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’. One example is the Electrolux branded built-in kitchen range in Europe, link to Case Story.
- Mix improvements have significantly contributed to operating income in recent years, demonstrating that Electrolux product innovations are in demand.
- During the past three years, mix improvements from innovation, brand and aftermarket sales growth have in total contributed more than SEK 3bn 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 segment and market positions.
- 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 provides 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.
- Energy and resource efficient products drive consumer demand in a market increasingly interested in sustainability.
- At least one-third of product development is related to sustainability, including energy and water efficiency.
Targeted R&D – a competitive advantage
Taste: Cookers, hobs, ovens, hoods, microwave ovens, refrigerators and freezers.
Care: Washing machines, tumble dryers and dishwashers.
Wellbeing: Vacuum cleaners, air-conditioning equipment, water heaters, heat pumps, small domestic appliances and accessories.
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 4.55 in 2020.
- A consumer-centric innovation process is critical.
- To understand real user needs, consumers are our starting point to define business opportunities.
- Decisions are made based on consumer data.
- Users are involved as co-creators.
- Our product R&D is based on a long history of consumer insight through surveys, consumer data, home visits and user experience labs.
- Interacting with and observing consumers is critical to ensure winning products.
- Daily monitoring through company own tools for gathering online consumer comments about Electrolux and competitor products – which are analyzed and fed into the design process.
- Testing in user experience labs and through Virtual Reality tools allows us to test early concepts and expand testing to more countries.
- User testing in a virtual world increases speed and lowers costs.
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.
- Leveraging our consumer experience expertise to:
- Accelerate product innovation and aftermarket services.
- Translate experience innovation into brand storytelling and product design.
- Strengthen consumer relationships through repeat purchases and aftermarket sales.
Digitalization creates opportunities and new routes to market
- Consumers use digital tools to research and purchase appliances at accelerating rates, which gives Electrolux better opportunity to tailor offers to consumers’ real needs and desires through better use of data analytics and digital marketing.
- Our strong focus on consumer experience innovation improves consumers’ star ratings of our products, which in turn drives higher consideration for our more innovative products.
- B2B e-commerce allow us to a larger extent interact directly with the consumers and tell our story.
- Targeted investment in marketing and brand building to drive sales.
- Provide strong, differentiated ranges with clear consumer benefits to help consumers to navigate and find the right product.
- D2C e-commerce targeting our most loyal consumers with a differentiated offering.
- A complement to existing B2B sales.
- Currently a small part of total sales.
- Differentiated value proposition to leverage bundling – which includes services as well as products.
- Active in more than ten countries in 2020, mainly in Latin America and Europe. Continue roll-out in 2021 in several markets in Europe and Asia-Pacific.
- 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 & GFK sell-out data 2014. Countries included Frigidaire (NA), AEG (BE, DE, ES, UK), Electrolux (FR, IT, PL, RU, SE).
2 Prophet Brand Relevance Index 2017 – 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 gross profit and receive the vast majority of investments in marketing, design and R&D.
- 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 2020, the sharpening of brands has resulted in an increased/maintained brand preference (top 3) in the vast majority of Electrolux markets.
A sustainability leader – a competitive advantage for growth
- Consumers, retailers and authorities increasingly prioritize sustainability.
- ~2/3 of global consumers are willing to pay more for sustainable goods1.
- ~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 heartof our strategy ever since.
- The Group has received several recognitions for its sustainability work and was also in 2020 included in the Dow Jones Sustainability World Index (DJSI World).
- Sustainability is a key brand attribute for the Electrolux brand.
- Our program for Better Living includes sustainability promises in key areas where Electrolux can make a difference for the better. 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 promises.
1) Eco Ethical Report (June 6, 2019).
2) Global WebIndex (GWI), Coronavirus research (July 2020).
Sustanability 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. Over 40% of corporate reputation is built on CSR dimensions3.
3) Source: Rep Track Pulse, the largest reputation study with over 30,000 ratings measuring over 200 companies.
Sustainable products are in demand and more profitable
- Electrolux most energy and water efficient products accounted for 26% of total units sold and 36% of gross profit in 2020. 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 benefit and consumers are willing to pay a higher price.
- Sales of the top three energy label classes of home appliances have tripled in the past ten years in Europe. Top-rated washing machines have the most significant increase, from 2% to 68% of all purchases1).
- Resource-efficient products are essential for sales growth in emerging markets, e.g. in water and energy scarce regions.
1) Source: Financial Times, (November 7, 2019).
Our most resource-efficent products have a higher margin
*Percent from total volume in 2020 for Electrolux Group.
**Percent from gross profit in 2020 for Electrolux Group.
Note: Resource efficient products that meet strictly defined technical specifications and conform to local standards for high efficiency.
Greater resource efficiency is a priority to further strengthen competitiveness
- In products – to strengthen our offering.
- 12% more recycled plastic used in products 2020 vs. 2015.
- In operations – to reduce operational and manufacturing costs and risk exposure.
- SEK 700m reduced annual energy costs 2020 vs. 2005.
- 80% less absolute CO2 emissions in operations vs. 2005.
- 45% less energy used per manufactured product 2020 vs. 2005.
- 52% of the total energy use in Group operations came from renewable sources in 2020.
- 42% improved water efficiency in operations 2020 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:
- -80% CO2 reduction by 2025 vs. 2015.
- Climate neutral operations by 2030.
- Targets for CO2 impact from product use:
- -25% CO2 reduction by 2025 vs. 2015.
- 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.
- Read more about the progress of these targets
- The global re-engineering investments contribute to more efficient operations and products, read more.
- The long-term incentive program for senior managers launched in 2020 includes a substantial climate impact reduction element
Electrolux climate neutrality roadmap
1) Science based target (SBT) Scopte 1 & Scope 2 – 80% reduction and Scope 3 – 25% reduction by 2025
2) Company target, Climate neutral operations (Scope 1 + Scope 2 = 0) by 2030
3) United Nations Global Compact Business ambition for 1.5 °C – climate neutral value chain by 2050
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
Potential to capture largely untapped aftermarket business
- The aim is to increase the proportion of Group sales in the high-margin aftermarket segment to ~10% by 2025. In 2020 aftermarket sales increased to ~7% of sales.
- The aftermarket for consumer products is large and highly fragmented, and manufacturers have limited direct access to consumers.
- We are strengthening our service product offering through extended warranties, fixed price repair model and by establishing an in-house, digitally supported sales force.
- We are increasing direct consumer contact and promoting consumer loyalty – by establishing a digital consumer service interface, consumer relationship management systems and connected products.
- In North America, Electrolux has significantly increased its water filter aftermarket sales and in Europe services such as fixed price repair have been launched
Large installed base and strong quality focus are key strengths
- ~400 million products served by Electrolux, provides huge aftermarket sales potential.
- Product reliability is important when buying appliances, with the Service Call Rate at a record low level – 2.5% in 2020 vs 5.1% in 2015.
Emerging markets represent a potential 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 share similar needs to 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.
Leveraging global scale, local knowledge and the Electrolux brand to capture the emerging mass-premium market
- We are increasingly leveraging our global scale to support our local market knowledge.
- We have established global product architectures/platforms for refrigeration, laundry, dish care and surface 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 are developing specific emerging market product offerings as well as innovation for taste, care and wellbeing experiences.
- We are strengthening our direct to consumers 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.
- Centralizing manufacturing around the Electrolux facility in Rayong, Thailand, as a manufacturing hub for emerging markets.
- 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.
Capturing the emerging mass-premium market