The Kaleidoscope Of Consumer Demand
The Economic Times - May 2000
Consumer demand in India has been behaving in a fairly capricious manner - or so it seems when viewed at an aggregate level. Every few years, and of late every year, the composition of who is buying, and what they are buying changes quite significantly, a bit like a kaleidoscope where with every shake, the resultant picture has totally changed. The usual explanations of bad monsoon, stock market sluggishness, saturation of larger markets, low consumer confidence don't seem to apply across the board to all products! In a period of economic slowdown and depressed consumer sentiment, television sets sales increase handsomely, and despite poor agricultural performance, motorcycle sales in rural areas have runaway growth. And nothing seems to last long enough to qualify for a trend that is explainable. Some years, there is sharp growth in demand for rural low priced products, except that in the next year, the urban large city premium products demand is on the upswing. "Downtrading" is what all consumers do one year, only the year before that even in the rural areas they were 'upgrading'.
We have always known that Consumer India is not a homogenous whole and comprises disparate consumer groups, with distinctive consumption patterns. These consumption patterns are determined by the character of each consumer group, in terms of its economic status, its social and cultural character (values, attitudes and aspirations), its education and exposure (media literacy) and its 'market environment' i.e. the extent of availability of relevant goods and services. Not only are these groups disparate in intrinsic character, they are also subject to different environmental forces. Therefore in order to understand and predict changes in the demand patterns of Consumer India, we need to keep track of the various consumer groups, and study the changes happening / likely to happen in each, as a result of environmental forces. For example, Government policy can dramatically change economic status of a customer segment, as we saw from the surge in demand when pay commission recommendations were implemented; decrease in subsidies will alter farmer incomes, and severely dent the disposable income of the poorer urban sections. Equally, the weather Gods determines the economic status of those consumer groups dependent on agriculture. Strong media and communication (using whatever technology) booms do alter exposure levels in a very short period of time and change demand patterns while global trade agreements can transform the market environment.
If the theory of predicting consumer demand patterns is so clear, why is it, in practice, providing blurred explanations of the capriciousness in consumer demand? There can be two possible reasons for this. One, that our knowledge of what the various consumer groups (and hence consumption groups) are, is incorrect or outdated or incomplete. Two, that our assessment of the impact of environmental factors is inadequate. My view is that the consumption groups that we usually think about are too simplistic - the country has got more complex, as has the array of environmental forces. We need to develop a new 'mental model' of what the new components of Consumer India are, in order to understand the new whole better.
The usual consumer groups that we think of are based on simple variables of urban / rural and income class. Further, we think in terms of paradigms like "rural demand is usually agriculture performance dependant" and "urban demand is usually industrial performance dependant", and "all people living in a particular town class with a particular income will display similar demand patterns". We do think of refinements like using social class (based on education and occupation) instead of income, and break up urban into large and small towns. But the dominant logic of the grouping does not change.
Recent trends and data has shown that there are at least three new consumer groups which can alter demand patterns quite significantly in the future: The 'new economy' which wasn't there earlier is now here to stay and according to NASSCOM, will grow at a breakneck pace. Its people are distinctive in terms of their attitudes to money, and social and cultural orientation and exposure to the outside world and of course life stage as well as general optimism and ' consumer confidence'. Further, the combination of environmental factors that will affect the health of this group will be quite different from that of any other group. This is definitely a distinctive consumer group (which could have a large purchasing power weightage), with a distinctive demand pattern, and is not explicitly represented in our old model of consumer groups.
We have been noticing the rise in the number of self employeds and service sector everywhere in the country including the small businessmen who are not employed in agriculture who are driving rural consumption. This is a distinctive consumption group and its distinctiveness has shown up in terms of its product purchase priorities, financial orientation and fragile consumer confidence. Again, not explicitly represented in our old model. The Government, nationalised banks, public sector employees are certainly a special lot to watch. Their fortune increases have fuelled a surge in consumer demand especially for consumer durables, some years ago. Their fortune decreases could happen, their 'consumer confidence' is diminished, their jobs probably in jeopardy if either belt tightening or privatisation occurs.
So here's a thought for what I would see as a new 'mental model' along which to think about Consumer India, and understand and predict its demand patterns. First, divide it up into four consumption sectors (think about consumption sectors as being conceptually similar to the way we think about sectors of the economy). Sector 1: consumers dependent on the knowledge economy. Sector 2: consumers dependent on the traditional industrial economy. Sector 3: consumers dependent on the agricultural economy. Sector 4: consumers dependent on the Government.