 50 per cent or even more of our sales," says Chandra Sekaran. DAB Pumps will be sold as a separate brand and will be marketed by Grundfos through its network.
This could lead to other challenges as well."If a player in the premium segment wants to tap the wider mass segment, it has to clearly define its strategy. A mass market approach can hurt the 'premium sheen' and make the brand look more down-to-earth. The balancing act will be difficult,'' says Chirag Rathi, a programme manager at consultancy firm Frost and Sullivan.
Ranganath is aware that the future will not be a cakewalk. "We will have to think out of the box if we have to garner a larger market share while maintaining our lead in the premium segment,'' he says. He is also keen on getting some research and development work done out of India, which could result in further cost improvements. "We have to lower costs. Copycats are biting at our heels and we don't want to get into a price war,'' Ranganath says.
