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Philips’ Blanford Sees Progress In Turnaround

Just shy of two years at the helm of Philips Consumer Electronics North America, company president Larry Blanford is getting results.

The U.S. operation, which had been chronically losing money and reportedly faced closure if an end to the hemorrhaging was not in sight, is beginning a turnaround, according to its corporate parent.

Last month, the Amsterdam-based parent Royal Philips declared U.S. CE operations recorded “a 142 percent sales growth in up-market retailers, and 55 percent year-on-year growth in the branded TV segment, both cases reflecting the successful development of Philips as a premium brand.”

This year the company plans to take that success further, as it expands its positions in digital and flat-panel TV, DVD recorders, TV/DVD combo televisions, Internet radio systems and unusual home theater-in-a-box solutions.

Last month, Blanford sat down with TWICE at Philips’ offices here to discuss the company’s accomplishments in 2002, and to review the roadmap for the year ahead.

What was the past year like for your company?

In terms of where we’ve been and where we are, we made dramatic progress in 2002. But it’s all relative — we are still losing money.

We are very optimistic, however. Our go-to-market strategy has been very successful. That includes our brand positioning, our product roadmaps, and our channel roadmaps. On the operational side, we made a lot of improvements in supply chain management, our new product introduction process and improvements in forecasting.

We recently announced that in North American consumer electronics, we will have losses from last year. But we have actually quadrupled our turns, which reflects dramatic improvement in the way we are managing our inventories, with significant improvement in customer service.

While sales overall are flat, there are a lot of dynamics underneath that. For instance, we walked away from approximately $150 million of unprofitable business [mostly Magnavox analog television] at the beginning of the year.

So, we have recouped that, but we have done so in strategically important ways, with a focus on our up-market product lines — digital projection television, flat television, and digital direct view sets.

We are right on the quarter-by-quarter plan that we had laid out for our board a year ago. We have announced that North American consumer electronics expects more losses in 2003, before returning to profitability in 2004.

What’s ahead for 2003?

In 2003, we will be building on the momentum that we established in 2002. But, where we focused on the front-end of the business in 2002 — adding new dealer accounts and working with them on placement, education and training — we will be placing more attention on the back end in 2003.

In 2002 our focus was on rolling out the new go-to-market strategy, and building back our credibility with retailers to earn new placement opportunities with them in the high-end of the business.

In 2003, we will enjoy having the benefit of a full-year with those dealers on board. We fully expect to be building top-line growth in 2003, and that will translate to improved operating income. At the same time we will work very hard on cost reductions, by improving our processes.

How are new product launches helping you achieve the premiums you want?

Our DVD recorder was the first product that was able to take advantage of the new multifunctional launch process for our innovative technologies. We launched our first model in late spring and got tremendous placement, reaching 4,000 selling floors, and it is getting its own real estate on almost every one of those floors. We offered our own displays for it, and a lot of dealers took advantage of that. The reality is that we have more than 60 percent share, and have been earning a premium of about $200 over like models from our competition.

We used our consumer insight to market this product correctly. It is not a just a DVD player with a record button. This product is about preserving memories. It answers a latent need that consumers have but didn’t know existed — that their home video tapes are deteriorating and may not survive into their retirements. Once that is understood, we can provide the solution, which is the availability of an optical disc DVD recorder.

Are you expanding your sales training efforts to support your new accounts?

If you are going to sell high-end product through up-market retailers, you really have to call on them at the store level. You have to get to each floor to educate and motivate the salespeople. When I joined we had 13 field sales people, which was totally insufficient. We are now at about 40, and in early 2003, we will be at 50. We will continue to grow it, because our focus is to people one of the most professional field sales organizations that we can. Our competitors are significantly larger in field sales people than we are.

How are you using national advertising in your new go-to-market strategy?

For our major new product introductions, we have a team that puts together a comprehensive plan to take that product to market, including advertising, public relations, point-of-sale display and training for ourselves and our retail sales associates.

We made the decision in 2002 to take a good chunk of our advertising funds and use those in close alignment with key partners, in what is called co-equity advertising. The way that plays out in a 60-second ad — the first 45 seconds or so would be a traditional sort of message, and then we transition to a message concerning a dealer or dealers that have that product available. In a sense we are enhancing the equity of the retailer as opposed to just doing national advertising, and that has been very favorably received by our retailer partners. The retailers chosen to participate in those programs are the ones who can fully support our new technology products.

What does this do to your ad spending?

When I first got here we were in such disarray that I actually pulled back the advertising program in 2001 to the extent that I could still pull it back. We didn’t have all the other elements right. Advertising is great when everything is right — you know what the consumer insight is, you have the product, you have it placed and it is being displayed properly. We had a lot of disconnects. Even in 2002, we were light in advertising in the first three-quarters. We put the bulk of our money into the fourth quarter. The reason for this was I wanted to give our go-to-market strategy a chance to play out before we turned the advertising on. We are now advertising not only the DVD recorder but also Flat TV — which is another key new technology area for us.

Our advertising focusing in 2003 will be behind Flat TV and our Pixel Plus technology, which has done extremely well in Europe, where it was first introduced. We have Pixel Plus in direct view TV, but beginning in the second quarter of next year we will have it in Flat TV and in rear projection television.