1) What is my goal? - Revenue
2)Lets define what smart fridge is- 1) Ability to connect with wifi 2) Ability to give an update about things that are stored in fridge 3) Performs voice commands 4) Ability to integrate with another smart device/Play songs 5)Ability to shop(replenish orders) using the internet to maintain inventory. 6)auto detects food and control temperature on its own. These are the above features that I can think of. Let’s now dive into a business strategy model to decide whether LG should launch and then if the answer is Yes, we will highlight on some high-level next steps:
As our exercise is to understand industry attractiveness and likely profitability, I would like to use Porter's Five forces as 5 pillars to analyze our situation before we summarize my recommendation on launch.
1) Competitive Rivalry:
a. What is the competitive market looks like? - LG has a high market share in household and B2B market for all kitchen appliances and electronics. Also, I think being a market leader, it also has control over B2B customers and ties ups, supplier of any electronic parts. Further, I believe there is no smart fridges available which is capable of doing the above tasks that we have defined earlier. So the if LG launches I think LG may get advantage on following:
i. No aggressive price cuts- no competitive rivalry as such
ii. No problem of supplier
iii. No big budget for gorilla marketing-market isn’t saturated with Smart fridge
2) Supplier Power: The more we can choose from the better we have advantage. The more power LG has, the less challenge when it comes to supplier increasing price of product. One thing to consider, while making the smart device, how many tech companies should LG needs to work with like Google Search, Alexa shopping, Voice commands, etc. I think LG has a good reputation of strong electronics company and I don’t see why will Google/Amazon will not tie up with LG for integrations. It’s a Win-win situation.
a. Win-win with supplier, many companies to choose from and hopefully willing to partner as they may get more ingress points for their services.
3) Buyer Power: Now here I would like to do a quick deep dive on are we focusing on 1) households 2) B2B (Restaurants/Grocery services). A smaller and more powerful customer base means that each customer has more power to negotiate for lower prices and better deals. A company that has many, smaller, independent customers will have an easier time charging higher prices to increase profitability. So I would like to focus on household and then extend the same concept to B2B later.
a. Big customer base and low power of customer to negotiate
b. Later extend to B2B, also a huge market segment to expand to
4) Threat of substitute: I don’t think smart fridge exist at this point, there are some fridge which does a few work but what we have explained in our smart fridge definitions.
a. Advantage of no substitute in the market
5) Threat of new entry: LG’s position can be affected by people's ability to enter your market.Now, we want to talk about market regulations and technology. I think LG has the skillset to build smart devices as it has a good footprint in building smart phones. I think other competitors who are good electronics company may build a good product or appliances but do not have edge over smart devices/technology than LG. Lastly, there is no such regulations that I think we should be concerned for. So two points here:
a. LG has the skillset to build smart devices and other companies may not have the edge at this moment
b. No regulations relevant threats
Considering all the above, I think LG should launch a smart device and should take the advantage of early adopters and innovators (~15%) and enter into Household market first and then move to B2B segment. LG should also consider upgrade options for existing fridge owner as it may lower additional acquisition cost for marketing. Further, LG should consider adopting a “Customer value-based pricing” to include in launch strategy.