But are marketers ready, asks Rama Bijapurkar
The Business World - December 28, 2003
Changing Shapes Of Income Distribution Will Create A New Consumption Push By 2006-07
Why does the changing shape of income distribution herald a change in consumption behaviour? A traditional bottom heavy triangle with most people in the lower income group and a few in the top indicates that the center of gravity of market consumption and of the reference group, which defines aspirations, is very low. As the shape of income distribution starts bulging in the center, both the center of gravity of what is consumed, and of who the 'majority' that defines aspirations should be, shifts.
NCAER income distribution data of what has happened so far and their modelling of the future of income distribution is invaluable. It is the only 'single source' data that also looks at inflation - indexed income and reliably shows shifts in shape. The projected shape of urban India in 2006-07 (See 'Getting Top Heavy') shows that the centre of gravity will be the upper-middle-income group and that there will be a large consumption push. Taken as an aggregate, the projected shape of income distribution in 2006-07 suggests that the centre of gravity of consumption and aspiration rests with those who have 'just escaped poverty'.
To understand the full impact of the urban change, it is necessary to compute the arithmetic of increase or decrease in each income group as well as the increase (or decrease) in penetration in each group. Only when viewed together do we get the full picture. In some categories, depending on supplier strategies and starkly lowering price-performance points, the results could be counter-intuitive. However, for the rest, this is likely to be the typical arithmetic. The tale goes like this, NCAER estimates the number of households to increase by 8.6 million in the high-income group and 7.3 million in the upper-middle-income-group, while the middle-income number grows by 4.3 million and the bottom two income groups will decrease by about 2.3 million and 7.5 million, respectively. (The total number of urban household is set to increase from 49.1 million to 60 million). A 10% increase in the top income group penetration, a 15% increase in the second income group, and a 10% increase in the third income group could give incremental volumes of 7.5 million in the highest income group 5 million in the next income group and a mere 2.7 million in the third income group. The urban market is indeed on the periphery of a huge consumption push.
Rural India will have two points of significant household increases - 4.6 million high-income households and 13 million middle-income households will be added by 2006-07 (total number of rural households will increase from 122.8 million to 139 million). Let me present a sampler of the same typical arithmetic for a well-penetrated category, which has 45% penetration in the high-income group, 25% penetration in the upper-middle-income group, and 10% penetration in the middle-income group. By 2006-07, a reasonable estimate given the current penetration base and past patterns from urban areas is that it would increase to 60%, 30% and just 13%. Therefore, the incremental volumes would be 3.3 million from the upper-income group, and 2.3 million from the middle-income one.
Given the increasing urban exposure of rural India, the urban and the rural upper-income groups can form an interesting continuum market, giving it a scale of 23 million households, or 115 million population. In 2006-07, the consuming class as we defined it earlier, would be about 60 million households, or 300 million consumers.
However, a state-wise look at rural income shapes, show a totally different pattern (See 'Shape of Rural Income Distribution'). It shows that in states that account for about half the rural GDP of the country (as defined by the Crisil Centre for Economic Research Analysis), the centre of gravity of consumption and aspiration has already moved towards the middle / upper-middle-income classes, again suggesting that there is another inflection point of consumption that is about to happen. And that perhaps these states are far more ready for sophisticated consumption than we imagine them to be.
Implications For Marketers I have said in the beginning that there is a new Consumer India waiting to be served with relevant products and services. Let us now look at some implications for marketers.
Required: Mature market strategies. Two-wheelers have penetrated about 12% of all households. By this metric, it is clearly an underdeveloped market that should grow from first-time buyers and should not be lapping up (or even accepting) higher-level features. Yet, half the sales in a year are from repeat buyers and half from first-time buyers, and about half from small markets (with populations below 1 lakh). In many categories, consumers exhibit plus one level up behaviour - whatever you think they should be buying given their affluence and the state of market development, they buy one level better than that. Outdated tech, low performance and plain looks are rejected, no matter how attractively priced. The answer to this puzzle is in the differential levels of penetration. Urban penetration is about 24%. But in the top 30 million households by affluence, penetration is 52%. And the trend of two-wheelers giving way to cars in this top urban affluence grade is expected to be picked up by the second affluence grade as prices of small cars drop further.
In the case of refrigerators, the overall penetration is 10.4%, suggesting an underdeveloped market. But one out of every two of the top 30 million households have one.
Therefore, while many companies are focussing on bottom-of-the-pyramid strategies to increase penetration and drive future growth, the current market, where much of the value today resides, needs to be viewed with a new pair of lenses.
Maturing supply shifts the basis of competition and, hence, drivers of brand choice. Improved supply, 'performance, features and quality' partly of all major brands and the near price partly between them shifts the basis of competition to the augmented product from the basic product. Add-on services (like removing pain points, and not piped music in showrooms), and buying experience will be the driver of brand choice. Can the air-conditioner be fixed without the usual hassle of chipped paint five different contractors, broken walls etc in just a day? Does your cell phone company view your bills online when you call them so that it can advise you on what is the best tariff plan? Can the family be given 12 lessons at home after the personal computer arrives? These will be the issues based on which choices will be made.
Changing markets need new bases of segmentation. As the market matures, and is subjected to multiple changes at the macro level and in related categories, segmentation has to go beyond the product-centric paradigm. Instead of looking at 'Premium, popular, discount' price-performance bands, it is time to look at consumer groups, how they view the market and what drives their choices. The question to ask of research is not 'how is the market segmented?' (the answer to that is that it is segmented the way marketers have segmented it so far), but what is the new way in which to cut it up so customers can be served better? Take refrigerators. The context in which the category exists has changed. There's more eating out, more phone call deliveries of food and groceries; women are changing and reorganizing their time and their household chores... Clearly, there are segments beyond the modern mum and the good health-conscious housewife, which need to be identified (again on a functional usage and attitude basis rather than on whether she wears her hair short or gives parties - the lifestyle kind of variables).
The same is true for almost any category. Usage patterns are now so different that they form a good basis for segmentation, product design, pricing and service design. From a mere psychographic point of view, Young and Rubicam has, in a cross-cultural study done years ago, identified groups that we see clearly in Consumer India, which could form a useful basis for segmenting the market.
The study categories people (and consumers are people first) into the Resigned, whose main goal is survival; the Struggling, whose objective is improvement and escaping hardships; the Mainstreamers, who are looking for security, conformity and honorably discharging family responsibility (the archetypal provider); the Aspirers, who want to be seen as successful and attain status and a lifestyle that they so envy in others; the Succeeders, for whom material success and recognition are the key; and the Explorers (I am not sure we have too many of those), who are in search of self-identity and self-satisfaction.
These categories are linked to income, of course, but not driven by it. The Mainstreamers, Succeeders and Aspirers are correlated to occupation, to age and life stage and to geography. Qualitative researches say cities can be characterized this way too, hence, they show different Consumption quantities and character even for a given income distribution.
This is not just applicable to classical consumer goods. Doctors are also caught in a web of change (e-empowered patients, more professional alternative medicine, changing patient behaviour from the self-employed and younger generation). Within them, too, there is the cutting-edge doctor who treats with leading-edge medicines; the conservative curer who is into holistic healing; the 'time-saving effort-saving' add-on services, computerised doctor.... And each requires a different strategy. The same logic applies to B2B business too.
Consumer value processing needs to be studied anew. The way consumer process value inside their heads - benefit worth and cost worth and, hence, overall worth - has changed. The EMI, the ' plus one level up' mentality self-employed ROI processing.
("Will this investment help me earn more?"), the family-bonding need, the changing identities of women, the 'beyond farmers' market in rural India, the maturing of evaluation parameters - all point the fact that we need to discover the new value processing, of different groups, anew.
In fact, it is time to revive the discipline of Consumer Behaviour, so little practised and so little taught in the Indian Ivy League business schools. Market structures are easy to figure out. Yet, consumer behaviour, the second part of the puzzle, is far from understood. This is, perhaps, because we look for changes in the model we know, while consumers make much larger strides.
New opportunities to serve. If one were to look at the new Consumer India and the consuming class through the lens of 'what is not there but ought to be', several gaps show up. Here are some examples:
Home utilities: I do not believe we have enough depth in offerings. Take the need for better living. The new home is characterised by less space and more things. In the US today are some interesting products: stoppers to place under beds to raise their height, and storage receptacles that fit under the bed smoothly with castors, thereby acting as extra cupboards! Tents with zips on the side, which become temporary cupboards when relatives come visiting. Modular furniture, Event the humble pegs that can be stuck behind doors. We need more those here too.
Women's liberation: When frozen food took off in the US long ago, it was because it gave voice to a woman who saw her life being beyond the kitchen stove. We have a similar situation here today. As an FCB Ulka study recently said: "This Annapurna hates to cook." Yet we do not have a reasonable ready-to-cook / ready-to-eat product range. It is easy to blame consumers for not adopting. But now there's evidence that she is ready for it because she has more productive things to do with her time. Watchmakers tell us that wristwatch penetration is low among women - conversations with women show they are more time-bound and schedule-bound than we think they are. In urban India, in the top three income groups, what can we do to help them get better organised? There is technology comfort. Is there another durables revolution waiting to happen?
Self-employed: Are the financial services products we have varied enough, innovative and comprehensive enough for this group? I suspect not. Are there enough products to signal social and economic mobility? What can we offer them by way of productivity devices? This market is probably deep for B2B services, but these are micro enterprises, and need specially-designed services.
Health foods, educational toys, simple cheap computers for women and children - it's time to revisit these again. Is there a large opportunity for functional, high-prestige, low cost hotels? Is it time for a boom in budget holidays, in domestic tourism with an education focus for children? I would suggest that every idea that was dumped in the past 10 years because it was 'ahead of its time', and the 'consumer was not ready', be brought out of the closet. The consumer may just be ready for it now - if he hasn't already gone past that stage!
Conclusion
The market has enough scale to offer, and enough desire to consume. The consumer is ready and waiting to be served. The new Consumer India will pose a huge challenge to marketers because it offers a difficult revenue model of large but not enormous volumes, modest prices and high benefit expectations. It will reward real innovators and ignore marketing hype. Most of all, it will continue to comprise many markets at different stages of evaluation, demanding a complexity of strategy that is far in excess of its worth. And yes, it will continue to throw up unexpected answers to the arithmetic of (medium penetration) x (large size of consumer base) x (low price-willing to pay) x (modest per capita consumption). |
