It is the same question that everyone is asking - why are demand patterns so illogical, why do usual predictors of good or bad demand like monsoons or consumer confidence or low GDP growth not apply across the board to all categories? Ask some sectors about recovery and they say, "well its already beginning to happen" and ask others and they are seeing very slow change, if any at all. Why are car and two wheeler and telecom and air conditioner markets growing, but FMCG markets groaning, and that too in a year where GDP growth was quite low? And if the reason is rural market not having money because of poor performance of agriculture, then where did the money come from? The rural market has behaved in a very prima donna-ish manner - it boomed, then it busted, and now it favours some categories and not others. The urban consumer markets are also an enigma - the eternal see saw between 'upgrading' and 'downtrading' consumer behaviour. Obviously all this flip-flop n consumer demand patterns affect B2B businesses as well, because their health is only as good as the health of the sectors they serve.
I was looking through my archives and came across what I had written in May 2000, addressing the very same issue of why demand patterns were so capricious and illogical. I had described the often changing demand patterns as a kaleidoscope, where, with every shake, the resultant picture looks different, despite the components being the same. This kaleidoscope is getting more complex over time. The reason is that India is getting more fragmented (schizophrenic?) as it develops, rather then becoming more homogenous as we had hoped. The dream of a uniform, homogenous middle class, fuelling demand growth and economies of scale will not happen for a while. Therefore the mindset of thinking "aggregate demand", at an all India level, and "aggregate performance" of the economy as a whole and the assumption that if "aggregate economic performance" improves then all kinds of demand should improve will lead to more puzzlement.
The only way to understand demand and see the road ahead with some clarity, is to think 'demand' segments and track them. Demand segments are homogenous pockets of demand (reminder: demand is made up of people not products!), each with their own demand drivers. There are macro variables that define demand segments and micro or category level variables. At the macro level, one variable with which to identify demand segments by, is which sectors of the economy consumers who generate demand are engaged in - agricultural, manufacturing/industrial, export oriented services, domestic services, Government. So we know that a 6.5% GDP growth coming largely from services won't see an FMCG boom at the mass market end as compared to say a 4.5% GDP growth with a better mix of growth across all the sectors. Another variable to identify demand segments by is self employed vs. non self employed, especially given the increasing proportion of self employeds. Self employed people and their dependants in the services sector are exceptionally fragile in their consumer confidence, and have a large amount of black money; in a strongly confident environment could provide a demand kicker for popular fmcg and durables. They drive demand for cell phones, cars and two wheelers, and a range of other "work partner" durables. Then there is the geographic variable to define demand segments by. With state disparity rising, and different types of governments in power in different states, there is a long term demand growth pattern and then there are spikes and troughs depending on short term actions, Andhra Pradesh and Gujarat being two examples.
At the micro level there are category demand segments, defined by the historical market structure (again defined by consumer behaviour and not product segment) and what marketers are doing. A historical boom in purchases which led to a purchases x years ago, will drive replacement demand and higher replacement demand usually leads to upgrading and hence higher price performance segments growing faster than first time buyers. Price wars or any dropping of real price thresholds, increased advertising in any category or a new upgraded range of products coming in for the first time with a real incremental benefit can not only change historical growths of a category, despite not much change in the macro economics, and also change the demand pattern in terms of product mix. Herd mentality of marketers helps even more in driving demand or changing the nature of the product mix demanded.
And finally inter category competition, which companies tend to ignore, shapes demand for your category. The fact is that consumer income growth is slower than growth of products and service categories now 'active'. He has choices to make between telecom, health insurance, housing, eating out or fabulously priced package tours abroad, or children's education. I don't believe we know enough on what consumer thinking drives these choices, and what makes the difference for different choice patterns?
So my suggestion for companies to see the logic of their demand growth and demand patterns, in the midst of all the apparent illogic is to do the following: (a) define demand segments both at the macro level and micro level which are relevant to their business (b) examine, in depth, what is happening and likely to happen in each segment (is agricultural growth a patchwork of good and bad states and driven by procurement games or fundamental improvements in farm economics?) (c) then add up all the details to get the big picture.
God is unfortunately found only in the detail, because India unfortunately is a complicated country.