What are the major characteristics of the air conditioning market and the main factors driving market penetration?
RAUL JOSEPH A CONCEPCION: On a consumer level, the Philippines is approaching an inflection point as GDP per capita approaches $3500 and market demand for air conditioning begins to double or triple. Over the past two or three years, growth has been in the double digits as many people are buying their first units; however, even with accelerated demand, total penetration has only increased from 10% in 2012, to 13% in 2016. Our projection is that once the country reaches a GDP per capita of $3500, demand in the Philippines will increase in the three years after to reach a 20% penetration rate. A further growth of GDP per capita to $6000 would drive penetration levels to 35%. The correlation between GDP and demand for air conditioners is comparable to the experience of other ASEAN countries like Indonesia, Malaysia and Thailand.
Two major factors have accelerated air conditioning demand – the availability of credit, particularly in a favorable interest rate environment, and a shift in lifestyle trends, one that has been fueled by the advent of social media, the internet and exposure to markets abroad. This has led customers to increase their expectations and appreciation for comfort. Lifestyle changes have turned air conditioning into a necessity.
There are two types of customers in the air conditioning market – first time buyers, who contribute 30% of the market demand, and those who wish to replace or upgrade their units, who contribute 70%. As penetration levels rise, the growth rate of first time buyers will outpace the replacement market; however, as a percentage of total demand, the replacement market remains larger due to higher costs.
For entry-level customers, preferences gravitate towards window units and energy savings, whereas the replacement market drives demand for split-type units, which are considerably more expensive. Given that replacement market is 70% of the current total demand, split-type units are expected to increase.
To what extent has environmentally friendly air conditioning been adopted by the consumer and commercial markets?
CONCEPCION: If given a choice, a consumer would be inclined towards an environmentally friendly air conditioning unit. That said, a 20% price differential presents a large disincentive for some customers. As a result, efforts are now centered on generating awareness about the better value of green air conditioning, not only due to its environmental impact, but also as a result of energy savings.
Consumers are sometimes unaware of what goes into buying a proper air conditioning unit, based on their type of usage, housing requirements, maintenance needs and so on. The major drawback to split-type air conditioners is the overall ownership cost, which nearly quadruples that of window type units, particularly due to the high cost of required maintenance. Inverter technology, which is more efficient, is often not the only solution to lower bills. Proper cleaning of one’s unit can reduce energy consumption up to 20% per year and, likewise, replacing a 10-year-old air conditioning unit would help lower electricity costs.
Moving forward, advantages – such as smart technology or the internet of things – can be harnessed to help consumers save money, especially as these features have traditionally not been available at lower prices, making them prohibitively expensive for the mass market.
On the commercial side of environmentally friendly air conditioning, much of the uptake will depend on economics. Increased awareness about the costs of air conditioning have led to people demanding to build or retrofit buildings to be more energy efficient, especially if, for example, 45% of a building’s energy generation expenses are due to running an air conditioning unit.
This has also led to a growth in demand from developers for related construction solutions or products that cater to energy efficiency or value-added features, from elevators, escalators and security systems.
In addition, air conditioning is not merely about energy savings or providing cooler air, but enhancing air quality through improved filtration systems – considerations that are increasingly more important for developers.
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