Transcript International Management Laboratory

Understanding the Indian
consumer and their psyche
Nyenrode Business Universiteit
28.9.2012
Contents
• The India growth story between 1947-1991
and after 1991
• The demographic and psychographic profiling
of India
• The changing consumption pattern of the
country
• Implications for the marketers
• Europe in India and the Dutch experience
Introducing India
• The early Indian society was governed by 'Dharmasastra',
the works of great sages helped to lead a harmonious life
• Indian society was divided into Aryans and Non-Aryans. The
Aryans were further divided into four groups, the
Brahmanas, Kshatriyas, Vaishayas,and Sudras
• Much importance to 'Varnasrama Dharma'. The life of an
individual: Bramacharya,Garhasta,Vanaprastha and
Sanyas
• During the early medieval period the conquests of 'Arabs'
and 'Turks' resulted in the introduction of a new religion
called 'Islam' in India.
• The most important impact of the British rule in India was
the Westernization of the Indian society.
India- Size Does Matter
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Indian population is 17% of the world‘s population.
The huge population is made up of different ethnic groups, following different religions,
speaking different languages, observing different customs and traditions. India is called as
‘Ethnological Museum‘.
It has more than thousand languages and dialects . In India people speak about 845
languages and has 545 dialects. At present 22 official languages are recognized by the Indian
government.
Three-fourths of the populations communicate through different languages belonging to the
Indo-Aryan group :fundamental base is Sanskrit: Examples are Hindi, Assamese, Bengali,
Gujarati, Kashmiri, Marathi, Oriya, Punjabi, Sindhi and Urdu.
Nearly one-fourth of all Indians speak languages belonging to the Dravidian family. Examples
are Kannada, Malayalam, Tamil, and Telugu etc.
Hindi is spoken by about 40 percent of the population and covers most of the northern states
But ENGLISH is the unofficial official language of the country
A large nation with 1.2 billion + population, covers an area of 3,288,000 km² (Italy is about
300,000)
Total GDP is amounts to $1.85 trillion and with a per capita income of $816.60
It is however a young nation with a median age of 29
The period of 1947-1991
• After independence the policy makers and the nation builders sat together
for shaping the economy
• Focus remained on a socialist economy and over the next four decades the
then “USSR” remained our model
• Most of the sectors remained closed and agriculture and industrial sector
was given the impetus (an anecdote)
• The industrial sector was given the right push with the setting up the
Public Sector Units like Steel Plants etc.
• However, concepts like License Raj, hoarding, black marketing, nepotism,
red tapism and bureaucracy marred the growth
• It is well known that from 1951 to 1991, Indian policy-makers stuck to a
path of centralized economic planning accompanied by extensive
regulatory controls over the economy. The strategy was based on an
‘inward-looking import substitution’ model of development. This was
evident from the design of the country’s Second Five-Year Plan (1956-61),
which had been heavily influenced by the Soviet model of development.
The period of 1947-1991
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Several official and expert reviews undertaken by the government recommended
incremental liberalization of the economy in different areas, but these did not address the
fundamental issues facing the economy. India’s economy went through several episodes of
economic liberalization in the 1970s and the 1980s under Prime Minsters Indira Gandhi and,
later, Rajiv Gandhi. However, these attempts at economic liberalization were halfhearted,
self-contradictory, and often self-reversing in parts. In contrast, the economic reforms
launched in the 1990s (by Prime Minister P V Narasimha Rao and Dr. Manmohan Singh as his
Finance Minister) were ‘much wider and deeper’and decidedly marked a ‘U-turn’ in the
direction of economic policy followed by India during the last forty years of centralized
economic planning.
THE DRIVING FORCES BEHIND THE REFORMS: As in many developing countries, India also
launched its massive economic reforms in 1991 under the pressure of economic crises. The
twin crises were reflected through an unmanageable balance of payments crisis and a socially
intolerably high rate of inflation that were building up in the 1980s and climaxed in 1990-91.
This can be seen from the data provided in next slide. The current account deficit as a
percentage of GDP peaked at a high of 3.1 percent (compared to an average level of 1.4
percent in the early 1980s). The inflation rate (as measured by point-to-point changes in the
Wholesale Price Index) had also climbed to the socially and politically dangerous double-digit
level, hitting 12.1 percent in 1990-91.
SELECTED MACRO ECONOMIC INDICATORS 1989-2003
Economic Progression
• From the period of 1991-2000 the three big game
changers were the:
– The advent of Cable and Satellite Television
– The services sector boom (IT et. al.)
– Banking & Insurance sector reforms
• The period of 2000 onwards saw again some major
transformation:
– The advent of modern retail formats (shopping malls or
large departmental stores)
– The revolution in the telecom market
– The rise of the youth’s purchasing power and being a
decisive factor in major decisions of the household
UNDERSTANDING SOCIETY
Defining Value System
• Individual & Family – In India, people search security
and prestige within the confines of the near and dear.
Individual responsibility of head of the family is very
much, but this thrust on relationship gives security and
identity.
• Society through conformity – More harmonious and
less comparative in nature, people believe in group
performance.
• Success & Growth – In Indian society, recognition or
social acceptability enjoys much value than individual
achievement. ‘Where from I?’ is more important than
‘What am I?’
Defining Value System
• Age & Youthfulness – Indian value system respects for the
wisdom and experience of older generation.
• Happiness & Adaptability – In India, materialistic gain is not
prime route of ensuring happiness. Search for higher plains
of life is inherent culture of India (Happiness Quotient:
Indians are ranked 4th happiest after residents of the
Netherlands, Canada and Australia.. Study of Market
research company IPSOS Social Research Institute, 2010)
• Religion & Spirituality – Deeply spiritually inclined country
in nature, in India, irrespective of social hierarchy, people
are spiritually conscious and more inclined towards
religion.
Marketing Implications-Language
• Cartoon Network and Pogo(both belong to the Rupert Murdoch
group) has captured a sizable amount of viewership by offering
‘Hindi’ dubbed version of their all cartoon films to respect national
language of the country.
• Nokia, addressed this dimension of Indian culture by introducing
Nokia 1100 model specialized designed for Indian consumers with
'hindi' SMS facility
• National Geographic Channels also went for localizing its content
with programmes such as 'Mission Udaan' and 'It Happens only in
India‘
• Korean consumer durable major LG introduced ‘Sampoorna (means
‘complete’ in hindi language)’ range of color TVs, semi-automatic
washing machines and direct-cool refrigerators.
• There are many such examples of MNC’s looking at India beyond
the realms of home markets
Marketing Implication : Symbols &
Signs
• Non verbal cues play a critical role in India
• In Indian market, ICICI Prudential, an
insurance company, used ‘Sindoor (Vermilion)’,
the greatest symbol of ‘protection and
benefit’ in Indian culture, to communicate
with their target audience.
Marketing Implications: Rituals and
Customs
• In India, popular custom is that one can ensure
good luck of the dear one by setting free a bird.
• Atithi Devo Bhava ( Guest is God) is the custom
that represents culture of India globally
• McDonalisation of India- through McAloo Tikki
Burger, Curry Pans, Wraps Pizza McPuff, and
McVeggie to win over consumers
• Indian Marriage Rituals & Other rituals
Marketing Implications-Traditions
• Indian tradition: People prefer to make a visit of anyone’s
house with a box of ‘mithai (box full of sweets)’ as a good
gesture
• Gift giving tradition in India- Can be recycled too! Beware!
• Arranged Marriage, Indian Marriage System
• Festivals: The common saying is: There are 13 festivals in 12
months. Big ones like- Diwali, Holi etc. (officially there are
240 festivals in India, unofficially it will be meaningless to
calculate)
• Respect to elders
• Cricket, Movies (Bollywood), Politics and Religion rules (the
top mobile apps downloaded are: ABCD (Astrology,
Bollywood, Cricket and Devotional Songs)
THE DEMOGRAPHIC AND
PSYCHOGRAPHIC PROFILING OF INDIA
Key Demographic Changes
• The working population: 19-60 year increased increase from
485 million to 615 million in 2010 with an educational base of
21 million professionals and 90 million graduates/post
graduates.
• In 2006-07, the consuming class formed around 46% of the
total households as compared to around 17% during 1995-96
• On the very rich, in 2001 there were around 24,000
households where annual incomes exceeded Rs 50 lakh (Rs 5
million) that figure climbed to around 54,000 in 2006 and
about 320,000 people earned more than Rs 10 lakh (Rs 1
million) in 2001 which rose to 700,000 in 2006. (Source:
NCAER)
• Rising Income and disposable income has added to a break-up
in purchasing trends
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Key Psychographic Changes
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Changing roles in the family structure and the break up of the traditional family
structure
The youth is no more apprehensive and restrained. He/She wants to work and
have fun too…
Average age of working has gone down (Call centres et al) but the rural and urban
dichotomy is appalling
We may have become more isolated in thoughts and existence but we still love to
preen in others lives and curious to know (Facebook, Twitter, Orkut…)
Product Disposability has gone up. Today the average life of a mobile is 12 months,
that of a TV three years; cars four to five years and soon even homes will be
changed more frequently. Clearly durability is no longer the most desirable value.
Population migration a visible trend, however the call of the “West” has still not
diluted
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The Rural/Urban Divide
• The population migration continues but the smaller
cities have developed their own niche
• The nature and behavior of these cities are intrinsically
more different from metros and mini-metros (the
heterogeneity in the car sales of various brands of
Maruti is a case in point)
• The rich is not always defined as the uber-cool and
metro sexual but can be from a smaller town in India.
• Newer cities are therefore throwing up riches and
talents alike. The big names in Entertainment, Cricket,
etc doting the headlines are all stories of making it big
from small towns or even vice versa
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The Rural/Urban Divide
• But the rural folk is no more aspirational of the
urban charm and has a mind of his/her own
(Project Shakthi from Unilever)
• Migrations are patterned between cities to
Middle East and is more visible
• The common link however continues to be
Politics, Film, Cricket and Religion.
• The clear divide between the rural, semi-rural
and urban is more pronounced and
heterogeneity in consumption pattern is visible.
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EMERGING OPPORTUNITIES
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Population age class interval: 2010
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Population age class interval: 2020
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Population age class interval: 2050
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Hence…
• A highly populous nation with a large
workforce
• Considering that only around 9% of the
population works in the organized sector,
what will remain a challenge
– Skilled and semi skilled manpower
– Growth drivers has to emerge from the Industrial
sector
– Services as a sector will be critical for boost in the
economic growth and will continue to be a major
employer
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THE CHANGING CONSUMPTION
PATTERN OF THE COUNTRY
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Household Income set to Rise
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Key Takeaways
1.
The urban disposable income will grow by about 1.2% in next three years
as compared to the 0.8% in the rural, however the population base is
larger in the rural area where the disposable income base will be higher
to be considered
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Also, the average All India base will be about 1.7% which is a sizeable
base considering the fact that population on which the income is being
mapped
3.
This is very significant for the marketers as they can significantly be able
to analyze and assess from a perspective of consumption and volumes
that can be mapped
4.
The story of India and being a consumption driven economy is not
wrong, however, marketers have to be cautious and trudge the path with
adequate safety bags, as it maybe a mirage in the long term to consider
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Growth Of Middle Class
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Key Takeaways
• The growth and the income increase will come from the
middle class, which has always been a story often discussed
with evidences from the past
• The Globals, Strivers and the Seekers will be able to occupy
an important pie
• In retrospect as one will look at 1985 and projected 2025
data the difference is visible and apparent in these three
segments
• Hence, income and disposable income are both set to rise
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Change in Income Pyramid
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Key Takeaways
• Between 2005 to 2025 there will be a definite
shift in the poverty index, however the word
of caution, the disparity will continue to
increase
• However, consumption is overall bound to
increase due to rise in disposable income
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Consumption will Shoot
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Key Takeaways
• As mentioned in the earlier take out also, India
will be a major consumption driven economy
• Case in point: we will continue to see Tata Nano
and Bentley being sold with the same gusto and
fervor, but drivers to products and brands will
change
• This has a major implication for the marketers, as
not only overall consumption go up, in addition
one will also find niches in consumption
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Change in Consumption Pattern
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Key Takeaways
• The spending basket and the items are also
undergoing major shifts, though food, shelter
and transportation will occupy major share,
but there are upcoming categories like
telecom, tourism will be the new and rising
areas for spending
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Consumption Patterns
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Key Takeaways
• As stated earlier food will rule the roost,
followed by transport and housing
• Health and healthcare will hold significant pie
of the spend
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In summary
• The major challenge for a consumption driven economy
like India will be channelize the consumption drivers
• For example for urban markets, particularly the metros
and mini metros the consumption drivers will be
different from the smaller cities
• This will greatly differ from the suburban towns and rural
markets
• Hence, there is no one size fits all approach which will
work, which is in addition to the geographical and
cultural diversity of the country
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The pitfalls
• Too myopic and very often the problem of overestimating the market. The
country is large in size and thickly populated, but that is about it
• Half of the country is agrarian dependant and this sector only generates
12% of the GDP
• 70% of the GDP is from the Services Sector, of which 80% is unorganised
• Only 9% of the total employment in India comes from the organised sector
• The industrial sector has been bypassed in the services sector that
happened in the 1991 post liberalisation period
• This has lead to a large population base with limited or virtually no skills.
• Even though we talk of a “demographic dividend” that unfortunately does
not convert to return due to lack of skilled labour
• So in a nutshell:
– Services sector even though large is unorganised
– Industrial sector has been the black sheep for a while
– Agrarian sector has witnessed falling productivity and population migration
IMPLICATIONS FOR MARKETERS
Shifts in Marketing Strategies
• So how is this all causing a change in marketing strategies of
the companies
• More and more companies creating image differentiators
• Rising disposability has meant "Volume-based" marketing
getting changed into "value-based" marketing.
• "Acquisition-led" programmes into "retention and growthled" programmes. Clearly, the first sale is not a destination,
only a station.
• "Meeting" consumer expectations into "setting" consumer
standards.
• Communication that shapes "perceptions and attitudes" into
that which "seeds and drives new behaviors
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EUROPE IN INDIA AND THE DUTCH
EXPERIENCE
Europe in India
• Europe has been in India since Vasco Da Gama.
• Today, across sectors there is a large European presence.
• From automobiles, pharmaceuticals, banking and
Insurance, FMCG, Textiles and in the more conservative
Business to Business Sector, there is a large European
presence
• Some have been conservative, whereas in some cases it has
been very aggressive.
• However, there is an “apprehension” that always seems to
bother amongst European, which is not out of place
• Also, the large market and the population sometimes is a
“mirage” to be careful off!
The Dutch Presence
• The more visible ones
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ING
Akzo
ABN AMRO
Rabobank (not in retail banking)
Shell
Philips
KPMG
MaFoi
• In addition there are a large number of business to
business companies operating in industrial products,
services, processing etc.
Overall
• Have been restrained and controlled in the
business to consumer markets
• However, have played a more proactive and
diversified role in the business to business market
• One would tend to believe the areas where India
is specifically looking at collaborative efforts:
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Agri and Agri-processing
Trade Finance and Finance
Small and Medium Enterprises
Packaging Industry
Knowledge Industry
The Lessons
• Look at the country from a more long term perspective and
look beyond the cover page!
• What are the pluses:
– Young nation and hungry too
– It has a resource base, which nurtured properly can generate
dividends
– There are several mid sized companies (beyond TATA, Infosys or
Mahindra) who are looking at the West for technology
collaborations (Automobile Components, Telecom, Retail,
Packaging, )
– The three sunshine sectors in India- Retail, Insurance & Banking
and Telecom
– But perhaps the most significant area of opportunityINFRASTRUCTURE, HEALTHCARE AND EDUCATION
Therefore, Roadmap?
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Look beyond the cover, it needs patience, investment (necessarily in time) and
adapting to the culture.
First, for instance, 8 hours of work in Europe will generate 8 hours of output.
However, in India 8 hours may generate 4 hours or less. However, the cost benefit
analysis has to be adjusted against the lower wage rates in India
It is therefore, purely a question of cost : time ratio
Second, to me, opportunities exists more in joint ventures and collaborations of
any form and eventually consider Green Field Investments (though there might be
issues here)
Third, Technology start ups, Processed Foods, Electrical and Electronics,
Infrastructure, Healthcare and Education are the focus areas
Fourth, there has been always the discussion and debate on the large market that
exists in the Bottom of Pyramid in India- which is currently a mirage or so it seems
Hence, as the Bhagvad Gita says “Perform your obligatory duty, because action is
indeed better than inaction.”
THANKS
Anecdote
The world's worst recorded food disaster happened in 1943 in British-ruled India. Known as the Bengal
Famine, an estimated four million people died of hunger that year alone in eastern India (that included
today's Bangladesh). The initial theory put forward to 'explain' that catastrophe was that there as an acute
shortfall in food production in the area. However, Indian economist Amartya Sen (recipient of the Nobel
Prize for Economics, 1998) has established that while food shortage was a contributor to the problem, a
more potent factor was the result of hysteria related to World War II which made food supply a low priority
for the British rulers. The hysteria was further exploited by Indian traders who hoarded food in order to sell
at higher prices.
Nevertheless, when the British left India four years later in 1947, India continued to be haunted by
memories of the Bengal Famine. It was therefore natural that food security was a paramount item on free
India's agenda. This awareness led, on one hand, to the Green Revolution in India and, on the other,
legislative measures to ensure that businessmen would never again be able to hoard food for reasons of
profit.
However, the term "Green Revolution" is applied to the period from 1967 to 1978. Between 1947 and 1967,
efforts at achieving food self-sufficiency were not entirely successful. Efforts until 1967 largely concentrated
on expanding the farming areas. But starvation deaths were still being reported in the newspapers. In a
perfect case of Malthusian economics, population was growing at a much faster rate than food production.
This called for drastic action to increase yield. The action came in the form of the Green Revolution.
The term "Green Revolution" is a general one that is applied to successful agricultural experiments in many
Third World countries. It is NOT specific to India. But it was most successful in India.