Using geek spirit to stay cool

To beat the summer heat, Chinese manufacturers use innovation to transform products to buyers' expectations

Chinese air-conditioner makers, stung by overcapacity and high inventory of low-end products, are speeding up the transformation of the industry. The result is high-end, intelligent and personalized products.

China's air-conditioner market is considered almost saturated. So, manufacturers are keen to seek new growth points.

That means persuading consumers to buy new products with new features and functions. It also means making products attractive to consumers, particularly younger people.

Stated differently, the focus has shifted from price wars in the highly competitive low-end market.

Few companies symbolize the new thinking better than Aux Group, a maker of appliances based in Zhejiang province. Since 2013, it boosted investment to over 1 billion yuan ($150 million; 135 million euros) to improve quality by making innovation central to its research and development efforts.

It has released a series of innovative products, such as an ultrathin air conditioner, working with smartphone maker Xiaomi Corp. Users can remotely control their air conditioners using Xiaomi's smart-home apps.

"We pay a lot of attention to consumer demand, collect their opinions and interact with users and fans," says Xu Zhong, marketing director of Aux Group.

Aux products will become more and more fashionable, catering to young consumers, he says.

The company launched a new product -the AYA series air conditioner - during the Appliance & Electronics World Expo 2016 in Shanghai in March. The new product has intelligent controls and ultrafast cooling and heating technologies.

The AYA series air conditioner, which has a sleek and arty appearance, allows users to set the run time and cap electricity consumption. The company says the product can save 30 percent on energy and double its dehumidifying efficiency.

Aux, in air-conditioner manufacturing for 22 years, tops sales volume and revenue on online e-commerce platforms. Its exports as well as domestic market share grew from January to April, when the industry was in recession.

Shipments of Aux's air conditioners rose 9.89 percent year-on-year during that period, topping the market list, according to industry analyst ChinaIOL.

"We aim at those born in the 1980s and '90s, who have strong consumption potential," Xu says. "We pay attention to the innovation of products and marketing channels, cooperation with the Euro 2016 football tournament, the coming summer Olympic Games, and services of celebrity spokespersons."

Aux invited young Chinese actor and television personality Zheng Kai to be its global chief experience officer for its AYA series air conditioners. It also bagged the title sponsorship of Jiangsu TV's popular educational program, Who's Still Standing.

Although the air-conditioner market is witnessing low growth, "the third- and fourth-tier cities were our focus areas in the last two years, and we are building up a new brand image and sales team and offering excellent after-sales service", Xu says.

Aux saw opportunities in a sluggish market, and Xu says he is optimistic about sales this year. "We are hoping for 30 percent growth compared with last year."

Liang Zhenpeng, a consumer electronics analyst, says: "Aux has shown the world that it could find a new way to growth, and its sales growth proves it has gained recognition among consumers, standing at the forefront of manufacturing reform and upgrading."

Aux aims to meet the demands of young users and hence is expanding its investment in raw material selection, R&D, innovation, manufacturing, quality management and other key links of production. All this encapsulates the company's "geek spirit", Liang says.

He says Aux also focuses on online distribution channels, in line with the government's Internet Plus strategy, which refers to the application of information technology to conventional industries.

The sales volume and revenue of Aux's air conditioners on online platforms accounted for 19.3 percent and 22.7 percent of market share in April, giving it the top spot, according to AVC, a consulting company that specializes in home appliances.

Industry experts say the younger generation is becoming a major consumer group, and their demand tends to be diversified with focus on personalized, differentiated, energy-saving and environmentally friendly products like inverter air conditioners. Inverter systems vary the speed of the compressors, delivering precise cooling or heating power and saving electricity.

Statistics show 41.94 million units of inverter air conditioners were sold in 2015, accounting for 54 percent of the domestic market.

The overall sales of air conditioners during the May Day holidays wasn't satisfactory, industry experts say. Sales volume and revenue fell by 22.3 percent and 22.2 percent year-on-year respectively, according to China Market Monitor Co Ltd.

AVC's figures showed the average price of air conditioners during the May Day holidays reached 3,462 yuan, up just 0.4 percent.

Liu Daren, general manager of the air-conditioner and environment division of AVC, says: "The air-conditioner market has entered a stable development period from a phase of rapid growth. The energy-saving intelligent air conditioner has become a trend."

Although overall sales of air conditioners saw negative growth in 2015, sales volume of intelligent air conditioners increased by 173.5 percent year-on-year, with revenue rising 98.44 percent compared with 2014.

Other companies also found ways to grow revenue, even as price wars erupted in the industry in 2014, when key players slashed prices to reduce inventories and boost sales. That also squeezed their profits.

But Guangdong Chigo Air Conditioning Co Ltd was among those that took a different route to long-term success. It focused on product quality and introduced smart solutions and advanced technologies.

China Market Monitor Co Ltd says overall sales of air conditioners in the January-March period fell 13.13 percent year-on-year. But Chigo, which was founded in 1994, reported a year-on-year sales growth of 17.16 percent.

Future-minded manufacturers are betting on intelligent appliances. Innovation in this context doesn't mean only manufacturing products like air conditioners that can be remotely controlled using smartphones, industry experts say.

An intelligent air conditioner should be able to scan a human body with its infrared sensors and determine body temperature relative to ambience, and cool or heat the room accordingly, experts say.

In 2014, Chigo started transforming its strategy for high-end products and launched intelligent cloud-based air conditioners. The strategy made use of cloud computing technology to manage and upgrade air conditioners.

Li Xinghao, founder and CEO of Chigo, says the company will deepen production reforms and continue to propel its high-end air-conditioner business this year in a bid to boost growth amid slowing sales. He says the company is targeting 100 billion yuan in sales by 2020.

fanfeifei@chinadaily.com.cn

(China Daily European Weekly 07/08/2016 page26)