Electrolux builds on 70% rule

When Electrolux launched a new washing machine recently in Brazil its engineers wanted to include a separate ultrasonic pen to blast the dirt from things like muddy football kits. But in a blind consumer test it received only about 50 per cent of preferences against the best-selling rival products.

So the engineers went back to the drawing build and made the pen an integral part of the machine. At the next blind test 90 per cent of consumers preferred the Electrolux machine.

The so-called 70 per cent rule - that a prototype has to receive at least that amount of consumer preferences to be developed - is just one of the ways that Keith McLoughlin is trying to put his stamp as chief executive on the Swedish appliances maker.

He wants to shift it away from being seen as a manufacturer and towards being perceived as a consumer company.

Few companies have been through the amount of restructuring Electrolux has in the past decade as it seeks to compete against its largest rival, Whirlpool of the US, in selling vacuum cleaners, washing machines and ovens to consumers around the globe. 

Largely under its former chief executive Hans Straberg, in charge until 18 months ago, Electrolux has closed no fewer than 34 factories in the past 16 years.

It has shifted production away from high-cost countries such as Germany to emerging markets and slashed thousands of jobs in the process.

Now, Mr McLoughlin is subtly trying to change the Swedish group by putting a bigger focus on growth and trying to move the brand more upmarket by strengthening the company's design, marketing and innovation functions.

"What we are trying to do is build off the history of generating cash flow," he says in an interview.

"We want to invest a portion of that productivity into growth and have a focus on innovation. So we have increased investment in R&D, marketing and design. And the global heads of those three report directly to me."

One problem was the slightly downmarket feel of its core Electrolux brand in markets such as the UK. So Mr McLoughlin pushed for the launch of professional kitchen appliances for home users.

"It is about growth," he says. "But it is also about supporting the brand strategy."

The approach is winning some plaudits from analysts and investors. "They are in an industry where you have to run to stand still," says one top-10 shareholder. "It is becoming a very different company. But it is clear that Electrolux hasn't had a brand equity that is the same across Europe."

The strategy is bearing fruit. Electrolux's shares are up 65 per cent in the past year, beating a 28 per cent rise for the broader Stockholm market.

Swedish analysts are generally positive, even if they are not enamoured of everything. One points to his turnaround of the US business in difficult circumstances, reviving the Frigidaire brand and improving profitability in a declining market.

"He is very common sense which hasn't been the case before. It is a tough industry to be in. People want to pay less but get more features," the analyst says, before adding: "He is very American and with everything that comes with. He is a bit of a car salesman; sometimes I wish he would tell it like it is."

Mr McLoughlin himself is unapologetic about how uncomfortable his focus on design and technology can make some employees.

Talking about the 70 per cent rule, he says in some markets such as Asia it was a struggle in the beginning: "For a while I was the most hated person in Electrolux. It is a high hurdle to get over. It caused a lot of angina. You stay firm to it. And people started to pass the first time, and then a second one and you gain momentum."

Growth is predominantly expected to come from Electrolux's existing operations. Of its 13 per cent rise in revenues year-to-date, Mr McLoughlin says 6 per cent came organically, 6 per cent from acquisitions and 1 per cent from currency.

"We want to do one or two digestible acquisitions a year and get 1-2 per cent growth from acquisitions," he says. 

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