Pain and Gain of Urban India
The Business World - May 2004
There is no dearth of empirically valid, statistically sound and anecdotally familiar sales and survey data on what characteristics different types of markets in the country have, and how they have been behaving in terms of what and how they buy. Contradictions and counter intuitive findings abound, which we cannot explain away as data errors. "Tier two towns hold lots of potential - do you know that in Valparai, we sell more X YZ than in Hyderabad? And by the way Hyderabad is visibly wealthy". "UP may be poor but we actually sell as much there as in Gujarat ". "Delhi is actually richer than Bombay, but Bombay has a different character", "Bangalore and Hyderabad are both very happening markets, but frankly, I would place my bets on Hyderabad ; actually maybe on Bangalore; they are different but I can't place my finger on it"; Bangalore is a better quality market than Bombay, though not as big" "Somehow the South and West are easy markets (read: more uniform and predictable in their response to market activity), than the North, which is a bit of a lottery".
The issue of understanding the quantity and character of market potential of different towns, states and regions of India has been very challenging. Reminded me of a meeting I once went to, where the CEO, an insightful man with a great sense of humour, intoned "you will find us all perfectly aligned in our confusion". And so the desperate search has been on for a sound and rigorous explanatory framework.
The RK Swamy BBDO Guide to Urban Markets provides just that. It describes itself as the "most comprehensive index to purchasing power in urban India". Covers 784 towns with population over 50,000, which covers 77% of the urban population, and is definitely worth its weight in gold (the hard bound, almost 500 page tome also provides muscle pain, and so the CD version is definitely recommended!)
Developed by Dr I Natarajan, formerly of NCAER, the man who gave us MISH, it is a conceptually sound, statistically rigorous, and a simple and elegant way of indexing potential across different towns, aggregated into states and regions. Even nicer, is the total transparency of methodology and data sources - no guessing here what the 'consuming class' or 'climber' actually is and how it was quantified.
What does it do?
Very simply, it postulates that the Market Potential Value (MPV) of a town is a function of (a) the number of consumers that the town has (i.e its population), (b) the means that these consumers have (c) their demonstrated consumption behaviour (d) their awareness levels - a composite of exposure to media and extent of female literacy (e) the extent of market support that exists.
These four indicators of Means, Consumption, Awareness and Market Support are used in a per capita way, and combined together using certain specific weights, into a construct that they call a Market Intensity Index or MII. The MII is a good indicator of the character or quality of the market. I think about it as how much potential for return is there per unit of investment or effort in that market.
If MII is about how much bang for the buck a market (town) is intrinsically capable of yielding, then the construct of Market Potential Value (MPV), which combines MII and number of consumers, is about how much total bucks the market is capable of giving. The point made in the book, an old familiar one, which nevertheless bears repetition, is that there are sweat markets with low bang for the buck , but which can give lots of buck because there are so many consumers (like UP, like lower income India). And there are sweet markets which give fewer bucks but the return - effort ratio is far better (like Panaji, or Chandigarh , ranked number 1 and 2 in the MII index). And then of course there are the real dram markets like Greater Mumbai, and Delhi which can give both bang and bucks - number 3 and 4 in MII and number 1 and 2 in MPV.
Each of the four composite indicators that go into making up the MII - Means, Consumption, Awareness and Market Support - are in turn made up of a few indicators combined together using some weights. Means, for example, is a composite indicator of income, richness and wealth measured by Per Capita income, proportion of households with MHI above Rs 10,000 and Per Capita Bank deposits respectively. Market Support is a composite indicator of employment and bank credit to trade and transport (wonder why they left out some indicator of retail infrastructure), and consumption is a composite indicator of high and low priced durables, car, telephone and per capita FMCG consumption.
The concept of creating a town index is not new. The Thompson Urban Market index was a bible in the yester years. Many companies have their own index developed for market planning. Where this one takes the great leap forward, is in its conceptualization of the index and in its statistical rigour. Macro and micro variables have been brilliantly combined, and since the pieces of data for individual indicators have been got from widely different sources available at different units of geography, harmonizing all of them to a common base that makes them combinable has been done. The attention to rigour is evident from the perpective section of the book where different weighting factors have been tried out, and the sensitivity of ranking of the constructs of MII and MPV have been investigated and shown to be stable.
While this has obvious value for the micro market planning task that companies have to do (my CEO friends are never tired of telling me that God is in the execution!), I found that it also reveals a very rich conceptual understanding of the Urban Indian consumer market, providing insight for strategic market decisions also (where and how to compete / should I shrink and be beautiful or do I need to spread out and how much effort will the next step jump mean etc.) It also is a good basis to try and explain what we are seeing and getting confused with.