Electrolux 2006 Annual Report Download - page 34

We have transformed the
fl o o r-care business...
A changing market
Globalization had dramatic consequences in the market for fl oor-
care products at the end of the 1990s. Low entry barriers, limited
transportation costs and relatively simple production resulted in a
strong increase in competition from producers in low-cost countries.
This in turn led to comprehensive downward pressure on prices
and rapidly declining profi ts for producers in the West. Production
was either discontinued or moved to Eastern Europe, Asia or Latin
America. Electrolux, with production at own plants in Europe and
the US, was hard hit. A vigorous transformation of operations was
needed. In 1998-2004, Electrolux decided that plants in the US, Italy,
Germany and Sweden would be closed. Today, about 75 percent
of the industry’s production of vacuum cleaners for consumers is
in low-cost countries, while the corresponding fi gure for Electrolux
is 100 percent. The Group operates plants in Mexico, Brazil and
1998
Low-cost
countries
High cost
countries
2006 Initital cost
base
Transfer of Electrolux
production
Cost structure
All production
moved to Hungary
Labor
cost
Material
cost
35%90% 100%
10%
12%
65% 88%
–23%
Focus on product development and marketing – Ergorapido
...now we continue with core appliances
In recent years there has been a strong
increase in the proportion of successful
launches of Electrolux vacuum clean-
ers. Half of the cleaners sold today were
launched during the past two years, and
more than 40 percent are sold under
the Electrolux brand, including double-
branding.
In the second half of 2006, profi tabil-
ity rose to the same level as before the
slump in 2002. Lower production costs,
a global process for both product devel-
opment and marketing, and investments
in the Electrolux brand have payed off.
On the basis of the successful trans-
formation of the fl oor-care operation,
the Group is now implementing a similar
strategy for core appliances.
Production is being moved to low-cost
countries. The current restructuring pro-
IDENTIFICATION
OF CONSUMER
OPPORTUNITIES
PRIMARY
DEVELOP-
MENT
CONCEPT
DEVELOP-
MENT
PRODUCT
DEVELOP-
MENT
COMMERCIAL
LAUNCH
PREP-ARATION
STRATEGIC
MARKET PLAN
A. Comprehensive surveys showed a
change in consumer behavior, clean-
ing a little every day instead of clean-
ing the entire home once a week.
The handheld vacuum cleaners on
the market were underpowered, too
noisy, broke down frequently and had
fi l t ers that were diffi cult to clean.
B. A design process was started in Swe-
den, production facilities in China were
surveyed, and work on developing a pack-
aging design was started.
C. After a study of 1,500 households, a proto-
type was created. Consumer price sensitiv-
ity was studied.
D. The new product was named Ergo-
rapido and was launched in more than
40 markets. It was priced about 40 per-
cent higher than conventional handheld
vacuum cleaners, and at the same time
the market position of Electrolux was
strengthened. Ergorapido was an over-
night suc-cess, despite the high price.
LAUNCH OF
ERGORAPIDO
The market for fl oor-care products went through rapid changes at the end of the 1990s. Severe
competition, low profi t ability and the growing strength of dealers generated intensive pressure for
change. This led to a vigorous transformation of the Group’s operations in this product category.
strategy / new Electrolux
gram involves moving half of production
in high-cost countries.
When this program is completed in
2009, about 60 percent of the Group’s
production will be located in low-cost
countries. Manufacture of large, com-
plex products will remain close to con-
sumers in order to avoid excessive
transportation costs. On the other hand,
the share of components purchased
RANGE MANAGEMENT
PHASE-OUT
30