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archive: The reality of the Indian market

The reality of the Indian market

Rama Bijapurkar
The Economic Times
July 6, 1999


    Title: The reality of the Indian market 
    Author: Rama Bijapurkar 
    Publication: The Economic Times 
    Date: July 6, 1999 
    
    It is perhaps time to take stock of all that we have learnt in these
    past six or seven years about the nature of the Indian market, now
    that it has emerged from its shackles of socialism, monopolies and
    hardly visible income growths. 
    
    Lesson 1: First and foremost, a generic model of market structure has
    emerged, with five tiers of demand, ranging from `anywhere in the
    world consumers who just happen to be in India' to `just escaped from
    poverty and entering the arena of consumption'. In order to fully
    exploit the potential of this multi-tiered consumer base, there is no
    escape from a multi-pronged product strategy, ranging from `as good as
    anywhere in the world quality at world prices', all the way to
    `adequate quality at affordable prices'. The slight diversion that we
    took in the recent past, in believing that there was a huge and
    homogeneous middle class that could be targeted with a `one size fits
    all' strategy, is now well behind us. 
    
    I call this a generic model of market structure, because it seems to
    apply to most products in India, be it perfumes or computers or
    management consultancy or financial investments or cars or process
    control equipment. The specific consumer / customer profile will vary
    across product / markets, as will the size of each tier, but the
    conceptual structure is pretty much identical. 
    
    Tier 1, right at the top, is a small and easy to reach amount of
    demand generated by customers who will pay dollar prices multiplied by
    forty two to have the latest in the world. It is of course ironic that
    in many non-consumer goods situations, this dollar price for the best
    is cheaper than the price of inferior indigenous products. 
    
    Tier 2 is a much larger volume and value of demand, generated by a
    larger number of consumers who will judiciously balance benefit and
    price and buy what we typically label as premium or high end popular
    products. All the new consumer goods MNCs who came in with products at
    prices catering only to the top tier have been forced to move to this
    next tier of consumers, to make some money - most visible being the
    liquor majors, sports shoe world leaders and branded apparel makers. 
    
    Below them is Tier 3 of consumers who have a definite ceiling on how
    much they can spend, and are looking at the best available benefits at
    that price. The grey market for computers and watches, the small, low
    priced, boxes that crank out a reasonable but not superb quality of
    music all find patronage here. 
    
    And finally, Tier 4, the most populated tier, generates demand from
    people who are just entering the arena of consumption - first time
    consumers, their needs and wants are very minimalist, as are their
    purses, and their benchmark of quality and price is what they were
    doing earlier. They are infrequent consumers, and could be consuming
    without owning, as in the case of custom hirers of tractors, or users
    of STD / ISD booths, or cyber cafes. 
    
    Lesson 2: There is greater value in terms of potential demand in the
    lower tiers of the market than in the top tiers, as has been
    experienced by those who have determinedly developed the cost
    capability and the appropriate products to appeal to the lower tiers.
    If you get your costs right, then there is far more potential to make
    money by exploring the lower tiers of demand, than by restricting to
    the top. The large and lowest tier of rural consumers accounts for an
    FMCG market several times that of the top urban tier, which shows up
    in the relentless effort that Hindustan Lever puts in to be
    accessible, affordable and acceptable to such customers, and its
    results show that the strategy is clearly paying off. Prof. C K
    Prahalad said, at the CII Western region seminar earlier this year,
    that the challenge for India is to bring in the lower tier consumers
    into the market economy. 
    
    Lesson 3: Given the structure of the market as we now know it, this
    should come as no surprise. The characteristic of the Indian market
    that makes it different from many other markets is that it is all
    about a lot of people consuming a little rather than a few people
    consuming a lot. 
    
    Most business plans of new entrants into the country go awry, not so
    much because they misjudged the penetration levels, but because they
    applied USA per capita consumption standards to it. So the only way to
    quick and explosive growth is to widen the customer base through some
    or all of these methods - play in as many product segments as you can,
    widen distribution relentlessly, and drop unit price as much as you
    can, so that everyone who might want to buy you, actually can. 
    
    Lesson 4: If there are a lot of people consuming a little bit
    regularly or occasionally, then to tap them requires a `community
    consumption' strategy. The Indian market has always embraced this -
    well before television sets were affordable, the community TV set was
    the first introduction to media consumption without ownership. The
    readership to circulation ratio reported for most magazines makes me
    often wonder if there are any pages left in readable condition. And
    the latest NASSCOM study shows that access to the internet is four
    times the number of connections, a multiplier that can only increase
    given the success that we are seeing of cyber cafes (and the product
    for the lower tier consumer - the cyber dhaba).
    
    The cable operator will be a larger market than DTH, and the STD / ISD
    booths, the job shops for photo copying thrive. A few telephone owners
    consuming a little is not as attractive as many call booths catering
    to a lot of people consuming a little. Another model to tap the large
    potential of occasional consumers is the small pack low unit price,
    characterised by the sachet success. 
    
    Lesson 5: If it isn't value right compared to existing alternatives,
    it doesn't work, no matter how world class the quality is or
    compelling the need is. The `below expectations' performance of many
    recent entrants into the market is not because of lack of consumer
    desire but because of poor accessibility and affordability. The
    explosive growths of categories where the price threshold has been
    lowered or where distribution has been hugely increased are testimony
    to this. 
    
    (The author is an independent strategic marketing consultant )
    



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