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Consumer India Opportunity India

January 1, 2014

Setting new consumer paradigms

Consumer India evolves and sophisticates into a segment that marketers the world over find worth serving.

India is a large economy. In terms of world ranking, India's GDP is in the top 10, but its GDP per capita is below 150. As much as 50-60 per cent of its GDP is accounted for by household consumption. However a less appreciated fact is that this consumption is made up of a lot of people, each earning and consuming a little bit, that adds up to a lot - unlike many other markets whose structure of consumption is a few people earning and consuming a lot that adds up to a lot. This is the lens through which the Indian consumer market opportunity needs to be evaluated and businesses designed.

An even less appreciated fact is that a modest-income consumer in India is relatively less well-to-do but not commensurately backward or unevolved than her/his counterpart in other developed markets. The largest, fastest growing, youngest consumer base in the world, Consumer India, is coming of age after the internet and other technological marvels of the world have been discovered. They understand mobile banking and are comfortable with it; they will save money and have the latest medical treatment especially if it's for a breadwinner or a child; they will stretch hard and spend unhesitatingly to give their children the best education they can; and they process value in unusual and counter intuitive ways.

A modest-income person (monthly salary Rs.20,000 to 30,000 [US$ 400 to 500]) will subscribe to two pay channels for movies and cable and tell you that this is good value for money because she has two teenage sons who are bound to spend money when they go out for entertainment, and so this way they stay at home a lot more. A poor grandmother who is not fit enough for the rigours of low-priced travel is bought a smartphone by her son or rented one by her neighbour so that she can see her grandchild.

Stoking such an enthusiastic consumer base are large numbers of vibrant small scale suppliers that are ubiquitous in India, supplying a variety of things that are price right and feature rich for modest-income consumers in India. The latest fashions in apparel made affordable, or the unusual but valuable services in an erratic power supply environment like an entrepreneur who invests in a solar power panel and offers to charge all your battery operated appliances for a small fee. The local so-called ‘mom & pop’ retailer (kirana is a more apt and dignified name) will home deliver, replace and keep track of your consumption patterns to ensure that you are not slacking off or buying from somewhere else!

The shampoo sachet is the best expression of how the consumption story of a large pool of modest-income consumers works. Lots of women for example, use a little bit of shampoo (a sachet) once in a while, but regularly, and use other cheaper products to wash their hair, the rest of the time. This "regularly, occasional, little bit" consumption of a lot of people creates a market that is larger than that of those who can afford bottles, and who use shampoo both regularly and frequently.

What's more, with proper per unit pricing, the supplier wins too in terms of price realised per ml being higher than it would be for a large bottle. So who’s to say that a consumer is not a real consumer if she consumes one way and not another?

"The Indian consumer market has taught us again and again that at appropriate price-performance levels, all parts of the market explode..." 

- Rama Bijapurkar Thought Leader & Author

Percentile of HH arranged by income No. of HH(mn) Pop (mn) Share of income% Share of expenditure% Per cap GDP (US$) R - U Split%
Top 20% (middle class) 48.1 216 55.5 39 3982 47-53
Next 40% 96.3 473 29.9 39.1 980 68-32
Bottom 40% 96.3 521 14.6 21.9 434 87-13
Total 241 1210 100 100   69-31

GDP calculated at 2012-13 current prices US$ HH = households Source: A Never-Before World (Penguin 2013)

Such a consumption and supply environment, as can be well imagined, has created one of the most exciting markets in the world. Yet, we hear far too often, and erroneously, that there is some magical number of GDP per capita which decides if a person is qualified to be a 'real or genuine' consumer and below which he is a "yet to emerge" consumer- in-waiting. The Indian consumer market has taught us again and again that at appropriate price-performance levels, all parts of the market explode; however the pain that goes with this is the need

to manage a large volume, low margin business, not quite the preferred option for most business managers!

The table on the right illustrates the point that income and consumption exists at all levels of Consumer India and not just with the top 20 per cent that we refer to as the so-called middle class.

As we can see, the top 20 per cent of India, usually described as the "middle class", is a discontinuously big spender and earner; however the rest do account for 60 per cent of India's household expenditure and about 45 per cent of household income (the so-called middle class top 20 per cent is a far bigger saver than the rest). Also interesting to note is that about half of even India’s so-called middle class is in rural India. It is now blurring its boundaries with urban India, and already accounts for 40-60 per cent of the consumption of most consumer durables sales; a small increase in penetration of rural India adds large numbers of consumers to a business, given that it comprises almost 170 million households.

Time and again we tend to underestimate the potential of the Indian market because of the following notions: One, the idea of the magic number of GDP per capita above which consumption 'takes off'. This assumes that the costs of business are fixed and unchangeable and set in the developed market world, and that emerging market consumers have to grow in income to qualify to be customers!

Two, we end up looking at the wrong metrics of consumption to decide market opportunity-the frequency of consumption, the per capita quantity of consumption or the ownership of the item to qualify one to be a consumer. As we have illustrated in the examples, this is misleading or not exploiting consumption potential that already exists.

Finally, we also look at the wrong metrics to decipher sophistication of a consumer base and its readiness to consume. PC ownership, an oft watched metric used to determine when the market would be ready for e-digital services and e-commerce, got by-passed by the smartphone, now available at very affordable prices. The same infrastructure problems that inhibited the growth of modern retailing are facilitating the growth of e-commerce. Consumer India develops, evolves and sophisticates in subversive, hard-to-see ways. It rarely displays mega trends and discontinuities that are obvious. It has creeping trends, and detecting them is not easy. It leapfrogs and adopts hybrid patterns of consumption, and usually does not end up consuming like a western developed
market.

The most exciting example of how Consumer India evolves and sophisticates, and which will revolutionise the cost to serve it, is its very high digital quotient-the manner in which it has embraced technology.

The Indian consumer has proved that the conventional paradigm that low tech is for the poor and high tech is for the rich is flawed. The lower income consumer loves technology because it is person-blind, and also is the only way that companies can crash costs enough to be able to serve them, given their small ticket sizes and the low prices they can afford.

The reach of the combination of mobile SMS, digital and internet-enabled services, seen as a composite ether-like entity, has enveloped almost everybody, way outstripping individual product penetration numbers. Exposure and usage experience and access (when really required) to the internet via a variety of devices is near-universal, and 'do it for me' models have arrived with a bang alongside 'do it yourself' models, many of them very sophisticated. India never was a market for pure play, and interesting hybrid models of bricks and clicks, SMS and internet combinations are emerging.

Indians, whether poor, modest-income, rich, young, old, rural, urban, educated or illiterate, are all bathed in this digital mobile-SMS-internet ether. It hasn’t rained this last decade-it has poured. E-governance, e-services for public utilities and services, ATMs, smart cards, biometric identifications and SMS services are ubiquitous. Blessings and offerings from temples, social media (amplified by SMS for a variety of activism), low-cost airlines ticketing and match-making have moved online. So welcome to a new type of market-modest income, highly valuable, fast growing, modestly educated and tech savvy, snapping up whatever is on offer at the right price-performance point.

-Rama Bijapurkar is a thought leader on India’s consumer economy, and the author of A Never-before World: Tracking the Evolution of Consumer India, and We are Like that Only: