Devangshu Dutta
December 18, 2009
(Contributed to the BusinessWorld cover story – “What 2 Expect in 2010”, issue of January 4, 2010)
Everything that can be said and assumed about the Indian market is true at some level of granularity. Very simply, in India there is a segment for every product, an opportunity for every service, be it ever so small. But when bubbles are bursting all over, as the Noughties Decade comes to a close, the puzzle that is Indian consumer market also warrants a fresh look.
For most of the Noughties Decade India has seen Generation-C, the “Choice” generation, coming of age. They have moved over from being “secondary customers” consuming off their parents’ incomes, to entering the work-force and becoming customers in their own right.
It may sound trite, but Gen-C customers have grown up with many models of 2-wheelers and 4-wheelers and colour television with multiple channels. They have many more career options and many more opportunities in each career. Not only have they grown up on a diet of choice, they have also grown up with much higher confidence about the future, about their place in the world and what they can expect. And they have infected the outlook of generations older than them as well with a similar confidence.
Therefore, for most of the decade, it has been a distinctly rosy picture for consumer goods marketers and retailers. Business plans routinely expected 20-50% annualised growth, and businesses even delivered those figures on some basis or the other. Organizations as diverse as retailers and management consultants were inspired by India’s age-old image as the Bird of Gold. Supermarket chains mushroomed like never before, department stores and speciality retailers grew their footprints, quick-service and casual dining expanded covers, while electronics, durables, leisure companies, and car brands all counted India among their hottest markets.
Product off-take reflected this outlook. Amongst the FMCG sector, while basic items such as the bath and shower segment demonstrated a steady annualised growth of about 7%, premium cosmetics galloped at almost 20% a year. While the relatively mature 2-wheeler market grew at just over 7.5% annually between 2002-03 and 2008-09, the 4-wheeler passenger vehicle market demonstrated growth of almost 14% a year in the same period.
All this was before the recent rude interruption.
A speed-breaker began showing up in the consumer market in late-2007 and grew larger through 2008. Once the global financial markets melted down in late-2008, media sentiment turned acutely negative about the Indian market as well. And, eventually, with uncertainty prevailing around the world, consumer spending in India did take a hit. Consumers cut back on the frequency of purchases or traded down.
On the trade side, retail businesses began acknowledging that stores were performing below plan and went into rationalisation mode. For branded suppliers, where some of the growth had come from stuffing the pipeline and filling new shelves, wholesale order books became thinner.
Yet, as painful as the economic scenario might have appeared, the Indian consumer market has shown remarkable resilience. Demand in smaller cities and towns has remained robust. Regional brands, especially, found plenty of opportunity to grow in markets and geographical regions where they were under-penetrated or absent.
And as the mood lifted through the latter half of 2009, consumer demand clearly moved back up. The speed at which the demand rebounded would suggest that the Indian market was relatively sheltered from the global economic storm.
However, there are some critical differences to understand.
On the one hand, Gen-C’s confidence shook for the first time – a generation that has only seen upward mobility, witnessed job cuts and salary freezes or declines even if only second-hand. Comparisons with the Great Depression may be exaggerated but it is a scenario they can now imagine as a possibility. At least three new professional academic batches have or will have moved into the job market under these sober conditions. On the other hand, tremendous inflation in basic costs supports some amount of uncertainty about the future. The fact that many of the Gen-C would have just begun or would be about to begin families serves to only heighten such anxiety.
So, let’s recognise two immutable facts about the Indian consumer market in the current environment.
First: that the ancestral “steel safes” are back, at least figuratively if not literally. Customers do want to save more for now. And if they are spending, they want to feel that they are extracting far more value than the price they are exchanging across the counter, value that will last long after the transaction at the store. In recent years, this inherent ‘value orientation’ of the Indian consumer was neglected by many. Now every product, service or brand must aim to deliver this sustainable value, and demonstrate the value repeatedly.
Secondly, each business needs to look at the lifetime value of a customer if it can. Rather than cutting the golden bird open and trying to extract all the golden eggs at once, one needs need to keep the bird well-fed, happy and healthy, and enjoy its rewards over several years. Rather than creaming the market, pricing, branding and distribution need to be structured for a sustainable relationship with the customer.
Some businesses will work better than others in this market, and strategies will need to be adapted. A lifecycle approach may handy in identifying the business segments which might meet the steel safe criterion, or the golden goose criterion, or both.
The first segment that comes to mind is weddings. Wedding expenditure is seen as a “social investment” for both the families, and the actual items bought are an investment into the couple’s future together. So, bridal trousseaux and wedding wardrobes, wedding arrangers and catering, and household goods provide significantly more tangible and intangible value than the money spent.
Similarly, “first child” isn’t usually a segment in any marketing handbook, but should be. The couple’s first born, especially if the baby is the first in its generation will usually get a disproportionate amount of attention and spending on clothing and utilities. A baby’s growth into a child, of course, can provide a relationship and marketing opportunity that can last for years, but the first 2-3 years are specifically valuable. What’s more, given India’s demographic dividend in the form of a sustained under-30 age group, baby products have a sustained and growing value as a market.
As the child grows, there are clear indicators of current and future value that can drive purchases. While base schooling is an essential expenditure, extra-classes and tuitions are a high-value discretionary investment that parents are choosing to make. Sports, on the other hand, however essential they may be to a child’s development are often seen as a distraction. That is, unless the child is attending sports coaching and the parents have an eye on helping the child create a career from it – in which case, a coach who is apparently good, branded equipment and kit are definitely worth investing in. So a cricket coaching franchise might just be the ticket to fortune, while a toy company may struggle. Some may decry the decline in art, craft, philosophy and fundamental sciences, but these are not on the list of priority of most parents. In the short to medium term, parents would continue to disproportionately push their wards into academic disciplines that are seen to develop marketable skills and pay well. Expect continued growth in the engineering, medical and management education market, but also in other vocational disciplines.
On the other hand, everything is not an investment for the future. Present comforts may also provide extra value, through convenience.
Some of these comforts may be as small as enjoying out-of-home exotic meals (pizza and pasta still qualify as exotic for the bulk of the population). Or if eating out looks out of budget, ready-to-eat and ready-to-cook meals are an easy substitute. Jubilant, Yum, McDonald’s, Haldiram, Sarvana’s, Nirula’s and the thousands of other casual dining and snack food chains have a long clear highway of growth ahead, as do snacks and packaged food companies such as Nestle, Britannia and ITC.
Brown goods and white goods that offer comfort and convenience – coolers, water heaters, convectors, air-conditioners and kitchen gadgets – continue their onward march, despite the huge shortfall in electricity. Even if the big brands struggle with their price points and overheads, regional brands and private labels will continue growing strongly in these segments.
Health is another area for significant investment. With prevalence of lifestyle-ailments, from stiff necks to high blood pressure, basic pharmacists to cardiovascular specialists are all in demand. Anticipate significant growth to continue in over-the-counter medication, medical devices, as well as clinical and hospital care.
At the other end of the scale, with decent and adequate public transport lacking in most cities, we can expect personal vehicles to increase multi-fold, despite the small blip in 2008-09. About 60 million 2-wheelers and over 10 million passenger vehicles have already been added during the decade, and the growth trend looks set to resume from 2010, unless there are significant oil price or vehicle taxation shocks delivered by the government.
And as consumer confidence resurges, more overt displays or personal spends will return as well, including apparel, footwear, home products, accessories, vacations, fitness and recreation, but we would expect them to follow behind the higher priority “safe” or “geese” segments.
Finally, the one thing that marketers in any product need not be really concerned about whether there is a future in this market. Even, Hindustan Unilever, a mature FMCG company with very high distribution penetration built over decades, still counts less than 60% Indians as its customers.
Surely most companies have a much longer road ahead before they need to be worried about their markets becoming saturated.
Devangshu Dutta
May 2, 2009
Wal-Mart has just opened a new store Supermercado de Walmart in Houston (Texas). The Houston Chronicle reports that the Supermercado aims to reach out to the Hispanic population, tailoring the foods more to Hispanic tastes and needs and adding signs in Spanish. Wal-Mart is also reportedly planning to open a Mas Club this summer, based on its Sam’s Club warehouse outlet, but focussed again on Hispanic customers. (The original article is here: Wal-Mart gives its Supermercado concept a tryout).
Going by some of the negative comments attracted by the article, it is legitimate to ask: what will Wal-Mart’s existing customers think, and how will they behave?
I guess the answer is clearly not black or white (or beige, red, yellow or brown for that matter).
Wal-Mart is segmenting and localizing its offer as a smart information-rich retailer should.
Some customers who hold a tightly parochial view may feel alienated when they read about this development and may stop shopping at Wal-Mart, but most probably won’t bother as long as their local Wal-Mart continues to deliver what they want at prices they like.
Vibrant societies and economies are true melting pots; rather than exclude, filter and ensure conformity, they imbibe and blend newness. The fact is that real assimilation causes both to change – the ones coming in and the society / geography taking them in – and we have to accept that change often brings some pain with it, as expressed by the reader commenting on Houston Chronicle’s website.
The first waves of European settlers created a change when they started landing in North America 500-odd years ago, and so has every wave of immigrants since – Chinese, Japanese, German, Irish, Italian, Eastern European, Korean, Indian, Caribbean and so on. The first settlers will always be suspicious and exclusive in their approach towards the second set, the second lot of the next and so on.
The wave of economic homogenization driven by the post-war baby boom and infrastructure expansion was possibly one of the largest in recent history (other than the Soviet Union and the Chinese Cultural Revolution, which were more political than economic). However, we’ve seen the US market grow in diversity in the last 2-3 decades – not only because of differences due to race or country of origin, but also due to geographic, economic and otherwise cultural differences.
Today many of the diverse segments today in the US are large enough to express their unique needs, and expect them to be fulfilled. While the cookie-cutter approach served well during the years of national expansion across homogenized markets, that approach is counter-productive today. A retailer like Wal-Mart can’t be expected to ignore that fact.
Devangshu Dutta
April 23, 2009
Advertising Age recently carried an article titled “The Death of Customer Segmentation”, by Michael Fassnacht.
He questions the traditional marketing hypothesis that the better we segment consumers, the better we know what is relevant and the better we can market to them.
Fassnacht argument is that:
This last point is of particular importance, since electronic media – especially websites that customize themselves based on analysis of the users behaviour and history – are becoming more prevalent communication platforms. In fact, for the last few years “mass customization” and “a consumer segment of one” have been fashionable phrases thrown about in marketing circles.
Fassnacht quotes Amazon, Apple and social networking sites such as Facebook and MySpace to support his well-structured argument.
However, it may be a challenge for traditional retailers and brands to apply the learnings from these brands in their physical stores.
Going further and on a lighter note – or perhaps not 🙂 – if we are to believe the philosophy of the Vedas, the Universe has a head start on “self-segmentation” and “customization of consumer experience” technology. According to it, the world and our experience of it is “Maya,” an illusion product of our mind, and we are free to create and mold it, and experience it as long as we hold the illusion.
If that’s the case, our modern techies and marketers have a long time to go before they climb that technology curve.
The original article is available here: The Death of Consumer Segmentation?
Devangshu Dutta
March 31, 2009
New American Dimensions and Asian-American advertising agency interTrend Communications has just put out a report titled “Asian Indians in the US”.
It is amusing to come across the term “Asian Indians”…only in the USA! :-))
That aside, the executive summary has some interesting insights including:
Retailers in the US might draw a leaf out of British retailers that have significantly tailored their product mix to suit specific immigrant populations. Sure, the UK has a higher proportion of Indians (and other South Asians), but there are enough areas in the US where the South Asian population is high enough to warrant more specific merchandising and marketing.
When I think of the “Indian stores” owned by someone of Indian or South Asian origin in concentrated catchments of high-income South Asians (LA, Houston, Boston etc.), I can’t help thinking of the opportunities missed by the chain stores.
On a separate note, the study says that some respondents “felt that the Asian classification was negative, an attempt to lump Asian Indians in with the rest of Asia when they have a distinct, rich culture that should stand by itself.”
I’m sure other communities would also take exception to such “lumping”.
It is indeed interesting that marketers tend to use the term “Asian”, throwing together diverse cultural and linguistic backgrounds from Turkey in the West all the way East to Japan, and throwing segmentation disciplines out of the window.
(The executive summary is available here.)
Devangshu Dutta
November 13, 2008
For all those who have admired the consistency and presentability of produce in western supermarkets, here’s proof that tough times really focus us on substance and force us to look beyond skin-deep beauty.
Even in fruits and vegetables.
British supermarket Sainsbury has challenged European Union guidelines that restrict the sales of fruits by certain physical standards. Sainsbury’s is questioning EU regulations that prevent selling “ugly” fruit and vegetables. Due to EU regulations such as size of cauliflower (minimum 11 cm diameter) and the shape of carrots (requirement that there should be a single root, not multiple), Sainsbury estimates that up to one-fifth of what is produced in British farms cannot be sold in the supermarket. According to Sainsbury’s estimate, not following these regulations can help to reduce prices by up to 40%, and reduce wastage by up to 20%. The retailer is also trying to drum up customer support by running an online poll (94% responses were in favour of Sainsbury’s move, at the time this column was being written).
So less beauty could mean more veggies in the supermarket, and more money in everyone’s pocket including, hopefully, the farmer.
And this may also vindicate anyone who has complained that the beautiful veggies and fruits in western supermarkets taste inferior to their “ugly” counterparts sold on Asian hand-carts. Give us more substance and less style, any day.
Let’s look at some other substantial issues that merchants should consider.
Remember “I can’t get no satisfaction”? That’s what Mick Jagger and his mates in the Rolling Stones hit the world in the face with in 1965, allegedly in response to the rampant commercialism they had seen in the US.
After 43 years – at least judging by the modern supermarket shelves – apparently we still ain’t getting no satisfaction. In fact, the array of choice tends towards “overload”.
A typical developed country supermarket is estimated to carry over 40,000 SKU’s. Can you think of 40,000 types of items (or even 10,000) that you would need from the supermarket for your home?
So here’s the result. During my travels, if I’m in a store that is unfamiliar I could spend over an hour wheeling a trolley around before reaching the checkout. The first 5-10 minutes are focussed on figuring out the aisles based on my list. The next 10 minutes are spent picking what is actually on my list. And the rest of the time before the checkout is usually spent browsing through the thousands of SKU’s and picking stuff that we never knew we needed when the family made the shopping list.
Now, the guys who run the supermarkets are generally a smart bunch – they’ve figured that the more options you put in front of consumers, the more they buy. My cash receipts are proof of that. But, as American professor and author Barry Schwartz (“The Paradox of Choice”) says, the point where the choice becomes counter-productive is already well-past in developed markets.
With such overwhelming choice, consumers get into analysis-paralysis. And even after they finally purchase something out of the enormous range, you get shades of post-purchase dissonance. Only, in this case the dissonance, the dissatisfaction is not related to a bad product, but: “What if there I had made another choice? What if there was a better product than this? What if there was something available for less?”
During these times, it is pertinent to also put this in the context of business costs. There is surely a cost of providing that humongous choice in supermarkets. Have we considered what the saving could be, if the variety was reduced, if the product range was consolidated?
Consider the time (and therefore cost) spent on product mix and pricing decisions – surely merchandising teams have to be larger if you have a larger product mix, since each person can only handle a finite workload. Consider the cost of logistics of handling a widely diversified range. Consider the efficiencies lost in diverse production mix. So, does the consumer really need, really even want all that choice?
Retailers like the German chain Aldi raise precisely those questions. Aldi sells about 1,100 SKUs compared to the usual 40,000. And it claims that the typical shopping basket in Aldi’s UK stores is 25% less than competing supermarkets.
Indian retailers, of course, are possibly yet to reach that pain threshold of choice. There are possibly some potentially useful choices that are still missing. But even here, it is well worth taking a hard look at the product offering. With availability levels that can dip as low as 50-60%, it is probably worth asking – what if we dropped XYZ product from our range? Would it really hurt our sales or even our image; or would it help us to focus better on the products that really matter?
If we took our attention away from building such false choices, could the business become more profitable and therefore more sustainable?
The US and European markets are often the source of many a management thought and business model related to consumer products and retail, and of “best practices”.
So, in closing, I should share this question someone asked me recently: “when do you think consumer spending will bounce back in the US?” My first response was, “If only I had a crystal ball”. But the next thought in my mind was what if US consumers actually came to a decision that they had “enough”? What if their excessive consumption was no longer the role model for consumers in emerging economies? What if, instead, the frugal consumers of India and China became the global role model?
What would your business model look like then? Would your corporate be more socially responsible? And would it have a better chance of lasting longer?
For those who are interested in taking this inquiry even further, I can recommend John Naish (“Enough: Breaking Free from the World of More”, 2008), John Lane, Satish Kumar, M. K. Gandhi, Alan Durning (“How Much is Enough?”), or any number of ancient Indian, Chinese, Greek or Roman schools of thought, many of them pigeonholed into “religious” or spiritual categories.
You might also like this video of a talk by Barry Schwartz on Ted.com (below).
Do please share the results of your inquiry with us, too.
