Why Lava's bottom of the pyramid business and smartphone ambitions matter

As per CMR, Lava had 23 per cent share in the feature phone market, claiming the top spot in Q2 2020. The brand is also launching entry level smartphones.

Mobile handset brand Lava is boasting its ‘Indianness’. The brand has just launched its ‘Desh ki apni Dhun’ campaign, alongside new models. Among the new launches are phones clad in saffron, white and green colours – just like the Indian Tricolour.

The brand’s clear message about its Indian origins comes at a time when there are anti-China sentiments among Indians, and the consumers are even calling for a boycott of Chinese brands.

Lava International was launched in 2009. It entered the Indian phone market at a time when the likes of Nokia, Samsung, Sony Ericsson, etc., ruled. The brand gathered steam and started drawing consumers away from the pricey Nokias and Sonys. Lava made rapid progress, launching Xolo, its smartphone sub-brand, in 2012.

It was also among the first brands in India to launch a smartphone with Google’s Android One operating system in 2015. However, the brand’s plans took a hit in the coming year. With the launch of Chinese brands, like Xiaomi, etc., (around 2016) which offered cheaper variants, Lava’s smartphone ambitions were sidelined. The brand was pushed into the feature phone segment.

Among feature phones, it competes with Nokia, Samsung, Micromax and Itel (Chinese brand). As per CyberMedia Research (CMR), Lava had 23 per cent share in the feature phone market, claiming the top spot in Q2 2020. The brand doubled its share from 12 per cent in Q2 2019 to 23 per cent in Q2 2020. Reportedly, 550 million Indians use feature phones. On the other hand, India has over 450 million smartphone users.

Mugdh Rajit, head of marketing, Lava International, tells afaqs! that the brand was doing great till it was competing with the likes of Samsung and Nokia, along with other Indian brands. He says that Lava’s efforts to set up strong foundations, like sales and distribution, and creating a local product, was driving its growth.

“The Chinese brands could sell cheaper (handsets) because they came from a well-established ecosystem. The entire ecosystem, from components to suppliers to designers, etc., was all there in China. Due to the very high volumes, they also had a cost benefit. It became very difficult to match such an advantage,” says Rajit.

While the brand is gradually building presence in the smartphone segment, it is still considering the bottom of the (handset user) pyramid as its target audience. Unlike the average smartphone user, a user from the bottom of the pyramid is often illiterate, doesn’t live in top cities, economically weaker, and is far from being digital savvy. None of the major Chinese smartphone brands cater to the segment. Lava’s feature phone portfolio ranges from Rs 899 to Rs 2,300.

“Other industries, like FMCG, have product and pricing categories for rural markets and the lower economic strata. Unfortunately, major handset companies have concentrated little on the bottom of the pyramid and most of the interest has gone to the top. It is also an understudied segment of consumers. It is a bigger challenge because none of us belong to that segment,” Rajit says.

Instead of outsourcing research, Lava uses its in-house research team to mine insights, both pre and post purchase. The brand also has fixed customer interactions for its management – from the top leadership to the customer service teams.

Lava’s new feature phone Pulse has a built in heart rate and blood pressure monitor. Rajit says that the launch was based on the insight that customers were spending money separately on HR/BP monitors.

He says that quality wise, the competition in the feature phone segment is primarily from Nokia and Samsung. “Also, this consumer segment is very price and quality conscious. They won’t pay for a feature which is not relevant. The product has to be of good quality. Just imagine a daily wage earner wasting a day’s time while visiting a service centre.”

The pricing is mostly influenced by competition and then the affordability factors of users. The prices have been kept significantly lower than Nokia or Samsung. “They charge a higher price of the brand identity. We are placed in a higher position than the rest of the brands in the segment.”

Elaborating on the user segments, Rajit says that the average feature phone user primarily looks for a good (big) battery and the sound level of the speakers. “Music is something that they listen to on their phone speakers. The next bit of desire is a large screen.”

Now, a new entry-level smartphone user is similar to the feature phone user and doesn’t know much about smartphones. Once the new smartphone user starts interacting with the phone, he desires more from it in terms of performance, etc.

The entry-level smartphone user who got a taste for video, now has one key aspiration, a bigger screen. “We have seen a lot of Jio Phone users migrating to our entry-level smartphones. Users who had access to a lot of data, but were stuck with a smaller screen.”

Next, the average Indian consumer owns a smartphone in the Rs 10,000 to Rs 12,000 range. This particular user is digitally enabled, i.e., he looks for objective information to make a decision and know what spec does what. The awareness level is higher.

Lava has witnessed an increased amount of interest in its entry-level smartphones due to the COVID-induced spike in online classes. The brand witnessed incremental change in its feature phone sales in the last three months. “It is because of two reasons – a pent-up demand and the anti-China sentiment. The sentiment will fade away. Only a good product can survive in the long run,” Rajit says.

But Lava’s claims to its ‘Indianness’ was questioned based on the Chinese origins of the internal components used in its devices.

Rajit’s response, “Every phone out there has a ‘made in China’ part. It’s not about the components, or your shareholders, or promoters. It is about ownership. We are the only phone brand that has a design setup in India. We have the capability to build a phone from scratch in the country. Smartphone design, as an ecosystem, does not exist in India. It is also very difficult to find designers in India.”

The space has seen some interventions from the government supporting local manufacturing in the last few years. The latest is the PLI (production-linked incentive) driven by the government’s push for ‘Atmanirbhar Bharat’ and ‘Vocal for Local’.

“A PLI of six per cent is good enough for an Indian player to use that amount in marketing, build better products and invest in manufacturing. A level playing field would help local brands to go global,” says Rajit.

Breaking down the market further, Rajit says, as over 50 per cent of Indians are still using feature phones. "Living in India we are unable to see Bharat, but Bharat is being served by feature phones. Even in smartphones, majority of volume is below the Rs 15,000 price point.”

“While we are doing alright in terms of feature phones, we are aware of the shift to smartphones. The smartphone portfolio is really important for the future. We launched two models in the last one month and plan to launch more by Diwali. With the infrastructure and government support in place, we would like to build on this and be a part of the smartphone conversation.”

Rajit stresses that Lava is focused on the bottom of the pyramid. “We will be focused on the sub Rs 15,000 price segment. That way, we will be playing in almost 75 per cent of the market.” The brand's current smartphone portfolio ranges between Rs 5,000 to Rs 15,000.

We asked if the brand’s association with the lower price point was posing as a challenge to its smartphone plans. Rajit denies that there is any serious issue there. He, however, maintains that the brand might require some image management.

“We thought that there would be a brand problem. But it isn’t so. We tested a Rs 18,000 phone some time back and realised that if we have a good product at a good price, the brand isn’t really a problem.”

Apart from feature phones, Lava is also trying to create differentiation in entry level smartphones basis specific consumer requirements. The brand will be announcing three new models with specific features later this year.

“The innovation in smartphones is always dedicated to the top-end. But, the bottom of the pyramid also seeks a lot of innovations,” says Rajit.

The brand has presence in markets like Nepal, Bangladesh, Indonesia, Thailand, Middle East and Africa. It also has plans to explore Central and Western Europe in the next couple of years. This will not only draw export benefits from the government, but also help build volumes. It will, in turn, help Lava reduce its prices. The brand plans to sell 20 million feature phones in India this year.

Lava is also under pressure to quickly advance its smartphone business. Among the latest developments in the telecom sector is Jio owner Mukesh Ambani’s calls for a 2G-free India. Most feature phones are powered by 2G networks.

“The migration to smartphone is set to happen. We have been seeing the trend in other countries as well. Our feature phone market is ‘de-growing’ slowly. The pace of the migration will depend on affordability of smartphones. We have been preparing for this, and right now, we are launching only entry-level phones,” says Rajit.

With over 1.2 lakh offline retailers in India, Lava is an offline first brand. E-commerce accounts for only 3-4 per cent of its annual sales. The products are serviced via a national network of 800 service centres. The brand also does not participate in online sales to maintain an offline-online price parity.

“We are offline focused, and the offline seller must make a profit. He may see a pull for your brand, he will never push it without profit. The trade recommendation needs the profit. Also, the feature phone customer TG is not an online e-commerce consumer,” Rajit signs off.