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TRIUMPH OF CHOICE
- The transformation of Indian markets

On glancing through my writings of 2001, I find that I had expressed much discontent with the government not doing enough till then to encourage consumer-goods manufacturers. Sales-tax variations between states made India into many markets and not a single one. In addition, audience measures for television and cinema were unsatisfactory, companies spent little on product development, many still aimed only at premium markets, did little in product and packaging development, most products were a copy of what was popular in the West.

It is strange how, only six years later, there is a transformation. As far as the government is concerned, value-added tax has been introduced in all states. It has made a huge difference to sales and marketing of products nationwide. Companies can plan for and publicize a single all-India price (except for the places that have octroi) without difficulty. Forty years back, when I was introducing new consumer products and wanted to advertise a single-end price for the consumer all over India instead of a ‘company price excluding taxes’ as others did, I had to persuade my company to have five or so different ex-factory prices in relation to the varying tax rates in different states to ensure a single-end price. Even then, the retail margins varied between different states. Price and margin standardization was not possible.

As far as advertising is concerned, there is now a vast choice of advertising channels and a great deal of information on viewership and readership. The internet is also making headway, especially for consumer durable products. Choosing the correct media mix has become a complex task and mistakes are expensive because of the high cost of media. The rewards for correct decisions are equally great. Media buying is now a specialist business, separate from the normal advertising-agency work.

Companies are busy divesting (many times through sales to other companies) products that do not, in their view, fit their strategy and buying other brands that do. Dabur, Godrej, Levers and Tata Motors are among the many buyers of capacity and sometimes also the brands of other companies. Some names have disappeared or are disappearing — like Balsara, Modern Bread, Sahara Airways, among many others. The turmoil in the markets is great, as are the competitive pressures to achieve better market shares and profits.

There are other new trends as companies cope with the changes in markets. The Indian retail scene, which was stagnant for years, is now changing. In the past, companies sold to retail shops of varying size, but practically no retailer was strong enough to dictate terms to the manufacturer, and certainly not to the big companies like P&G or Lever. This is changing rapidly. Chain stores, large department stores, retailers purchasing in groups to get the advantage of bulk buying are some of the new developments that have forced all companies to rethink their sales strategies. No longer can an old-fashioned salesman call on the Buying Director of, say, Lifestyle or Big Bazaar. The caller will have to be at a much higher level and he must be prepared to negotiate prices. The price list is no longer the bible it used to be. This process is accelerating and companies that do not prepare for it will lose.

Retailers will soon begin to introduce their own brands as Foodworld has already done with many food products. They have also begun to refuse to stock some brands and some pack-sizes because they are not satisfied with the profits from them. There is no law that can compel such retailers to stock a range wide enough to suit all consumers. Perhaps someone should use the consumer courts to ensure that smaller pack-sizes and lower-priced brands are not banished in this retail quest for optimizing profits.

Companies are also trying to get their sales forces to learn new skills. These include creating specialists in merchandising, displays and window-dressing. The salesman in a large store must be able to talk knowledgeably to a self-service store manager of his product’s sales and profits in a shop in relation to the shelf-space he wants for it in the store. He must also be able to compare his numbers with those of other products. When there is a special promotion on a product, he must now be able to demonstrate with numbers as to what additional profits are possible because the promotion will stimulate sales.

I had developed the concept, using the data from NCAER’s larger sample surveys, that the Indian market could be seen as a pyramid, with a large base of the destitute, smaller number of aspirants, still smaller number of climbers, with the next two levels of the pyramid being the consuming classes who bought most goods and the rich. I had forecast in the early Nineties that, over time, the bottom would narrow, the middle would bulge and the top would also get larger. Ultimately, the market as a pyramid would become a ‘fat boy’ with many more among the consuming classes and rich, and much less than before in the bottom three levels. Recent NCAER draft estimates suggest that this forecast was correct.

Between 1989 and 2006, the percentage in the “consuming classes” among urban households is estimated as having grown from 27 to 66 per cent. The “very rich” may have grown from 0.8 to 6.3 per cent. The “destitutes, aspirants and climbers” together have probably come down from a total of 71 to 27 per cent of all households. Among rural households, the estimates show a slower rate of change over the same period, with the “consuming classes” having gone up from 8.6 per cent of households to 28.7 per cent, the “very rich” from 0.1 to 1.0 per cent, while the bottom three classes in the pyramid came down from 90 to 60 per cent. Clearly, there has been a transformation in Indian markets.

It is not surprising that companies are rapidly gravitating to rural markets for all kinds of products, from cell phones, ready-mades and toilet soaps to motor cycles and cars. The retail revolution is stronger in the towns below the metros. The “small” towns of yesterday like Ludhiana, Rajahmundry and Bellary have become markets of high potential, buying up top-of-the-market cars like the Mercedes. The markets have also gone deep into the countryside for a variety of manufactured consumer products.

The “Velvette” shampoo revolutionized the approach to the bottom of the market pyramid. It has extended itself now to many other products. Design and appearance have been modified to preserve essential functions but at low prices. Air Deccan is a good example of applying this principle. However, as Vijay Mallya said when he bought control in Air Deccan, “These low price customers will climb to my airline.” That is a good principle to keep in mind. The customer starts with low-priced products and then gravitates to the upper reaches.

The consumer revolution is here. The consumer has become king; he can now choose to walk away from a brand that does not suit him, which could not be done a decade ago. Manufacturers now have to pay close attention to what the consumer says and wants.

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