When the prime minister announced the ambitious push to 'Make in India' and companies were thinking of setting up manufacturing hubs in India for the world, a la China, the irony was not lost on many. Here we are in one of the world's most attractive consumer markets, and we are searching for opportunities to manufacture for the rest of the worlds' consumption. A couplet by Sant Kabir came to mind, where he describes the musk deer which smells the intoxicating musk emanating from its own belly, and spends the rest of its life searching all around for the source of the scent!
The Indian consumer market has high gain and high pain. It is very heterogeneous, very modest in income, very high in aspiration and scattered over a very large number of villages and towns. Multinationals entering this market have struggled with their strategy, expectations and had its hopes belied. The country has a handful of large, pan-Indian consumer goods companies and a myriad of small, regional ones.
This chapter paints a broad, sweeping picture of the behaviour of the many-splendoured beast or hydra-headed monster called Consumer India.
India's GDP has grown almost ten times from Liberalization till date, powered in no small measure by its domestic consumption. In fact, household consumption is one of the biggest attractions for foreign companies to come to India and invest.
Household consumption accounts for 50 to 60 per cent of India's GDP and is a major pillar of India's economy. There is hardly any parallel in world history to a market opportunity of over a billion people, overwhelmingly young, slowly and steadily getting less poor, and coming of age, so to speak, after the Internet and the mobile phone were born. Unlike China, there are no selected corridors or regions of prosperity that are engineered by policy making design and 'inclusive’ is the mantra hardwired into India's policy making.
In the past decade, rural incomes have grown at a faster pace than urban incomes, and hitherto backward states like Bihar have scotched up double-digit growth figures without being tied to the special economic thrust carried out by the central government. There has also been a marked increase in consumption expenditure of so called Tier-2 towns not because of any specific government investment policies, but because of market evolution.
It is a well-accepted tenet that the wider the distribution of the income benefits of economic growth, the better it is for consumer markets to flourish. So while India's 'creamy layer' is not fat, the distribution of income growth makes it attractive in the long term.
In the two-and-half decades since India's economic liberalization, incomes of households have definitely grown. Even if we look at an approximate indicator of household income like GDP/capita, it has almost tripled in real terms since 1991 and 2015. Even the income of the lowest quintile of income earners, i.e. those who are the poorest 20 per cent of Indians, has gone up 2.1 times between the years 2004—05 and 2013-14, in real terms. The richest 20 per cent have of course grown their incomes 1.5 times from a base that was three times higher. Incomes across the board have increased, transporting Indian households to an altogether different level of consumption ability and lifestyle.
Increase in income due to economic liberalization is usually accompanied by the Increase in exposure levels of human beings as well—as the economy liberalizes so does the consumer's mind. Borrowing the concept once articulated to me by renowned anthropologist Arjun Appadurai, imagination does not come about by one individual sitting in an isolated room and dreaming things up on his own. It comes as a collective activity, the main ingredient of which informational resources, based on which a better life can be imagined with products and services fitted into the story.
Since 1991, India has had an explosion of informational resources given to the consumer, through various forms of television and digital content, improved connectivity of all types, including road connectivity, bringing the nearest town far closer than ever before. The third element into this cocktail is the confidence that Indians have now acquired, based on their experience, that their income will continuously increase and opportunities to earn more can only go up.
As we approach the third decade after economic liberalization, with this potent combination of large increases in information and income for even the poorest and most remote location in Indians, optimism about the future and the fact that 50 per cent of the country is a post-socialism, hello-consumption generation, what are the key behavioural and attitudinal traits that define Consumer India, that all of us are an enthusiastic part of?
Consumer attitude and behaviour is shaped by supplier behaviour and what is happening in the larger world around them, as much as it is shaped by income demographics. The school of thought that says that the per capita income of a country alone determines what consumption choices consumers will make is absurd and flawed. India's per capita income today was the same as that of the US in the late nineteenth century. Except that Consumer India now has the Internet and the mobile, LED lamps and organ transplants, knows that the planet is being ruined and that our bodies are in danger due to an excess of processed foods, gets a lot of goods from China at ‘China price’ and much more. The pattern of evolution of consumer markets has not been the same over the years. It depends on what forces are at work at the time. India approaches the third trillion (in US dollars) of its GDP and the third decade after Liberalization with a spectacular failure of public goods forcing Consumer India to spend more money on buying such goods from private providers. Even the modest-income household prefers to send its child to a more expensive private school, get family members treated by a private doctor or use private transport. Middle class and rich consumers are buying their water, generating private electricity and hiring their own security since the quality and quantity provided by the government is below standard. So for the next decade, or half a decade at least, consumers will choose to deploy their income increases to pay more for such ‘basic’ facilities, which will improve their quality of life and living. This will be even more pronounced for those above a certain income threshold, for whom subsidies are being removed; they are already seeing their electricity bills climbing and are being exhorted to give up their subsidy on LPG. So the accent of the future will definitely be on utilitarian consumption.
The second factor that influences consumer behaviour is the overwhelmingly large number of self-employed people in the country. Only 35 per cent of urban India and 13 per cent of rural India have a regular salary, the rest are either self-employed or are day-wage labourers, i.e. are responsible for having to find their own work, and time is money for them. Productivity tools that help save time, increase productivity and help them earn more are what they seek. Productivity tools and life management tools are also valued and prized by the rest of Consumer India, whether a housewife or a managing director, as it struggles to cope with all the things it needs to do, given its high aspiration level and low levels of infrastructure. The rise of e-commerce is an example of productivity winning hands down over the joy of physical shopping.
Is it all utilitarian and no other kind of consumption that Consumer India seeks? The openness of Consumer India to new experiences, provided they are broadly within the sandbox of familiarity, is very high. All forms of entertainment including eating out, family vacationing and other activities that are high on the experience quotient (even if they are low on the indulgence quotient) are prized, especially for those above the subsistence levels.
Signalling status through things owned and done is important—the car, the holiday abroad, etc. But it's really more about a broad signalling of arrival into a higher station in life. But shelling out huge amounts of money for a brand label to display status isn't the choice generally, except for a small segment of consumers. A luxury apparel brand retailer once gushed about how his foreign-brand store was doing so well in Tier-2 towns in India, and said that the consumer was changing very fast, and learning to appreciate brands and spend on them. He then added that the only problem he faced was that the customers were always bargaining and asking for discounts, and he never ended up selling at full price. However, what signals status and what doesn't has changed over the years as supply of a wider variety of things is available. So the cell phone you use (having one at all and having more features, not necessarily having a better-known brand) signals arrival and a league more than, say, the shampoo you use or the brand of cola you drink. Owning a car for many is in itself a big symbol of arrival, even if it is a small car.
A lot of foreign businesses planning to enter India often asks, 'Do Indians value brands?" The hypothesis seems to be that there is a level of evolution needed for consumers to appreciate brands. The answer is that even proven brand names from overseas are not balance tilters in the choice process for most Indian consumers; the price features or cost-performance equation pragmatically has to be right too. It is also a question of quality versus quantity. Given the modest incomes of the middle class, which is India's upper class compared to most other countries, the brand premium needed to be paid restricts the number of things you can over (such as apparel) or the frequency of their replacement (in the case of cell phones). Consumer India is variety seeking and has aspirations way ahead of its income, i.e. the growth in the number of things they want to buy in exceeds the growth in their income. Earlier, low price meant really bad quality on a lot of counts. In the nineties, Chinese goods were priced affordably but they were also of very poor quality. Today, Chinese goods have vastly improved in quality and are being produced for the Indian market, changing the customer's perceived value they offer. Earlier, there was no steady and systematic import of fast-moving items that consumers had use for; today, the market is steadily being fed by not just random loads of whatever is available, but with a well thought through merchandise mix. Wherever brands have been established that are at the right price-performance point in any category, they have evoked brand loyalty. Indian consumers as like consumers everywhere else in the world—they pick the option that offers them the best value. But the criteria they have for processing value is different given that the environment they live in is totally different from elsewhere, for reasons discussed so far. It is also true that India is a market of very savvy, small suppliers and, hence, gaining customer-perceived value advantage over them is difficult. The ready-to-eat food segment has to compete on price and quality with small suppliers of home cooked food with highly customized service levels as well as with myriads of small restaurants that home deliver. Consumer electronics brands and gadgets, like refrigerators and washing machine, and other brown goods, usually have to compete on the platform of superior service given that products are often similar, but the standards for service, speed and customization are set by small service providers, and matching it is pretty hard for the scale at which large suppliers operate.
This also explains the often repeated comment of how 'value conscious' Indians are. This phrase is used with many meanings. On one hand, it is used to suggest that Consumer India will pick the lowest priced option always, being more price sensitive than benefit sensitive. On the other, it means that Consumer India seeks, and stringently evaluates, value—as in benefit minus cost of use, having to be 'paisa vasool’; but Consumer India actually does stretch for more rather than settle for less.
Often, the higher priced option is not the better value option given the value-processing algorithm that consumers use. A lower-income consumer will subscribe to paid cable movie channels in order to keep her teenage kids at home rather than go out and spend money or have her mother--in-law at home to cook in the evenings so that she can go out and earn overtime. A middle-income consumer who uses a bike to commute long distances for his business will buy a car because it saves wear and tear on his body and also because he perceives it to be safer and cheaper than cabs to take his family out; they have long since moved on from public transport and transporting four people on a bike is getting hard. This middle-income consumer wants a new car, not a second-hand one, because the risk of spending hard-earned money and getting a lemon is too high with pre-owned cars. Smartphone sales are galloping, but many people who own a smartphone don't necessarily have tablets or PCs. This is the sole device they use, which is the basis on which they process value. Consumer India also optimizes its desire for benefits and its inability to pay for them by working with a portfolio of options or brands that it uses concurrently. The overlap between cars and two-wheeler ownership is very high just as it is for air conditioners and air coolers, clothes bought cheap off the pavement bazaars and branded clothes bought at malls, fashion jewellery and the real stuff, etc.
Consumers are shaped by suppliers and environment as well. In the two decades since economic liberalization, circumstances have created several generations of monster consumers. To begin with, for almost ten years after Liberalization in 1991, the prices of everything went down thanks to reduction in tax rates, and the quality of everything went up thanks to competition. Then came the Chinese wave and the consumer electronics wave of aggressive obsolescence, copies and prices crashing. Consumer India is also now used to aggressive cost-cutting and wooing by suppliers—consider the rock bottom airfares today or telecom rates. Consumer India is also bring wooed by e-commerce—the new kids on the block—offering unbelievably low prices and a slew of deals, great service, and an easy returns policy like never before. While e-commerce companies believe that if they bleed for a while, they can get to scale and viability at some point, and then raise prices perhaps, the fallout is that generations of consumer expectations are being shaped by this supplier conduct. Elsewhere in the world, high-touch went out and high-tech came in, but in India high-touch and high-tech coexist simultaneously. Indian consumers expect, and have been happy recipients of, highly customized service thanks to technology, yet they want high-touch personal problem solving or relationship-based negotiating as well. For example, when it comes to personal banking, customers expect to be able to carry out transactions by voice on phone, via all their Internet enabled gadgets and also at bank branch...What's more, when these expectations are not met, they switch brands with impunity, because switching costs are very low thanks to regulatory intervention. Now, with the advent of mobile banking, the banking app is going to become exactly like an ATM. Anyone's customer can choose anyone else's mobile app, and gains to suppliers get further fragmented. Number portability and insurance policy portability are a few examples of this. Are Indian consumers very confident and assertive? Why wouldn't they be given all these forces that they have been experiencing?
Consumer India is already digital, and there's no reason to be surprised about that. Just like consumers across the world, Indian consumers, rich or poor, have always gravitated towards better value. And digital convenience, speed, control and information treasures are now available in local languages and are accessible from cheaper and cheaper smartphones, adding to their value. The Internet is also about communities and 24x7 connectivity, and that is exactly the way India has always been. So will the digital revolution change Consumer India's DNA? On the contrary, it will enhance it.
Women have been big gainers of Liberalization, because they are now equal partners in making the dreams of the family come true. Equal partnership does not of course can that the load of running a family and a home is shared equally with men or that levels of respect have increased unconditionally. It means they are economic partners in making the family aspirations come true, and, hence, have a lot more roles added to their job description. The confidence and independence that comes with economic freedom has changed the Indian woman forever. The amount of change that Indian women have gone through in the past two decades has been far more than that of men, and that has been a big shaper of women's behaviour as consumers too. Many women will admit that they are encouraged, sometimes compelled, to work outside the home because EMIs and tuition fees have to be paid. And in the new work environment and the distances they travel, there is a lot more freedom and flexibility that is perforce given to them by family members. Keeping your job is important, getting that increment or promotion with a higher salary is important. Thus begins the journey to greater assertiveness. In addition, most educated women in urban India have had at least a few years of work experience before they get married. Even if they choose to be homemakers after that, it is a more confident assertive CEO of the household that is now emerging. The business model of marriage even for young educated Indians is still about a shared life partnership and shared family responsibilities to be discharged, the concept of grihasta with roles and responsibilities assigned, still trumps the idea of marriage as a 'couple' partnership of two individuals entwined by romantic love.
I am often also asked about rural and youth consumer behaviour. I think it is important to recognize that there are many segments of 'rural'. There are rural areas which are cheek by jowl with urban areas and are rural only by definition, not behaviour (about 26 million households); there are rural areas which are still 'emerging' (about 100 million households), sort of halfway between rural and urban or development parameters; and there is rich rural and poor rural too.' And while half of rich India lives in rural India, almost all of poor India lives in rural India too. So while there is a part of rural that is really urban, there is a part of rural India that is still impoverished with virtually no access to modern amenities. A whopping 30 per cent of Indian households are still not connected to an electricity grid. Similarly, about half of India's young people (aged fourteen to twenty-five) are barely or badly educated, , and are far removed from the picture we have in our head of rich metro youth, and live in very basic conditions, with low awareness of the world around them. The top half of Young India either comes from privileged homes and can shape their own future or have an education and exposure to grab opportunities that the environment is creating, or they do not have much education or privilege but have the exposure and the drive to be entrepreneurial and do some kind of business (typically the metro youth).
In order to make sense of Consumer India, the ‘structure' story and the 'behaviour' story need to be read together. So, to begin with, let's eschew the phrase the 'Indian consumer’ and use the term Consumer India. Secondly, let's always place consumer behaviour in the context of all the forces that shaped it, including supply side forces, in order to understand what appears to be deviant behaviour from the 'global’ norm. And finally, Consumer India is a never-before world, and will evolve in its own way. 'Globalization' is not a nuclear bomb that flattens everything it falls on to identical rubble and then rebuilds it to a standardized design.
5 September 2015 Notes:
- 2014, People Research on India's Consumer Economy. ICE 360' data.www.ice360.in.
- Census of India. National Sample Survey, India