Luxury Marketing in Indian Final

8/8/2019 Luxury Marketing in Indian Final

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Supreet [email protected]

[email protected] Development Institute

Robin [email protected]

Management Development Institute


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EXECUTIVE SUMMARY

With the world luxury capitals of Paris, Milan and New

York all ready to embrace our dear Mumbai into the

same category of cities, we are poised at a position

where everyone is waiting for India. Those watching

India will agree that the economy has beenboomingsince the past few years since liberalization and has re-

sulted in a huge number of dollar millionaires. Will In-dia surpass its South East Asian neighbors? Is this mar-

ket sustainable? It is with this background that we look

into trends of the most visible symbol of high spending

customers: automobiles, trying to answer the ques-tions posed from the point of view of two major stake-

holders: the consumer and the marketer

INTRODUCTION

We all know the luxury markets are taking off. In a developing country like ours, luxury brands are growing vol-

umes and there is a promise of more. India is now poised at a point where the luxury goods industries are vy-ing for a piece of the Indian pie, a vibrant economy, burgeoning population of aspiration youth, high end retail

stores opening over the past 3 years.

India has more consumers for luxury goods than the adult population of several countries. Yet, this consumer

base accounts for under1% of all luxury goods sales.

The car a person drives in India is said to be the most visible symbol of a persons status in the society, and

this probably the reason why a luxury brand Indian consumer is very conscious of the car his drives, the bike

he keeps in front of his bungalow. With over 1 million consumers in this segment, a number that is predicted to

treble by the year 2010, there is a need to demystify Indias highly sophisticated, intelligent and complex lux-

ury consumer especially with regards to the automobile segment.


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THE AFFLUENT INDIAN

Rich and mass affluent customers are driving business for many industries including fashion, jewelry, automo-

biles, real estate and even banking & investments. The question here is who is the rich? The come in variedshapes, sizes and style quotients. Garment exporters, multinational bankers, college kids earning plum salaried at

call centers, well-heeled corporate wives, and successful entrepreneurs. What they have in common is that they

have made it big. They want the world to know just how quickly and how far they have climbed the social mo-bility ladder. Their consumption of luxury does just that, which makes these affluent masses in India an apt target

audience of luxury brand messages. Add to this the very fact that in the Indian context, the first prestige itemthat a typical affluent household gets is a car.

The Household Income Survey by the National Council of Applied Economic

Research says that by 2010, there will be 140,000 households with an annualincome of more than Rs. 1 crore i.e. 10 million USD. There are over one million

luxury customers in India and this figure is expected to triple by 2010.

A recent report by Technopak - The Knowledge Company analyzed that there

are over8-9 million consumers in India who can afford luxury brands but

do not purchase them as they cannot relate to them.

Todays brand conscious Indian is driving a Porsche Cayenne SUV, hisErmenegildo Zegna suit is made from superfine Italian wool, his wrist is adorned

with a Patek Philippe Mens Chronograph, his shades are Tag Heuer Visions, his

crocodile leather shoes are Hugo Boss.

The Indian luxury consumer is actually a walking giant. In terms of disposable

incomes, they really have enormous surplus. They are buying into fancy cars and

indulging in lifestyle products. They are actually waiting to be upgraded to

higher lifestyle paradigms, which have only witnessed in their ever increasingtravels!

A research by the research group KSA Technopak creates a fascinating profilefor the Indian luxury consumer:

Resides primarily in urban India

Household has disposable income of more than Rs 8-9 lakh per annum

Owns mostly a segment D/E car, that is, a premium/luxury salon like a

Honda Accord, Skoda Octavia etc

Resides in 'posh' localities

Chief wage earner is most likely male, average age 36-37, married with kids, with own business About 42% live in joint families or with parents

The woman is a housewife in 65% of the cases

Mostly post-graduate and above

Incidence of foreign travel at 53%, 44% travelling abroad for holiday/vacation at least once a year

The new Indian luxury consumer is pursuing a lifestyle based on ostentation, impressing others with wealth

and power, owning exclusive items and owning them first.


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Before talking about marketing to these customers, or communicating luxury automobile brands to them, it is ex-

tremely important to understand them. Their age, income levels, occupation etc. helps to filter them from therest of the lot. It is however theirbehavior and psychographics that really matters in striking the right chordwith them. Where do they live, what do they wear, what are their aspirations, where do they buy, how do they

think, what matters to them, where are they seen or would like to be seen etc. is extremely important to get this

understanding right. To get a clear picture of this affluent Indian, we contacted several HNIs (identity confiden-tial). From the in-depth interviews, the following picture emerged about this set of consumers dispersed across the

Indian geography:

High need for distinction: They only want to be seen at certain places, using only certain brands. Not justthat, they want to be a step ahead of the crowd and look up to brands to identify the key trends for them and

help them access/buy these products before anyone else. Fashion shows are an attempt by luxury & fashion

brands to define whats next and help the customers access it.

High need for exclusivity: Exclusivity is a big hit with this segment. They want access to the most exclu-

sive brands and finest quality and have a passionate desire for the best things in life. They perceive price as anindicator of exclusivity, and avoid using popular brands.

They want to feel unique and special: Personalization of products and services helps to provide thesebenefits. Brands need to recognize this hidden desire and offer them products that help them achieve it.

They seekconvenience: Affluent customers value their time as much as their money, making conveniencefundamental to success in this market.

They are willing to pay a premium: They want the best quality, exclusivity, satisfaction and outstanding cus-

tomer service.

High involvement buying behavior: Their purchases are a reflection of their self-concept and havestrong self-expressive benefits. They seek a high degree of engagement with the brands.

To understand the new Indian rich class, we conducted a primary

research wherein we asked people about the car they want to pur-

chase (given 10 choices). The details of the sample are as follows:

The responses of the samples were plotted as bubble graphs with

the size of the bubble indicating the number of people who re-

sponded for that particular brand.

Sample1 Sample2

Samplesize:69 Samplesize:69

Age:22-28yrs Age:50-65yrs

Managementstudentsat

MDI

Peopleateminentposts

incorporateworld


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These graphs show the difference in the definition of luxury automobile category for two generations. Given

that ourselective sampling approximated the purchasing power of the two groups, it can be clearly seen that the

new emerging rich, the achievers are not averse of flaunting their wealth and identify with this segment.


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DEMSYTIFYING THE INDIAN

AUTOMOBILE LUXURY MARKET

A booming economy and a young crowd eager to flaunt its wealth have combined to fuel demand for luxury cars

in the Indian market. Although it still lags behinds Russia and China, the rate of growth of the luxury car mar-ket in India has been much higher than the 12 5 growth of the automobile sector altogether.

Luxury cars in India is defined as a car costing more than Rs. 16 lakhs. The sales of luxury car segment has been

to the tune of 2254 till the quarter ending in June,2008. The highest ever, and it is being predicted that the totalsales will cross 10,000 this year. And this number does not include the 230 Lamborghinis and Porsches which are

not manufacture red in India but are imported as fully built units.

While Indias luxury market is still small, an estimated USD 100 mn at best, this-India-is-the-next-Chinalogic has been driving a steady pilgrimage of industry top brass, who come as much to pay their respects and

make a media splash as to size up the market and firm up business plans.

Mercedes had started its Indian operation way back in 1996 when the demand for luxury cars was very less. But

now the scenario has changed. Almost all the worlds top luxury car brands have an Indian presence. BMW has

recently set up its manufacturing unit in India; Audi has started its operations in Aurangabad. Rolls Royce isabout to roll out its range of cars in India by 2010.

The acquisition of marquee brands Jaguar and Land Rover by Tata Motors Ltd this year signaled India's seriousintent in the small but rapidly growing segment of luxury cars, once the exclusive preserve of royalty and busi-

ness barons. Often perceived as a status symbol, the luxury automobile sector in India is driven by a modern In-

dian generation armed with higher incomes and unafraid to flaunt their wealth.

Thus the Indian luxury car market seems to be poised for growth and may continue the explosive growth that it is

enjoying presently.

In a near-virgin market, the rewards are almost instant research conducted by the Federation of Indian Cham-

bers of Commerce and Industry (FICCI) found that Louis Vuitton was the most prestigious accessory brand,

while Armani topped the charts in the apparel category, followed by Versace and Valentino. After all, you

cant admire brands you dont know about.


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CLASSIFICATION OF THE INDIAN

LUXURY CONSUMER

SRI Consulting Business Intelligence segments consumers into 3 different categories according to what luxury

means to them:

Functional These consumers buy the luxury goods for their superior functionality and high quality. Theconsumers in this segment are the largest of the three groups and they are older and wealthier. They arewilling to buy the things which will be long lasting and will have enduring value. The decisions that they

make are logical rather than emotional. They are product quality and information sensitive when consid-ering purchase of luxury items.

Rewarding The consumers in this segment are younger than the first group but are older than the thirdone. For them luxury goods are a symbol of status, to show to the world they have arrived. They are mo-tivated by their desire to succeed and they demonstrate by the goods that they buy. So the decision of buy-

ing a luxury item is more ofemotional rather than logical. They go for the best goods available to showthat they are the best and they like the best. They buy luxury for the way it makes them seem in front of

others so rationality in the decision making is not much present. They would go more for the goods which

showcase exclusivity.

Indulgence This is the youngest of the group and they are the smallest in number. There are slightlymore males in this segment compared to the other segments. They buy goods because they want to in-dulge lavishly. They are ready to pay premium for the fact that the luxury item will give them a sense of

individuality and are not concerned with the problem of quality or enduring value. They buy the goods be-

cause of how it makes them feel and thus the decision to buy will be an emotional one and not a rationalone. So they respond well to the brands which showcase unique and emotional qualities.

The above segmentation was regarding the reasons for the buying of luxury cars.

According to a survey conducted by KSA Teknopak, we can categorize the consumer according to the attitudetowards luxury products:

The Arrived This is the most affluent group and com-

prises about 49 % of the luxury consumer segment.

The Actualised Ascetic This group comprises mainlythe self made men, professionals or the business men who

have made big in their life and are in the age group of 40s

and 50s. This is the smallest group comprising only 15% of

the market.

The Climbers This group aspire to be in the top bracketand will try to project a lifestyle that will gain them accep-

tance in the higher echelons of the society. These are 19%

of the group, says the study.

The Laggards These are well heeled and highly tar-geted customers, these group are not the biggest fans of

luxury goods. This group consists of graduates who are in

business or are management executives. This group con-

sists of 17% of the target consumer base.


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4P Trends

Product

Each of the companies started off in India with only 1-2 cars. Audi started with A4, BMW with BMW 7 series

and Mercedes with E220 and D250. Mercedes started its operation in India in 1996 and then slowly BMW and

Audi came in. The cars were imported as completely built units. And the indigenisation was initially very lessto the tune of 2.5 to 3 %.

At present, the range of cars which a company provides in India is almost equal to its full global portfolio.

Also, companies started their production units in the country. Audi started its production in Aurangabad and

Mercedes has started it long ago in Pune. The company bring in the cars as knocked down units and assemble

them in India, thus saving substantially on the cost of the 110 % import duty of import of luxury cars.

Also the indigenization of the cars have increased from 2-3 % to more than 60-70 %.

Price

The cars launched by Mercedes, BMW and Audi were in the range of 20-30 lakhs in the mid 90s, a price range

which was synonymous with extreme luxury.Today, not only has the range expanded to approximate the global portfolios, there has been a massive play

with the floor and ceiling prices of luxury cars which is now 20 lakhs to almost a crore. The ultra luxury seg-

ment hasnt made an inroad in India, but there have been a few sales per year where the consumers import the

car. This has prompted companies like Rolls Royce and Maybach to enter India.

Place

In the past, the luxury car companies only had 1-2 dealers in the metros, majorly Mumbai and Delhi. Now with

the demand coming in, not only from the metros but also the smaller Tier 2 cities, the number of dealerships

have gone up substantially and the companies are trying to expand as fast as possible.

Also, since the cars were imported, the spare parts delivery wasnt so good. The lead time required to get a

spare part was quite high. Today companies understand that the luxury consumer is a very demanding cus-

tomer and is very particular about taking care of the car.

With the expansion of the dealership network in the country, the problem of the spare part delivery gets better.

Now the companies have a chance to build customer loyalty through total customer satisfaction.

Promotion

From what used to be a minimal level of presence in Indian Auto Expos, luxury automobile companies are in-

creasingly moving towards melding with the suave consumers:

Studio BMW in the corporate heart of National Capital

Region with a purpose of capturing share of heart

Participation in fashion weeks and photo exhibits e.g. -

Audi W12 Quattro presented in Lakme India Fashion

Week

Product placement in Bollywood movies, with the recent

BMW placement in Rock On!

Association with lifestyle sports e.g. Audi organizing the

Audi Quattro cup in India, associating with golf and mo-

torsports


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MOVING FORWARD

Although the growth in the luxury automobile segment is compared to the recent Chinese markets, the forces

shaping the development are quite different in India and China. If Chinas starting point was a slate wiped clean

by Mao, Indias is a chalkboard covered with myriad traditions, religious beliefs, colorful festivals, a there-but-

not-there caste system all sewn together into a vocal democracy. If the task in China was to fill a near vacuum,

in India luxury brand have to find a way toblend in with the milieu of local traditions. For the same, we develop

a 7-point frameworkfor seamlessly capturing Indias growing fascination with luxury consumption:

1. Respect. Connect with luxury consumers as a

selective target. Luxury brands need to respect

this point of difference in all interactions between

the brand and the consumer.

2. Segment. Acknowledge luxury consumer sub-

sets. Luxury brands need to identify, differentiateand prioritize the most profitable subsets for tar-

geted strategies.

3. Insight. Identify what is important to the defined

target. Motivations could be based on personal

and non-personal factors.

4. Connect. Assess which brand interactions really

matter. For example, friends and family are an

important influence on luxury consumption inIndia.

5. Experience. Establish emotional connectivity. Deep and meaningful relationships need to be developed in

order to win the soul of the luxury consumer.

6. Indianness. Embrace and celebrate the Indianness brand. India has a very powerful and unique identity, and

this needs to be leveraged within a luxury brand context.

7. Consistency. Adopt a truly holistic approach, to ensure that all brand interactions, whether advertising or

customer service, are consistent with the brand positioning.


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REFERENCES

[1] The Marketing Whitebook 2007-2008

[2] Indian Retail Review

[3] http://www.livemint.com

[4] Marketing of luxury brands in India,Ashish Mansharamani and Samit Khanna

[5] The Changing face of luxury,Patricia Graham and Marcus Matthews

[6] http://www.brandnoise.typepad.com

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Luxury Marketing in Indian Final

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