Innovation is key to drive margin expansion
- Product innovation, built on deep consumer insight in the specific consumer audiences for our three main brands, has resulted in products with enhanced consumer benefits. These products command a higher price and drive margin expansion – known as ‘mix improvement’.
- Mix improvements have significantly contributed to operating income in recent years, demonstrating that Electrolux product innovations are in demand.
- In recent years, mix improvements have contributed an average of SEK 1bn to operating income.
- Our most resource-efficient products also drive profitability – enjoying higher margins than other products on average since the 1990s.
- Streamlining of the product portfolio has resulted in fewer product variants – which has reduced cost and increased sales.
- Consistent push for innovation has resulted in leading positions both within segments and in the market.
- Europe – strong position in premium segments for built-in kitchen and laundry.
- Southeast Asia – strong position in front-load washing machines.
- Latin America – leading position in innovation within core categories.
Three clear innovation areas – Taste, Care & Wellbeing
- Targeted R&D gives us a competitive advantage – optimizing our offering and shortening the time to market.
- Electrolux focuses its R&D on features that allow a price premium i.e. products that provide great consumer experiences such as:
- great tasting food with the right taste and texture, healthy, fresh and nutritious. Inspired by new culinary techniques, while also reducing food waste.
- care for clothes so they remain like new for longer, and ready to wear by holding their size and shape, while using minimal water and energy.
- healthy wellbeing in the home by using appliances with a visual appeal, while creating a healthy environment.
- On average, 3% of sales have been invested in focused R&D efforts over the last five years.
- Resource-efficient products drive consumer demand in a market increasingly interested in sustainability.
- Product efficiency is embedded in our R&D processes through defined targets. Read about our food-waste saving and energy efficient fridges and freezers, highlighting the company’s food preservation and recyclability innovations at www.electroluxgroup.com/energy-efficient-refrigeration/
Deep consumer insight – a competitive advantage in an age of greater consumer awareness
- Deep consumer insight increases our success rate and return on investment. The average consumer star rating for the Group was 4.64 out of 5 in 2022.
- Consumer needs are our starting point to define business opportunities.
- A consumer-centric innovation process is critical.
- Electrolux R&D process is based on a long history of consumer insight built on surveys, consumer data, home visits, user experience labs combined with daily monitoring of consumer reviews of both Electrolux and competitors’ offering.
- In recent years, new digital tools for testing products have accelerated the development process and reduced costs.
Increasing return through consumer experience design
The development of the intuitive user interface of the Quick Select dishwasher is based on consumer insights. Instead of the user having to make difficult choices between programs, the environmental indicator effortlessly provides an optimal balance between a sustainable choice and washing time.
Increased consumer experience focus strengthens our offering
- Combining functions for R&D, marketing, design, digital consumer solutions and sustainability ensures a consumer experience focus throughout the entire product development phase:
- Accelerate product innovation and aftermarket services.
- Translate experience innovation into brand storytelling and product design.
- Strengthen consumer relationships through repeat purchases and aftermarket sales.
- In 2022, Electrolux deployed a new Commercial & Consumer Journey Organization. Through this change, we can leverage our global scale to improve the purchase experience, how we onboard and connect new consumers, and how we support people in using their products in the best and most sustainable way.
Digitalization creates opportunities and new routes to market
- Consumers are increasingly using digital tools to find and buy appliances. Through the use of data analytics and digital marketing, Electrolux is well positioned to tailor offers that meet consumers’ needs.
- Our strong focus on innovation for the consumer experience improves consumers’ star ratings of our products, which in turn makes our more innovative products more desirable.
- B2B e-commerce allows us to a larger extent interact directly with the consumers and tell our story.
- Targeted investment in marketing and brand building is driving sales.
- Provides strong, differentiated information with clear consumer benefits to help consumers to find the right product.
- D2C e-commerce targets our most loyal consumers with a differentiated offering.
- A complement to existing B2B sales, business models mutually reinforcing each other.
- Currently a small part of total sales, but with strong growth the last three years.
- Differentiated value proposition to leverage bundling, including services as well as products.
- Already active in nearly 40 countries and scaling up the business in many of those markets.
- Largest presence in Latin America and Europe, with ongoing rollout in Asia-Pacific, Middle East and Africa, and North America.
- We are continuing to expand our range of connected products to deliver great consumer experiences based on a scalable global IoT platform and with strong partnerships.
Strong brands drive profitable growth
- Strong brands grow faster, are more profitable and more resilient during crisis.
- 75% of a brand’s value share performance can be explained by being one of the top 3 brands in the minds of the consumers¹).
- 1.3X higher growth rate of most relevant brands vs. S&P 500 average²).
- 9X faster recovery for strong brands vs. global average during the 2008-09 financial crisis³).
- Innovation has resulted in growth and higher profit for our premium brands Electrolux and AEG.
1) Value market share regressed against top 3 and Spontaneous Awareness (Brand Scorecard 2014-2016 & GFK sell-out data 2014-2017. Countries included Frigidaire (NA), AEG (BE, DE, ES, UK), Electrolux (FR, IT, PL, RU, SE).
2) Prophet Brand Relevance Index 2022 – 10 years CAGR of most relevant brands vs. S&P 500 average.
3) Kantar Research (2019).
Three well-established brands with strong and focused brand propositions
- High brand awareness is built on 100-year track record of innovation.
- The three main brands – Electrolux, AEG and Frigidaire – represent ~80% of total Group sales and receive the vast majority of investments in consumer experience through marketing, design and innovation.
- The main brands have clear target consumer positions where they can grow profitably and with potential to attract a larger audience.
- Distinctive target consumers:
- The typical Electrolux consumer is someone who actively drives change for the better and with a positive outlook on the future. They are open for new experiences and want progressive, sustainable premium brands that can help them evolve in their daily life.
- For the AEG consumer, it is all about innovation, performance and premiumness, while acting responsibly. This consumer strives to improve and has very high expectations on brands to support their lifestyle.
- The Frigidaire consumer represents middle American core families with family life and friends in focus. The consumer seeks practical solutions and wants to improve their local community.
- In the past year, we have continued to increase brand desirability by consistent and relevant communication, focused investment and attractive innovations, which has resulted in continued growth in brand preference (top 3) in a majority of Electrolux markets.
A sustainability leader – a competitive advantage for growth
- Consumers, retailers and authorities increasingly prioritize sustainability.
- Nearly 60% of affluent Americans are willing to pay more for environmentally friendly products¹).
- ~3/4 of global consumers believe sustainability is more important than before the coronavirus pandemic²).
- We have first mover advantage, with a clear aim to continue to be the industry sustainability pioneer.
- In the 1990s, we were the first appliance company to focus on sustainability – which has been at the heart of our strategy ever since.
- The Group has received several recognitions for its sustainability work and was also in 2022 included in the Dow Jones Sustainability World Index (DJSI World).
- Our main brands, Electrolux, AEG and Frigidaire, all share the same ambition to offer solutions that enable more sustainable living.
- The framework For the Better 2030 includes key sustainability areas where Electrolux can make a difference. They cover all the stages in our value chain – from R&D and suppliers, through our own operations and consumer use, to the end of life of our products – where we have an impact. Read more about Electrolux key sustainability areas, goals and results at www.electroluxgroup.com/en/sustainability
1) Ipsos (2022). Who are the affluent environmentalists? An Ipsos point of View.
2) Global WebIndex (GWI) (2020). Coronavirus research. Survey in 20 countries.
Sustainability is a key business driver
Our leading position in sustainability is growing sales, lowering costs and building trust. Strong stakeholder support can only be achieved with a strong sustainability reputation. A large proportion of corporate reputation is built on ESG dimensions3).
3) Source: www.reptrak.com
Sustainable products are in demand and more profitable
- Electrolux most energy and water efficient products accounted for 24% of total units sold and 39% of gross profit in 2022. The most resource-efficient products have consistently had a higher margin in recent years.
- More sustainable products, with lower energy and water use, offer greater consumer benefits. Read about our new range of washing machines and tumble dryers that automatically adjust time, water and energy usage at www.electroluxgroup.com/cutting-edge-water-and-energy-saving-laundry-range/
- Resource-efficient products are essential for sales growth in emerging markets, e.g. in water and energy scarce regions.
- Report on EU Taxonomy available in Annual Report 2022.
Our most resource-efficent products have a higher margin
*Percent from total volume in 2022 for Electrolux Group.
**Percent from gross profit in 2022 for Electrolux Group.
Note: Resource-efficient products that meet strictly defined technical specifications and conform to local standards for high efficiency. Since 1997, Electrolux has internally tracked the most resource-efficient products sold in the Group and each year the criteria have become more stringent.
Greater resource efficiency is a priority to further strengthen competitiveness
- In products – to strengthen our offering.
- >25% less CO2 emissions for sold products 2022 vs 2015 (Scope 3).
- In operations – to reduce operational and manufacturing costs and risk exposure.
- 41% less energy used per manufactured product 2022 vs. 2005.
- 59% of the total energy use in Group operations came from renewable sources in 2022.
- 39% improved water efficiency in operations 2022 vs. 2015.
Electrolux Climate Neutrality Roadmap 2050
- The overall target is a climate neutral value chain by 2050.
- Electrolux has set science-based climate targets (SBT) aligned with the 2015 Paris Climate Agreement to keep the global temperature rise below 1.5° C.
- Targets for CO2 impact from operations (Scope 1 and 2):
- -80% CO2 reduction by 2025 vs. 2015. In 2022 Electrolux achieved -82%.
- Having reached our 2025 target ahead of schedule, we are reviewing our sciencebased targets going forward, raising the bar on our sustainability agenda even further.
- Climate neutral operations by 2030.
- Targets for CO2 impact from product use (Scope 3):
- -25% CO2 reduction by 2025 vs. 2015. In 2022 Electrolux reached >-25%.
- Product usage accounts for ~85% of the CO2 climate impact of an appliance*. Therefore, product efficiency is where Electrolux can make the greatest contribution to tackling climate change.
- Majority of the re-engineering investments will contribute to achieving our science-based targets.
- The long-term incentive program for senior managers since 2020 includes a substantial climate impact reduction element.
- Read more about the progress of these targets at www.electroluxgroup.com/en/sustainability.
Product usage accounts for ~85% of the CO2 climate impact of an appliance*
*Calculated as the average of eleven different appliances.
Driving corporate climate action through Science Based Targets
Harnessing the growth opportunities in the high-margin aftermarket business
- Through an expanded market scope that goes beyond the appliance purchase by focusing on the lifetime value, we broaden our business potential and can increase consumer loyalty to our brands.
- The target is to increase the share of Group sales in the aftermarket segment to ~10% by 2025 with a long-term ambition to reach ~15% of Group sales. In 2022, aftermarket accounted for ~7% of the Group’s sales, compared to ~5% in 2018.
- The aftermarket business is an important profit pool with a profit margin that is at least 4 times higher than appliance sales.
- Increased consumer interactions via aftermarket sales create valuable insights that we feed into our innovation process to further improve the appliance offering. Recurring purchases is the ultimate proof of success, benefitting both us and our retail partners.
- We are leveraging fundamental consumer trends of omnichannel presence, direct interaction with brands, and expected personalization to increase our direct consumer interactions. Through touchpoints such as product registration, direct-to-consumer sales, and connected appliances, we can establish an instant direct consumer relationship, benefitting aftermarket sales as well as brand loyalty.
- To learn more about how we are harnessing the growth opportunities within aftermarket, please look at the on-demand recording from the 2023 Capital Markets Update: www.electroluxgroup.com/cmu
Targeting four areas
- Consumables and accessories
- The main growth potential lies in custom-made, captive consumables and accessories for our appliances where we can leverage our branded advantages, further enhance the consumer experience, increase personalization, and ensure optimal product performance and lifespan.
- We focus on the full product lifetime and consumer journey already in the innovation process, using our deep understanding of consumer needs and unique consumer data insights as key input.
- Subscription services for consumables provide recurring revenue streams and make it easier to order items such as filters and dust bags.
- In Business Area North America, the water filter business has reached an average of 10% annual sales growth over the last five years. Key success factors have been raised awareness of the need to change filters regularly to ensure water quality and optimal taste, built-in reminders of when to change filter, and ensuring a smooth ordering process. In addition, a campaign highlighting the importance of genuine filters increased the conversion rate in our D2C channel by 10%.
- Out-of-warranty repairs
- Service and repairs provide opportunities to further enhance the consumer experience, build brand loyalty and facilitate further consumer direct interactions.
- Closing the gap between consumer awareness of the manufacturer as a service provider and our market share provides an important growth opportunity. Key to driving increased conversion is a continuous focus on search engine optimization as well as solutions online and through call centers to guide consumers to entrust us with repairs.
- The initial focus has been on Europe with initiatives such as fixed-price repair models, resulting in a sales CAGR of ~15 % since 2018. Expanding learnings to other regions provides significant growth opportunities.
- A flexible business model for access to service technicians, based on advanced analyses of our installed base of appliances, ensures cost-efficient and high-quality deliveries.
- In strategic markets with high population density, in-house service personnel are used predominantly.
- To ensure coverage in the more than 120 markets where Electrolux sells its products, a network of dedicated independent service providers and multi-brand independent service providers is used.
- We have through recent acquisitions strengthened our position in service and repair in key European markets and Australia.
- Spare parts
- Opportunities to grow the spare parts business both on the DIY market and as part of out-of-warranty repairs.
- Using branded spare parts and highlighting the importance of genuine parts to the consumers boost growth and profitability potential.
- Understanding the consumers’ considerations in a repair situation is our base for optimal value-based pricing of spare parts to drive profitable growth.
- Modularization is a key lever for agility and profitability while meeting rapidly evolving regulations.
- Extended Warranty
- More frequent consumer direct interaction opens possibilities to present our offerings to consumers and grow our penetration rate of extended warranty. Main points of contact include D2C sales, product registration, and usage of our repair services.
- Subscription solutions increase conversion rates by lowering barriers to purchase, illustrated by high growth in two subscription-based offerings available in Europe since 2021:
- Care: an all-inclusive monthly subscription that consumers can cancel at any time. It protects from all faults and damages and the appliance is replaced if not repairable.
- Repair & Care: an initial repair at a fixed price paid in 12 monthly installments, followed by the Care offering.
Growth levers to reach the 10% ambition by 2025
Note: Figures show % of aftermarket net sales vs total Electrolux Group. 2022 is actual figure and 2025 is an ambition.
Information provided at the 2023 Capital Markets Update: www.electroluxgroup.com/cmu
Consumables and accessories an integrated part of the appliance R&D process
Starting point for our innovation is understanding the consumers’ needs, their pain points and how to remove friction. Press play to see how we, already in the early R&D phase focus on product lifetime and the consumer journey to ensure captive fit and patented solutions.
Aftermarket growth opportunities
Chart shows the market split of appliance breakdowns during a year.
Key strengths to leverage the aftermarket
- An installed base of ~350 million major appliances offers a large potential for aftermarket sales.
- Deep consumer insights and strong expertise in appliances to develop tailored offerings for consumables and accessories as well as for service, repairs and extended warranty solutions.
- Focus on lifetime value and complete consumer journey already in the innovation phase.
- Well-established brands with high brand recognition.
Emerging markets represent a universe of >6 billion consumers
- The growing global middle class has increasing purchasing power and is spending more on higher quality products for their homes.
- Consumers in emerging markets have similar needs as Western consumers as they become more affluent and move to more urban living spaces.
- Potential to create new channels and urban distribution as well as increase online sales.
Strengthening existing emerging markets and entering selected new markets
- Capturing further growth in emerging markets is key to positioning Electrolux for future success.
- Differentiated approaches for entering various sub-regions in emerging markets.
- Prioritizing common development resources and investments to enable emerging market growth.
Leveraging global scale, local knowledge and the Electrolux brand to capture the emerging mass-premium market
- We are increasingly leveraging our global scale to complement our local market knowledge and efficiently drive profitable growth.
- We have established global product architectures/platforms for refrigeration, laundry, dish care and cooking. This increases the pace and agility of R&D, lowers product cost and delivers economies of scale.
- The ‘Asia-Pacific, Middle East and Africa’ and ‘Latin America’ business areas develop tailored emerging market offerings with innovations for taste, care and wellbeing consumer experiences.
- We are strengthening our D2C offering in Latin America and Southeast Asia.
- Being both global and local ensures that our emerging market offering is better adapted to changing consumer demands, and also product development programs that primarily aim at Western markets take emerging market needs into account.
- Driving scale at the Electrolux facility in Rayong, Thailand, as a manufacturing hub for emerging markets, which can be complemented with additional hubs as we execute on the roadmap.
- Primarily building on the well-established Electrolux brand that is closely associated with sustainability and Swedish values.
- Resource-efficient products are key for sales growth in emerging markets, e.g. in water and energy scarce regions.
- Targeted approach in China with the AEG brand.
Capturing the emerging mass-premium market