We are like that only: understanding the logic

of Consumer Indiaby

Rama Bijapurkar

Contents

1. Made for India2. The mixed message from Consumer India3. Why bother with Consumer India4. Understanding Consumer Indias demand structure5. Just how much purchasing power does Consumer India actually have?6. Schizophrenic India7. Demographics, psychographic and social determinants of consumption8. How to read and predict change in Consumer India9. Cultural foundations of Consumer India10. Young India, woman India: a closer look 11. Rural Consumer India12. Understanding the bottom of the pyramid Consumer India13. Winning in the Indian market

About the author

One of Indias most respected thought leaders on market strategy and consumer behaviour

Acclaimed for her unique 360 degree insight on consumers and creative thinking on new products and new business models for emerging markets

Consultant for an impressive list of companies from established Fortune 500 corporations to interesting Indian start-ups

Independent director on the boards of some of Indias leading companies and visiting faculty at the Indian Institute of Management, Ahemadabad

Made for India

India is undeniably an important future growth market of the world (it has the 4th largest gross domestic product or GDP in the world in Purchasing Power Parity), it is young (it has 450 million people below the age of 21) and it is just beginning its consumption journey

Until 1991, the government was in charge of business. After the economic liberalisation of 1991, India made a 180 degree turn in its economic ideology

However severe restrictions existed even then including severe restrictions on the operations of MNCs. Hence global brands were few and far in India.

Since then there has been a jump in GDP growth rate and a spurt in national income. Consumer confidence and aspirations have been upbeat as they are seeing visible improvements in their lives

There is now a lot more to buy, it is cheaper and better than ever before. However, consumer India has been the source of belied expectations and frustrating resistance to conventional global offerings. Nokia wins. Coke and Pepsi struggle. Honda wins. Mercedes struggles. MTV localises. Nike limps along. Etc.

Lessons for new entrants

The nature of emerging market economies is fundamentally different. India is large in size but small in terms of per capita income. A fundamental rethink around appropriate made for India's propositions is needed, which must replace the conventional wisdom of global standard benefits at global equivalent prices.

Emerging markets need not be virgin markets: There already exists in India an array of home grown options in many categories offering tough competition to new entrants. Robust brands were built in India to compensate for the primitive products they represented. This raised the bar for new entrants.Also a sophisticated sales and marketing system existed that didits best to innovate and develop whatever consumption it could from the markets.

Emerging markets today are not what the developed markets were in their infancy

The Mixed Message for Consumer India Consumer India coexists in many centuries and at many levels of affluence. Global businesses are cautious about what India really holds for them The consumer demand journey Good news: Consumer India is a market where average per capita incomes have

increased more than 5 times since 1991. The market is high on consumer confidence and aspiration which believes that its ok to spend today because tomorrow will be better.

Bad news: the slowdown that may happen now will be because of too much demand with the groaning infrastructure causing poor quality supply.

A perspective on consumer India: a mosaic of tradition and modernity A bullock cart to business class economy; land of contradictions with different

levels of intensity and different forces of globalization; India belongs to too many centuries

The notion that as GDP per capita increases, all countries will demonstrate a predictable pattern of market structure and consumer behaviour has been disproved.

Hence it is imperative to define your own India-figure the market in the context of your business strategy and develop a mental model of what my target Indiais.

Why bother with Consumer India?

Marketers ask when will India become like someplace else? Truth about India: Consumer India is large, mostly poor, getting less poor. Rich

people are increasing in number and getting richer Schizophrenic India: 23 languages, geographic and climatic

differences, rich and poor, wide income and developmental disparities.

4 separate economies co-exist from globally competitive infotech economy to uncompetitive agricultural economy

Hence a common complaint is that doing business in India demands far greater strategy complexity than any other market of equivalent size.

Why bother with Consumer India?

So why should global businesses bother with Consumer India?

India is a guaranteed to happen growth story It has young people and a virgin market Low country risk: political and social stability Strong institutions: strong judiciary, legislature Change confluence: average Indians income is

growing, Indias economic fundamentals are growing stronger. Rural India is decreasing its dependence on agriculture, the self employed population is making India a nation of vibrant achievers

China 2005=India 2015. Author predicts that India will have the same per capita income that China has in 2005 after 8 years.

The coming together of a diverse set of economic, demographic and social change waves-point towards the fact that a brave new market is here.

Evidence shows that strong India continues to grow steadily and is here to stay.

The changing shape of income distribution suggests growth in both rural and urban incomes which in turnshould herald a consumption boom

With a rise in aspiration,sophistication of the middle class, liberalisation, beinga national of self-employed,comfort with technologyand rural India going beyondagriculture are morereasons to bother with Consumer India

Beyond market potential: the triple whammy potential of India: huge demographic-economicopportunity; global cost cutting opportunities; the disruptive innovation capability of talented

scientists and managers

Understanding Consumer Indias demand structure BRIC report of Goldman Sachs says that in the future, the worlds largest

economies may not be the worlds richest economies. Being individually poor but collectively rich differentiates emerging market economies from developed ones

Author says that in India, consumption has taken off at far lower income levels than what is thought to be the magic per capita income level. But the averages marketer is not able to innovate and profitably serve demand structures that are characterised by large populations with low incomes, low to moderate penetration levels and low per capita consumption levels

There are 3 broad segments in the Indian market: premium, popular and discount. However there are no formal definitions of these-the rule of thumb is that the top 10% by income of any population constitutes the premium market, next 30% is the popular segment and the last 60% is the discount/mass market. However a translation of data reveals that the 2 segments are roughly equal in terms of total value, though they differ vastly in terms of the number of consumers in each and their respective income levels.

In markets that have historically favoured small producers, the unorganisedsmall-scale buyers are far greater in number than the large-scale, organisedsector buyers. In India, a lot of small buyers buying low-priced equipment or services can and do create a market as large in value as that created by large buyers. The former is the unorganised segment while the latter is the organised segment. Many large companies define their target market and report market share in terms of the organised sector and miss the point that there is a market, perhaps much more valuable, at a lower price-performance point.

Understanding Consumer Indias demand structure

Initial assumption was that the a large part of the popular market would migrate to the premium end and the popular segment would eventually die.

But in categories like FMCG, the reverse happened. The popular segment grew with richer consumers also opting for it.

The paradigm of premium-popular-discount=rich-middle income-poor is now quite irrelevant

The New Market Structure Construct: by value orientation: NCAER has clustered Consumer India into 5 types of consumer

groups: the rich, the consuming class, the climbers, the aspirants and the destitute.

What is interesting is that while the same durable is being consumed across the consumption classes, the performance price points within them are many.

The value orientation-based consumer market structure

The NCAER study shows thatThe 2 largest consumer classes are the climbers and the consuming class, with about 75 million households each.

Dynamics of future growth: There is constant value growth as there is a virtuous spiral of demand as each class graduates into the next

Just how much purchasing power does Consumer India really have?

GDP per capita number would suggest that purchasing power isnt much. However averages about India are misleading and reality is quite different.

Myth of India's middle class: an idea that was packaged and sold to the world as a sales pitch for FDI in the early mid 1990s. After lying dormant from 2000, the idea is resurfacing.

However there is no unique or universally accepted definition, it is much poorer when compared to the middle class in developed countries.

How to think about the purchasing power of Consumer India: must abandon debate about size and affluence of Indian middle class. Must replace model of a monolithic middle class with a multi-layered model of people.

Just how much purchasing power does Consumer India really have?

While income is understated and does not measure the real thing, it is perfectly usable for grading the population based on its relative purchasing power and to compare the growths and declines of various income groups over time. In India, consumption is like maternity-a certainty, income is like paternity-matter of inference

Forecast for 2005-6 to 2009-10: in the next 4 years, rich households will continue to increase equally in both urban and rural areas. A rural middle income boom is also forecast. Along with this, a predicted fall in population growth rate (more in rich households) will make the rich, richer in terms of disposable income.

If this is accompanied by a drop in price thresholds, then therewill be substantial market growth for products and services across the board.

Schizophrenic India

Define My Target India: Consumer India has 5 consumer classes-benefit maximizers;

cost-benefit optimizers; benefit point constrained cash minimizers cash constrained benefit maximizers; destitute

Urban and rural India are different worlds evolving at differentspeeds.

28 states are totally different from one another. Now there are 4 age cohorts with 2 distinct consumption

ideologies and shades in between: Indias pre-independence generation, first post-independence generation: both with socialist ethos. Now children post liberalisation and the next generation confident about its new path

5 economies: agriculture, manufacturing, government, services, IT

The good news is that there is plenty of choice for creating competitive advantage by defining my target Indiainnovatively.

Demographics, psychographic and social determinants of consumption

SEC A1-Tip of India iceberg SEC A,B-prospering and spending India SEC C+R1-middle India SEC D+E1+R2-mass market India SEC E2+R3-poor but consuming India The self employed as a distinct consumer class Psychographic: According to a study by Rediffusion

DY&R, Consumer India can be divided into the resigned strivers, mainstreamers, aspirers, and the successful.

Ethnicity-several companies have chosen to consider ethnicity as one of the many variables in their operational marketing strategy. Advertising often has a single concept but executed for different cultures.

How to read and predict change inConsumer India

In Consumer India, a large mass of people moving with a very small acceleration unleashes a large force of change.

A slight change in rural income brings in its wake a huge market. Consumer India changes occur not only to the consumer intrinsic

world but also on the supply side. mixed verdicts and continuity with change cause much

frustration-both are typical of morphing change. Anyone wanting to read change in India must be prepared for

mixed verdicts, which are the hallmark of everything Indian, from economy, polity to markets and consumers.

Looking for mega trends is a futile exercise. The thing to look out for are creeping trends. The change in employment patterns, blurring boundaries between India and Bharat, creeping income levels, increase in literacy, rise of womanism are examples of creeping trends in India.

How to read and predict change inConsumer India

Predicting future change: the analogy trap Analogies need to be thought through. Global warming, health

hazards from fast food etc are all available in real time to nascent market consumers as they are to developed market consumers. Hence it is essential to painstakingly construct future cultural contexts from first principles, by studying age cohorts, cultural drivers of change and by understanding the process of change and the DNA of the society that is changing.

DNA of Indian society: this as well as that The dominant logic that there would be a sharp battle between

tradition and modernity was buried. Consumer India adopts a this as well as that approach

Hence the future of India must be thought of in terms of co-existence, fusion, loosening of rigid structures and new ways ofdoing old things.

Cultural foundations of Consumer India Of the 3 foundations of consumer

behaviour-psychological, social and cultural-the last one is the hardest to see and decode-and is critical for CEOs and strategists.

The emergence of discontentment is an important cultural shift

Pragmatism replaces nationalism is another shift that is marked with opportunity

The force of the ICE wave: technology-driven cultural change

There is a rush to catch up with the rest of the world. HiTech is seen to be the solution to create low-cost, wide scale high quality products and services that will enable businesses to get a share of the Indian as well as global market.

ICE is Information Technology, Communication and Entertainment-converging to shape a new India.

IC2=E2: where I is IT power; C2 is communication revolution and connectivity leap; E2 is explosion of exposure to the world

Cultural foundations of Consumer India

Resultant cultural changes in Consumer India: Tech-led democracy, reducing power distance: with the arrival of the internet,

even poor people understand that there is a way to be heard and seen. This results in increased bargaining power and a general move from accepting status quo to demanding rights.

Other cultural themes that are here to stay: Empowerment and enablement: the new demand is for strengthening the poor to

effectively compete for opportunities by giving them education etc. The focus on enablement is the changed discourse of NGOs who seek partnerships for financially stable models

Negotiation: modernity is nothing but negotiated tradition. Other related themes are adjustability, adaptability, this as well as that, synthesis, hybrid models

Hybrid models: the emphasis is always to make do, cobble together and manage to create the appropriate solution at an affordable price

Contextual morality and ideology: solutions are all-round accommodation, adjustment and collusion with detachment

Social legitimacy of aspiration: today, unlike earlier, a whole range of aspirations are socially legitimate from becoming a movie star to Ms Universe

Child-centricity: in India child-centricity is because of the hope and expectations that children need to be indulged today so that they cab take care of their parents in their old age

India changes in a morphing waycoupled with the hybrid mix of Western and Indian behaviour.

In the past, abstemiousness wasa lauded virtue. However this idea Was probably a detour caused by the Gandhian and Nehruvian way oflife. Hindu culture is probably theonly one that prays blatantly toa goddess of Wealth.

Indian consumers are far moresatiated with the do good productsand it will be some time before the feel good products find their place in his/her purchase priorities.

Cultural foundations of Consumer India

Young India, woman India: a closer look

Growth levers: Rise of generation next Expected changes in homes

as a result of the new, emerging Indian woman

Expected increase in consumption and consumption sophistication of rural India as both its income and exposure increase

Youth market: errors in judgment: Indian youth does not comprise a brand-aware and consumption-obsessed market waiting to happen. Also the youth in India is not identical to the youth all over the world. Not enough research on defining a modern Indian youth

Cultural foundations of Consumer India

The Woman Consumer: The conservative working woman:

continues to play the traditional role at home

The home entrepreneur: running home businesses

The changing housewife: in India the increasing number of working women is not driving change as much as the increasing number of housewives who have acquired the working woman mindset

Forces of change: Education Outdoor work Role models Television

Rural Consumer India

Rural India is a potential market that is seeing significant income growth and employment diversity for the 1st time in its history.

However it is important for companies to understand how best to segment it, define my target Rural India, and shape business for it

Changing structure of rural economy: beyond agriculture Rural has a thriving manufacturing and services sector Per capita rural income has grown at the same pace as urban

between 1993-4 and 2000-1 Top quartile of rural India have been discontinuously higher

spenders than the average There is considerable pent up demand for goods and services

Understanding the bottom of the pyramid Consumer India

The size of the BOP market is 650 million people, who individually earn less than a dollar a day, but collectively account for 30% of the national income, a little over 33% of consumption expenditure and a little over 20% of Indias savings.

A dollar a day per capita is a reasonable income in India

Sensible investment for the future as brand emotions tend to stick when the poor graduate to the rich and securing the loyalty of 400 million consumers

The BOP is rising fast in terms of absolute quantum of income earned

Favourable change in social attitudes. Hunger for knowledge and information is extreme

Understanding the bottom of the pyramid Consumer India

Characteristics of the BOP consumer: Poor but not backward They value all kinds of productivity devices that help them earn more Poor consumers do complicated value processing Poor consumers innovate to make products value-right Poor consumers are technology embracers A generic framework for understanding low-income consumer better:

Segmenting low-income consumers: age, education and occupation segments combined into a spell length in low income variable or how long the household or individual is likely to remain in the low-income group

Understanding spending power and patterns beyond annual income: example, borrowing practices which opens up opportunities for thrift stores etc and understanding value processing and budget balancing.

Winning in the Indian market

Building a business in line with Indias large GDP and population requires winning in the mass market. Argument by companies that they will run a small and profitable operation in the class market and wait till the mass market gets rich enough is deeply flawed. This is because mass markets do not sit around waiting till they get rich enough.

3 factor to getting it right for the Indian market: Creating blockbuster relevance by defining business

arenas in ways that make them relevant to the aspirations and problems of most Indians.

Creating perceived value advantage for consumers who have modest incomes but are not backward

Getting the business economics right

Winning in the Indian market

What MNCs should do differently: Recognize and accept that India is a multi-tiered and multi-

layered market and needs a multi-pronged strategy Recognize and accept that emerging markets are not the way

developed markets were in their infancy Forget about thresholds of income above which consumption

takes off The global vs. local power struggle: Consumer India requires

the creation of new solutions, rather than the transplanting of strategies from other markets. It requires companies to leveragetheir core competence, things that they are very good at doing, and apply it to new markets-to create winning made for Indiasolutions.