A BIRDS EYE VIEW OF INDIAN MARKET SEGMENTS

AGENDA
Brief economic history of India Why is consumption going to increase Consumer Indias demand structure Segmentation of Indian markets Young consumers Women consumers Rural consumers Bottom of pyramid consumers Winning in Indian markets

A BRIEF ECONOMIC HISTORY OF INDIA

A BRIEF ECONOMIC HISTORY OF INDIA

In 1991, India made a 360 degree turn in its economic ideology. The fall of the soviet bloc in 1989 resulted in an unprecedented balance of payment crisis in 1991 - the govt was forced to open up the economy and dismantle the license raj. Today we are the 12th largest economy in US $ terms (4th largest economy on PPP terms) and with a 1 billion plus population of which 40% are below 21 years of age and GDP growth of 7% p.a. we are a very attractive market for every product/ service.

A BRIEF ECONOMIC HISTORY OF INDIA

In 1991, India made a 360 degree turn in its economic ideology. The fall of the soviet bloc in 1989 resulted in an unprecedented balance of payment crisis in 1991 - the govt was forced to open up the economy and dismantle the license raj. Today we are the 12th largest economy in US $ terms (4th largest economy on PPP terms) and with a 1 billion plus population of which 40% are below 21 years of age and GDP growth of 7% p.a. we are a very attractive market for every product/ service. However the per capita income is dismal less than $1000 -169th in world ranking and much below world average of appx $ 3000

A BRIEF ECONOMIC HISTORY OF INDIA

Many MNCs have failed to take off in India - and quite a few have done extremely well. Honda, Suzuki, Hyundai succeeded - Ford, Mercedes failed Nokia has succeeded Coke and Pepsi are struggling LG and Samsung walked away with the market GE appliances failed Levi and Nike limp slowly -MTV is localized Kelloggs and Hienz are struggling Local Haldirams is all over the place

THE DYNAMICS OF INDIAN MARKETS

Our markets are large in overall size but small in per capita income/ consumption the global price performance points and margin volume equations do not work here
there needs to be a fundamental rethink of global standard benefits at global equivalent prices. With more than half the population in the emerging markets - the definition of global needs to be pegged differently There needs to be a newer way of thinking- beyond developing just cultural sensitivities

Our markets are not virgin markets

There is a range of offering available in every category The distribution is fairly deep with over 5 million small retailers The brands are quite entrenched

India is like an experienced hire where as China, Russia, and most of South east Asia is like a fresher hire

THE DYNAMICS OF INDIAN MARKETS

India

as a market is not what developing markets were in their infancy. India markets has its own nuances.

COMPANIES MUST NOT ASK WHEN WILL INDIA BE READY FOR THEIR GLOBAL BEST PRACTICE STRATEGY?
AND MUST ASK

WHEN WILL I BE READY FOR THE

NEXT PRACTICE STRATEGY FOR THE

INDIAN MARKET?
C K Prahalad

INDIAN MARKET A SNAPSHOT OF TODAY

Large population more than 1.1 billion and growing at 1.6% - we are adding equivalent of one Australia every year. 70% of our population is rural and remaining 30% urban Average family size is 5.There are 155 million rural families and 55 million urban families. We are mostly poor but we are getting less poorer. GDP per capita has risen from $120 in 1990 to $1000 today. People below poverty line has dropped from 36% to 22% today. Indias rich are increasing in number and getting richer as well. Indian consumer is totally Schizophrenic - a state characterized by the coexistence of contradictory or incompatible elements India is merely a geographic expression (Shashi Tharoor).

WHY IS CONSUMPTION GOING TO INCREASE?

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Strong India is getting larger Changing shape of income distribution Step change in consumption comfort and aspiration Sophistication of middle class consumers Generational transition Growth of self employed strivers Rural Indias metamorphosis Tech comfort of masses spreading

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Strong India is getting larger

There is a strong India and a weak India - there was a fear in the 90s that weak India would impede growth due to its sheer size. However, the last 10 years have shown conclusively that the strong India is large enough to carry the burden of weak India. Estimates suggest 60% of Urban and 12-15% of rural India represent the strong India now -appx 285 million people. Some states like Himachal, Gujarat, Maharashtra, TN, Karnataka have a bigger % as compared to UP, Bihar, MP, Rajasthan ( the BIMARU states)

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Strong India is getting larger Changing shape of income distribution Step change in consumption comfort and aspiration Sophistication of middle class consumers Generational transition Growth of self employed strivers Rural Indias metamorphosis Tech comfort of masses spreading

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Changing shape of Income distribution

CHANGING INCOME DISTRIBUTION IN RURAL INDIA LAST 15 YEARS

Rural Income distribution data
70%

60%

50%

40%

Upper Upper middle class Middle

30%

Lower Middle Lower

20%

10%

0%

1995-96

2001-2

2005-6

2009-10

CHANGING INCOME DISTRIBUTION IN URBAN INDIA LAST 15 YEARS

40%

35%

30%

25% Upper Upper middle class 20% Middle Lower Middle

15%

Lower

10%

5%

0% 1995-96 2001-2 2005-6 2009-10

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Strong India is getting larger Changing shape of income distribution Step change in consumption comfort and aspiration Sophistication of middle class consumers Generational transition Growth of self employed strivers Rural Indias metamorphosis Tech comfort of masses spreading

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Step change in consumption comfort and aspiration levels

Actual penetration of goods has increased for every product category There is increased consumer confidence in the past 15 years in the 1990s the average house hold saw a 2.4 times increase in nominal income over late 80s Affordability growth in many categories has been more than the income growth due to sharp drop in prices, increase in performance, falling interest costs and easier consumer credit. Connectivity, communication and literacy levels in India has leapfrogged and that has created a rampant rise in aspiration There is increased comfort with borrowing

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

A large enough consumption base exists today to create a springboard for more consumption. The market penetration is not linear

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Strong India is getting larger Changing shape of income distribution Step change in consumption comfort and aspiration Sophistication of middle class consumers Generational transition Growth of self employed strivers Rural Indias metamorphosis Tech comfort of masses spreading

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Sophistication of middle class consumers

The middle class urban and rural consumers are joining the consumer bandwagon creating a segment that is popularly called the mid price segment. More and more companies are offering premium styles at mid price points - for example budget hotels (Mahindra resorts), budget airlines (Indigo), Budget apparel brands (Pantaloon), prepaid cards, low priced handsets (micromax), hypermarkets.

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Strong India is getting larger Changing shape of income distribution Step change in consumption comfort and aspiration Sophistication of middle class consumers Generational transition Growth of self employed strivers Rural Indias metamorphosis Tech comfort of masses spreading

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Generational transition

India has four distinct generation based segments:

The pre independence generation -these are people who have been influenced by Gandhian values of simplicity, honesty, selfdisciplined, self reliance and prudent for them imported goods and consumption have negative connotation (less than 10% of population)

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Generational transition The post independence generation

Salman Rushdies Midnight children those born after independence but before 1970 - these are people who have seen the era of shortages and licence raj a lot of them fled India - for them excess consumption has negative connotations they are unhappy consumers (about 26% of population). Midway children those born between 1970 and 1985 they were young enough during liberalization to adapt to the new positive world view they are guilty consumers (about 30% of population) Today most households are run by this generation. These two segments has experienced life before and after liberalization. They enthusiastically push their children to opportunities they never had. They consume almost in a childlike manner- Indias youth market sometimes is found amongst 40 and 50 year old adults They are very value focused, will not waste money, are perennially guilty about consuming and need rational and function based reason to spend.

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Generational transition

India has four distinct generation based segments:

Those born after 1985 these are the liberalization children there are 100 million of them between 17 and 21 years of age six out of ten households have at least one person from this segment they are Indias first free market capitalist generation and have grown up with no guilt about consumption and are confident about their future they are influencing the consumption boom positively and will continue to do so in the future. ( about 35% of population) This segment is materialistic getting all goodies early in life is important to them. It remains to be seen how markets will change once they start running their households.

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Strong India is getting larger Changing shape of income distribution Step change in consumption comfort and aspiration Sophistication of middle class consumers Generational transition Growth of self employed strivers Rural Indias metamorphosis Tech comfort of masses spreading

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Growth of self employed strivers

India has moved from a govt job mindset (till the 80s) to a self employed mind set. Only 10% of the jobs in India are in organised sector. Today 90% of rural households and 60% of urban households are headed by self employed person. They represent the main stream market. they use products much more to signal success and adopt products like mobikes and cell phones that improves their productivity/ profit

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Strong India is getting larger Changing shape of income distribution Step change in consumption comfort and aspiration Sophistication of middle class consumers Generational transition Growth of self employed strivers Rural Indias metamorphosis Tech comfort of masses spreading

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Rural Indias metamorphosis

Rural India till the 80s was mostly an agriculture based economy. Today rural Indias economy is 50% agriculture and 50% services. And services portion is growing faster. The non agricultural households have higher incomes and higher spending

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Strong India is getting larger Changing shape of income distribution Step change in consumption comfort and aspiration Sophistication of middle class consumers Generational transition Growth of self employed strivers Rural Indias metamorphosis Tech comfort of masses spreading

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Tech comfort of masses spreading

Increasing use of mobiles in rural India, increased penetration of TV, realization that education is a path to success improving financial condition in rural India, mushrooming of call centre jobs, increased NGO and corporate initiatives to introduce technology in rural areas has resulted in increased penetration of technology in rural areas.

In the future industries like banking, education and healthcare are expected to penetrate in the rural hinterlands due to this technology penetration.

WE ARE REACHING THE TIPPING POINT IN CONSUMPTION AS:

Strong India is getting larger Changing shape of income distribution Step change in consumption comfort and aspiration Sophistication of middle class consumers Generational transition Growth of self employed strivers Rural Indias metamorphosis Tech comfort of masses spreading