But Are Marketers Ready, Asks Rama Bijapurkar

The Business World - December 28, 2003

Consumer India has always been pretty tricky to double guess. Just when we believed that consumer spending was firmly on a high growth trajectory - based on the wonder years of 1993 - 98 - it spluttered and slowed to a crawl. For the next few years, marketers tried everything they knew to speed it up again. They dropped prices while improving product and service quality. "Buy-one-get-one-free", they offered. But that only helped them get volume growth at the expense of operating margins. The fast-moving consumer goods (FMCG) sector had a terrible time with some product categories actually shrinking in size, while consumer durable manufacturers struggled to reconcile capacity with demand. Sure there was a fast growing yet minuscule population of the very rich, which continued to lap up everything from plasma TVs to Mercedes cars - but that was cold comfort for the majority of the marketers.

After much agonising, marketers came to the conclusion that the five-year boom of 1993-08 was a one-time star burst, unlikely to be repeated in the near future. The growth spurt of those years was attributed to a confluence of events - release of pent-up demand of the rich who always had money but nothing much to buy before this: a television boom that fuelled aspirations: a distribution boom that brought products and services within easier reach; the discovery of the sachet strategy that made everything affordable to more people; and finally, a string of good monsoons.

They also shelved the idea of the huge homogeneous mass market made up by the great Indian middle class, which would be a tireless engine of growth. And, having come to terms with the new reality of the market, exhausted marketers worked hard on tactical actions to stimulate growth even while turning their gaze inwards, focussing on operational performance improvement and financial restructuring to keep the bottom line growing.

Meanwhile, a lot of little changes were taking place in the market. Each change, when viewed in isolation, could easily be rejected as not being particularly significant. But over time, and taken together, they have provided a critical mass of change. And created a deep and distinctive consumer market.

It is a market whose potential and desire to consume has perhaps moved ahead of the marketer's mental model of it. It continues to be a multi-tiered market, with the bicycle and the business class co-existing. It continues to require a portfolio of price/performance points. But it is a market that is now unified by certain common demographic characteristics and consumption desires. And which has enough mass to act as the springboard for the next stage of the consumption cycle. The question is: are there enough relevant products and services available to take advantage of this? In short, it does appear that the Great Indian Consuming Class has arrived, and is waiting to be served.

Before we get into what this new class looks like, a quick look at some of the important changes that have taken place:

Income growth: Between 1995-97 and 2000-01, per capita income on an aggregate basis grew by a compounded annual rate of 3.2%. But high-income households grew much, much faster - by about 20% year after year - between 1995-96 and 1996-99, according to the National Council for Applied Economic Research (NCAER). Upper - middle - income households grew by 10% on a compounded annual growth basis during that period. In urban India, the trend is even more pronounced (See "Upper Classes On The Fast Track").

Affordability growth: Supply-side changes also shape a market's buying power, and there have been a host of them - falling interest rates, easier consumer credit, increase in variety and quality of products and services at every price point....

The liberalisation children grow up: The post-liberalisation generation is coming of age. This year there are a 100 million, 17-21 years olds in India, and six out of 10 households have a liberalisation child. This is a generation, which has grown up with no guilt about consumption.

The morphing of rural India beyond agriculture: Rural India has reduced its dependence on agriculture. A little less than half of rural GDP is from non-agricultural activities. This is creating a different kind of rural market. NCAER occupation data shows a decline in cultivators and there is enough evidence of dual - sector households. Add to this the exposure levels of the top end of rural society through television, and the rural market is becoming closer in its mindset to the urban market. This is already happening in the more developed higher-income states.

The rise of the self - employed: Rural India has always been largely self-employed. But now the proportion of the self-employed in urban India has risen to 40% plus, replacing the employed salary earner as the new mainstream market. A Hansa Research Group (HRG) study shows that even in the 'creamy layer', comprising the top two social classes in towns of 10 lakh plus population in urban India, 40% of chief wage earners of households are shop owners, petty traders, businessmen and self-employed professionals.

Unlike the salary earner, the self-employed use products much more to signal success and are also fast adopters of any productivity tools, like cell phones and two-wheelers, that can help them earn more.

Environmental changes drive aspiration: Better connectivity and communication, and the literacy leap, are together increasing the aspiration of the Indian consumers at every level. The reason why these changes drive aspiration is lucidly explained by the well-known anthropologist, Arjun Appadurai, of Yale University. "Imagination is not about individual escape, it is a collective social activity. Informational resources are needed for people to even imagine a possible life, weave a story and a script around themselves, and place products in emerging sequences. Imagination may not always lead to action, but it is a prelude to action."

Consumer India now has enough informational resources to concretely imagine a better life.

Plurality of income, singular mindset: When marketers were waiting for the Great Indian Middle Class boom, its key trigger was expected to be a significant number of households above a certain level of income, which would become the critical mass of consumption. But what is being increasingly apparent now is that what unifies Consumer India and gives it the consumption push is not so much its income level, but its key characteristics. And these are:

Striving: Most Indian consumers, whether rich or poor, want to get ahead in a hurry. From being destiny-driven and resigned, they are now destination-driven and striving to grasp opportunities to earn more in order to construct a better life for themselves and their children. If one were to segment the country into the Arriving, the Striving and the Resigned, the proportion of Resigned has definitely decreased and become geographically concentrated, rather than well - dispersed, as it was earlier.

"I can": The rise of the self-employed and the service economy requiring less capital and more sweat has changed the mindset of the Indian consumers from one of demanding social justice to one of grabbing economic opportunity.

"The rise of the women": Like the self-employed, women too are saying, "I can and I will", and emerging as partners in family progress. Not so much from earning the second income (a mere 23% of Indian households have working wives and that proportion decreases as incomes increase) but by being CEOs of households and intellectual nurturers of their children.

Education - and health - driven: Indian consumers are obsessed with giving their children the education and skills that will provide the escape velocity to move to a higher station in life - and they have seen enough evidence of this to know it is possible. Health is the other magnificent obsession - probably because ill health adversely impacts earning ability. (In fact, the less affluent are more concerned about staying healthy than the more affluent). A study conducted by HRG in 2003 for the Media Research Users Council (MRUC) among 2,000 households in Mumbai shows interesting differences in households expenditure between the top social class (SEC A) and the lowest social classes (SEC D/E). Education and clothing attract the same proportion of expenditure in both the income groups, but the poor probably spend a bit more (proportionately) on medical expenses than the rich. (This could indicate a big time bottom -of -the -pyramid opportunity for nutrition and health building in the preventive rather than the curative area.)

Pragmatism in consumption and preference for 'real value' products and services: In the past, marketers assumed that progress and evolution of a market meant adoption of 'feel good' products, susceptibility to razzle-dazzle branding, a Westernised self-image and identity, and bountiful days for FMCG categories. But the latest trends show that consumers are going more for real, 'life quality' improvement products and services. Consumer India wants a visibly better quality of life for themselves and their children, described in terms of durables that make life better; education, healthcare; transportation and communication. (NSS data shows that these are the three big growth areas in consumption expenditure). Other priorities seem to be owning decent homes, better clothes (not necessarily better brands) and the like. Status is signalled through the things that are visible to others.

They are not beguiled by brands that are low on functionality and high on image. Pragmatism and functionality is the hallmark of their consumption expenditure. And the threshold of their expectations of how this functionality is delivered is high: low-priced motorcycles must look like motorcycles and deliver enough power. Basic cell phones must be small, even if they aren't feature - rich. And low - priced garments and footwear cannot get away with antiquated styles.

Entertainment: Entertainment is becoming big, the country has traditionally been starved of family entertainment, with the only options being watching television or going to places of religious worship. But family entertainment is becoming a big issue for consumers as they try to find avenues of bonding in an era of nuclear families.

Comfort with borrowing to fund future consumption: Being in debt used to be an area of high discomfort for everybody, but the very poor, who had not other choice but to borrow for survival. Now, however, the concept of EMI (equalised monthly installment) is legitimising borrowing in other groups too, especially to fund future consumption. EMI provides a certain discipline with predictable and planned outflows, and that is probably making indebtedness more acceptable.

Comfort with consumption: Economists talk about the wealth effect - wherein it takes time before consumption decreases in response to decreasing income. Equally, it takes a while for comfort with consumption to happen, and consumption typically lags income increases. One reason for this could be that the country has celebrated abstemiousness for so long that it takes a supply explosion to spark desire, and then translate that desire into actual consumption. However, that has now happened.

Comfort with technology: Infotech awareness, whether it is Infotech power (what a computer can do to solve problems or improve life) or Infotech-driven employment opportunities, has sunk in to the lowest social classes and to much of the rural population. It has happened through the demonstration effect of model projects of the NGO (non-government organisation) kind. And it has happened by watching the rich use it and prosper. It has also happened because of the mushrooming of call centers and other computer - related services offering employment. As these are located in geographical clusters, they got noticed and talked about. Cyber grandmas from upper-middle and upper classes, who have become email literate to communicate with their scattered flock, is one example of this new comfort.

Enough of a Consumption Base Now Exists To Create A Springboard For More Consumption

Current levels of penetration influence the pace of future penetration. Penetration increases are not linear, instead they accelerate as base penetration increased till a point where saturation sets in. If only one out of 20 households in a given affluence grade have a washing machine or a two - wheeler, adoption will be slow. But when one out of every 10 has it, it becomes something that gets on the radar screen of aspiration for the rest. And when it gets to one in five families, it serves to rapidly penetrate the remaining households because it now becomes a 'must have now' product for them.

For consumer durables, the top (in terms of affluence grades) 40 million households in India - 24 million in urban India and 17 million in rural India - based on their penetration levels would constitute the core consuming class. The magic number of 200 million consumers (assuming five members to a household) has arrived at last! (See 'Consumer Durables Reaching Saturation').

Within rural India, there are two different grades of overall affluence, which we can call the developed and the developing states. The developed states comprise Punjab, Haryana, Gujarat, Maharashtra, Karnataka and Kerala. They account for about one-third of the rural population and have shown higher penetration in most categories.

The increase in penetration levels between 1997 and 2002 have been very impressive. 'Reaching Far And Wide' compares the two and shows the speed with which penetration increase are happening in Consumer India across income groups, although, obviously, differently for different products.

For FMCG penetration is certainly not an issue. NCAER data shows that for 1998-99 for a basket of 22 FMCG products it tracks, a total of over Rs 91,500 crore was spent. Of this 37% was spent by the two lowest-income groups in rural India, and only about 20% by the top two income groups in urban areas. This is, perhaps, the best and only statement of the structure and potential of the Indian market.