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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
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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,andSudras • 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 • 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 • 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 MinstersIndira 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 NarasimhaRao 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.
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
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. • AtithiDevoBhava ( Guest is God) is the custom that represents culture of India globally • McDonalisation of India- through McAlooTikki 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)
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
Key Psychographic Changes • 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
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
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.
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
Key Takeaways • 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 • 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 • 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 • 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
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
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
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
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
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
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
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
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 growth-led" 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
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 • 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: • 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 opportunity-INFRASTRUCTURE, HEALTHCARE AND EDUCATION
Therefore, Roadmap? • 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 BhagvadGita says “Perform your obligatory duty, because action is indeed better than inaction.”
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 AmartyaSen (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.
