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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