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Understanding the logic of Consumer India Deepak Mehta
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Rama Bijapurkar
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A recognized thought leader on market strategy and consumer issues in India. She heads an independent market strategy consulting practice and works with several global companies and non-profit institutions, guiding the development of their business-market strategy. An alumna of the Indian Institute of Management, Ahmadabad. Ms. Bijapurkar has worked with McKinsey & Co., MARG Marketing & Research Group, Hindustan Lever and MODE Services.
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1. Made for India
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1. Made for India

Before 1991 1. Socialist Model failed miserably 2. GDP growth crawled After 1991 Journey towards Market Capitalism
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Made for India
Contd.
Consumer India Source of Belied Expectation & Frustrating resistance to global offerings. Winner- Nokia, Honda, LG, Samsung Did not catch up Coke, Pepsi, Mercedes, GE Appliances, Kelloggs, Heinz ketchup
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Made for India
Contd.
Reason: 1. Nature of emerging market economics is fundamentally different 2. Emerging markets need not be virgin markets
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2. The mixed message from Consumer India
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2. The mixed messages from Consumer India

1. Eighth largest economy, population a billion, 40% of them are below 21 2. Strategic perspectives on India are changing, but are still confused 3. The Consumer Demand journey: 1991 till date
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The mixed messages from Consumer India Contd.

The Lessons Learnt: 1. The dangerous delusion of pent up demand 2. Zigzag economic growth gives zigzag consumer market growth 3. Income growth does not always keep pace with supply side renaissance
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3. Why bother with Consumer India?
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3. why bother with Consumer India?

Q: When will India have the per capita income & infrastructure of China, the westernization & per capita consumption of Brazil, the education levels of Russia, the institutional framework & maturity of the US? Correct Answer: Probably Never We are like that only!!!
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why bother with Consumer Contd. India?

The dark cloud & the silver lining: 1. Consumer India is large 2. It is mostly poor, but is getting less poor 3. It has some rich people, increasing in number, getting richer 4. Consumer India is totally schizophrenic
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A Guaranteed to happen snowball: A guaranteed to happen growth story Young people, virgin market Low country risk Strong institutions Change confluence China 2005 = India 2015
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Rural & Urban % of each income group (Graph 1) Change in Consumer Confidence: Affordability growth greater than income growth Increased comfort with borrowing Decline of the poverty effect- Wealth Effect
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4. Understanding Consumer Indias demand structure
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4. understanding Consumer Indias demand structure

1. The great Indian rope trick of numbers 2. Marketing to such a demand structure 3. The premium-popular-discount construct of market structure 4. The breakdown of the premium-populardiscount construct of market structure
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Population & GDP Ranking of BRIC and the USA

Country Population GDP Rank GDP per capita Rank rank China 1 5 108 India Brazil Russia USA 2 7 10 4 5 11 10 1 153 97 81 10
Source: The world Factbook 2007

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Consumer Stratification by Income & Expenditure
% of population by income percentile

Top 10% Next 30% Lowest 60%
National Income share of each %

34.1 36.1 29.7
Consumpt GDP per capita ion expenditu indexed re share %

30.0 36.6 33.4 100 35 14
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understanding Consumer Indias demand structure Contd.

The new market structure construct: by value orientation 1. The rich- Money for Value 2. The consuming class- Value for money 3. The climbers- Price point buyers 4. The aspirants- The paisa Pack 5. The destitute- Hand to mouth
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understanding Consumer Indias demand structure Contd.

The Generic Model of the Indian market: 2 largest consumer classes- climbers & the consuming class (75 million household each) Rich 6 million households Rural market 8 to 10 yrs behind urban market
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understanding Consumer Contd.

Dynamics of future growth: The destitute transforming in to aspirants The climbers increasing their per capita consumption The climbers occasionally using superior products instead of what they usually use The consuming class upgrading to better quality Products/ brands
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5. Just how much purchasing power does Consumer India Actually have?
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5. Just how much purchasing power does Consumer India actually have?
1. The myth of Indias Middle class 2. Sleeping Beauty, beauty lies in the eyes of beholder 3. Much poorer when compared to the middle class in developed countries
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Affluence Layers Based on Income (NCAER)

Income Classes Annual household income (Rs ,000) <90 90-200 200-500 500-1000 1000-2000 2000-5000 5000-10,000
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%of Indian HH in each income class 71.90 21.90 4.80 0.91 0.29 0.11 0.02
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Two CT V whe eler 7 47 70 75 66 77 91

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Refr Air car iger con ator diti one r 4 34 62 64 68 81 100

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Deprived Aspirers Seekers Strivers Near Rich Clear Rich Sheer Rich
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5 40 74 69 89 113 117
3
0 2 13 28 32 40 38
0 4 29 54 66 69 77
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Affluence layers based on Income Percentiles (IRS)

Tier 1 Top Urban India Est. Households (Million) Durable owned Colour TV Refrigerator Two- wheeler Car Own telephone Washing machine Own PC (% of tier) (% of tier) (% of tier) (% of tier) (% of tier) (% of tier) (% of tier) 91.1 82.6 66.3 22.4 76.4 47.7 18.3 78.2 59.0 50.2 5.0 47.8 21.6 5.0 60.9 35.3 31.5 1.2 24.8 8.8 1.3 32.5 11.0 11.3 0.2 8.1 1.7 0.2 14.6 3.3 3.6 0.0 2.6 0.5 0.0 10% 6 Tier 2 Next 14% 8 Tier 3 Next 24% 15 Tier 4 Next 33% 20 Tier 5 Next 18% 11
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Affluence layers based on Income Percentiles (IRS)

Tier 1 Top Rural India Est. Households (Million) Durable owned Colour TV Refrigerator Two- wheeler Car Own telephone Washing machine Own PC (% of tier) (% of tier) (% of tier) (% of tier) (% of tier) (% of tier) (% of tier) 43.1 3.5 40.1 33.3 24.9 3.8 1.2 24.6 0.8 27.7 9.4 14.3 1.7 0.3 8.3 0.1 12.3 6.6 3.6 0.3 0.0 2.2 0.0 4.5 1.7 0.9 0.0 0.0 4% 6 Tier 2 Next 10% 15 Tier 3 Next 35% 51 Tier 4 Next 50% 74
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Affluence layers based on consumption intensity (IRS Consumption Pyramid)

Layer Name
% of popul ation 0.5% 0.5% 2% 3% HH (Million)/ populati on 1/5 1/5 4/20 6/30 Relative Consn Intensity Index (Million) 1997=100 199=100 484=24 235=11 Profile % Urban - Rural 96-4 93-7 89-11 76-24 Consumpti on Index * Population 100 100 96 70
Samriddha 1 Prosperous) Samriddha 2 (Prosperous) Sampanna (Well off, not wealthy) Siddha (Achieving, just entering upper class) Unmukha (upward looking, aspiring, moving beyond average) Saamaanya (Average, Ordinary) Sangharshi (Strivers) Nirdhana (Poor) >> 0 >> 1 >>
9%
19/95
119=6
60-40
113
10% 35% 40%
21/105 71/355 83/415
65=3.2 32=1.6 15=0.75
45-55 30-70 11-89
68 113 62
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Consumption Profile of Layers in consumption Pyramid (IRS)

% of Households in each layer consuming/having
HH/ PCs Populat (Interne ion t) AC (Mn) TVs Cars 1/5 100 71 59 (42) 48 1/5 100 44 42(24) 26 1/5 1/5 98 94 24 10 18 (3) 4 5 Was m/c 81 76 53 30 Modern Sham Bank 2W foods poo A/c 65 55 93 94 72 39 91 93 69 62 25 9 89 85 87 80
Layer Name Samriddha 1 (Prosperous) Samriddha 2 (Prosperous) Ampanna (Well off, not wealthy) Siddha (Achieving) Unmukha (Upward looking, aspiring, moving beyond average) Saamaanya (Ordinary, average) Sangharshi (Strivers) Nirdhana (Poor)
1/5 21/105 71/355 83/415
92 79 51 6
2 -
8 -
50 30 6 -
1 -
79 70 69 38
69 54 33 8
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Penetration of consumer goods in Rural India

% of Households in each layer Owning/consuming Item Colour TV Refrigerator Packaged biscuits Soft drinks Shampoo
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2000 3.7 3.2 39.1 9.8 13.3

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2005 11.1 4.2* 54.2 12.2 31.9**

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GDP distribution in class, mass, bottom of pyramid India (2003-4)

Percentile of income
Populati % of on inco (Million) me GDP per capita (US$) Total GDP (US$ billion)
Class India Top 109 10% Mass India Next 326 30% Bottom of pyramid 653 last 60%
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34.1 1878 36.1 662 29.7 265
204.6 216.6 178.2
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Growth in numbers of HH in each income group

% AAGR 1995-6 to 2001-2 Annual HH Income Low Lower Middle Middle Upper Middle High U -8.5 0.7 4.8 8.4 17.3 R -2.7 7.6 4.9 7 12.1 Total -3.5 5.6 4.9 7.8 15.3 % AAGR 2001-2 to 2005-6 U -5.8 0.2 3.1 5.7 12.5 R -5.1 4.1 9.7 6.8 11.5 Total -5.2 3.2 6.6 6.2 12.2
Source: NCAER, MISH Surveys, 2002

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Projected Growth in Number of HH in each income group

Annual HH Income Low Lower Middle Middle Upper Middle High % AAGR (2005-6 to 2009-10) U R Total -14.3 -9.4 -9.9 -3.6 1 0 1.4 14.8 9.7 5.5 8.4 6.8 14.7 13.4 14.2
Source: NCAER, MISH Surveys, 2002

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6. Schizophrenic India
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6. Schizophrenic India
IT India (10 Million people & accounts for 5% of GDP) & Agricultural India (50 times more than IT but only 5 times of IT more in terms of GDP) Rural India 2 distinctive demand segments 1. Agriculture Rural India 2. Non agriculture rural India
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Liberalizations impact on Indias Schizophrenia

From
2 Indias Rich & Poor India (5 consuming class) Urban India & Rural Bharat 3 economies agriculture, manufacturing, government
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Many Indias Many shades of rich, not so rich, no so poor Many oases & deserts within India as well as Bharat 5 economies- agriculture, manufacturing, government, service & IT
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7. demographic, psychographic & social determinants of consumption
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7. demographic, psychographic & social determinants of consumption

Demographic determinants of consumption: Socio economic classification (SEC) of Consumer India Relative Purchasing power across SECs Defining My Target India in terms of SEC
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Socio economic Classification (SEC)

SEC system developed in 1980s by the Market Research society of India. Urban SEC system based on the occupation & education of the head of the household (CWE- Chief wage earner). Rural SEC system based on 2 variableseducation of CWE & type of structure (pucca or kuchcha).
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The Urban SEC system

An ordinal scale that goes down from A (the highest scale) to E, with shades in between of A1, A2 &B1, B2 & E1,E2. SEC A- CWE is graduate/ post graduate employed top 10% of Urban Population (6 million households or 30 million population) SEC B- CWE has either education or occupation not both- double size of SEC A Usually mean Middle class- comprises of wannabes
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The Urban SEC System Contd.

SEC C CWE Modest education 10th pass- very junior level position double the size of SEC A. SEC D CWE not finished school a classic lower- end blue collar worker 14 million
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Urban SEC
Education Illit Up t era o 4 te std. 1 E2 E2 E2 D
D/C/B 1
5th SSC Colleg Grad/ Grad/Po 9th /HS e not Post st Grad std. C grad. Grad Profess 4 E1 D D C
B2/B2/A 2
Occupation 1. Unskilled workers 2. Skilled workers 3. Petty traders 4. Shop Owners 5. Businessman (NO EMPL /1-9 EMP/ 10+) 6. Self employed 7.Clerical/ Sales man 8. Supervisory level 9. Officers/ Executive Jr. level 10. Officers/ Executive Mid/ Sr.
2/3 E2 E1 D D
C/B2/B1
5 D C C B2
B1/B1/A 2
6 D C C B1
A2/A2/A1
(7, 9) D B2 B2 A2
A2/A1/A1
(8,10) D B2 B2 A2
A1/A1/A1
C B1 D C B1
D D D C B1
D D C C B1
B2 C C B2 B1
B2 B2 B1 A2 A1
A2 B1 B1 A2 A1
A1 B1 A2 A2 A1
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The Rural SEC System

Types of House Education Illiterate Literate but no formal schooling Up to 4th standard 5th to 9th standard SSC/HSC Some college but not graduate Graduate/ Postgraduate (General) Graduate/ Postgraduate (Professional)
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Pucca R4 R3 R3 R3 R2 R1 R1 R1
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Semi- pucca Kuchcha R4 R4 R3 R3 R3 R2 R2 R2

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R4 R4 R4 R4 R3 R3 R3 R3
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Relative Purchasing Power Across SECs

Plumber cum electrician vs. executive in public sector bank- spending habits Based on consumption not income Households premiumness index (HPI) 1. 8 consumer durables 2. 22 packaged FMCGs 3. 4 services & 4. 6 demographic variables
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Relative Purchasing Power across SECs

90 80 70 60 50 40 30 20 10 0 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
East West North South
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SEC A+ B Prospering & Spending India about 17 million HH or 85 million Population- High end brand SEC C+R1 Middle India- 18 million HH or over 90 million Population- Budget Brand (30% have refrigerator, 40% have 2 Wheeler)
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Defining My Target India in terms of SEC
Defining My Target India in terms of SEC Contd.

SEC D+ E1+ R2 Mass Market- 37 million HH or 185 million population- poor state of public transport- high demand of 2 W (20% have Refrigerator, 25% have 2W) Sec E2+ R3 Poor but consuming Indiadiscovered by FMCG- Micro pack- 70 million HH or 300 million population (37% have TV, 10% have 2 W, 80% buy dental hygiene products
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Psychographic Determinants of Consumption

Resigned- Really Poor Strivers- Goal is to improve & escape from hardship Mainstreamers- Middle Majority- security, value & social acceptance Aspirer-the wannabes-status & envy r important, who wants to be perceived as successful Successful Want material success & control
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Age Cohorts
Liberalization Children- Under 25 yrs of age 35% Midnights Children- 2 set of people 1. Born between 1940-1970- 35 to 40 yrs & 60-65 years of age- 26% 2. Born between 1970-1980 or 1985 22 to 36 years old (Mid Way children)-30% Pre independence Generation- 10%
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8. How to read & predict change in Consumer India?
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8. How to read & predict change in Consumer India

1. 2. 3. 4. 5. 6. 7.
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Force = Mass Acceleration Chage Confluences* Morphing change vs. Molting change Mixed verdict** Continuity with change*** Creeping trends & Ripple Effects This as well as that****
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9. Cultural foundation of Consumer India
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9. Cultural foundations of Consumer India

Force of Liberalization Pragmatism replaces Nationalism Technology driven cultural change- ICE (Information Technology, Communication & Entertainment) IC =E (IT Power, Communication revolution, connectivity leap ,an explosion of Exposure to the world
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Cultural Foundations Contd.

Indian Values Ambiguity Socially Defined Dharma Renunciation Happiness=Self Harmony Respect for Age
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Western Values Clarity Individually chosen role Never Give up (Viagra) Happiness=Wealth Accumulation Respect for youth
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10. Young India, woman India: a closer look
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10. Young India, woman India: a closer look

A young market still waiting to happen Understanding youth demographics A pressure- cooked generation Indian, not Wannabe Western* Pragmatism is the key
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Profile of 12 to 19 yr old in India

Label of attractiveness to marketers Rich Brats Creamy Layer Consuming Class Stretch a - bit Urban Lower-Middle Urban Poor Rural Consuming Class Rural Marginal Consumer SEC A1 A A, B A, B C D, E R1 R2 Size of town/city lived in Top 23 cities Top 23 cities Top 23 cities All Urban All Urban All Urban Rural Rural No. in millions/% of total 0.9/ 0.5 2.2/1 5.1/3 12.0/7 11.0/6 33.0/18 4.5/3 132/70
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Liberalization Children: A Powerful Market Force

% of households who have a family member aged
0-2 yrs 24 3-4 yrs 21 5-12 yrs 52 13-15 16-19 20-24 25-34 35-54 55+ yrs yrs yrs yrs yrs yrs 28 31 35 53 71 42
Source: Indian readership Survey, 2006

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The Woman Consumer In India

Working Women Facts- 23 % Housewives in Urban & 42% in Rural The conservative working woman The home entrepreneur The changing housewives The change wave of womanism
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11. Rural Consumer India
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11. Rural Consumer India

A Market in transition ready to be shaped Ready to be shaped, but why so few takers The changing structure of the rural economy: beyond Agriculture 1. 2001-2, out of Indias NDP of Rs.1,062,400 Crore, the share of rural contd. India was 52%
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Rural Consumer India Contd.

2.Rural is much more than agriculture; it has a thriving & growing manufacturing & service sector. 3. Per capita income has grown at the same pace as that of Urban 4. The top quartile of rural India are high spenders 5. Pent up demand for goods as well as service like education, communication & medical treatment.
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Spending patterns of Rural India

58.3 % on food & 41.7 %is non food expenditure Urban consumer expenditure grew @ of 8.3% between 1993-4 & 2003-4, 7% was rural expenditure growth. LIC sells more than half of its policies in rural India.
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Profile of Villages
Distribution of Villages Population Less than 200 200-500 501-1000 1001-2000 2001-5000 5001-10,000 Total no. of villages No. of Villages 92,541 1,27,054 1,44,817 1,29,662 80,313 18,758 5,93,154 % of total villages 15.6 21.4 24.4 21.9 13.5 3.2 100
17% of villages account for 50% of rural population & 60% rural wealth Hardly any shops in these 220,000 villages
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12. Understanding the bottom of the pyramid Consumer India
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12. Understanding the bottom of the pyramid Consumer India

Why bother about the Bottom of the Pyramid Large Value- 650 million people- earns less than a dollar a day- but collectively account for 30% of national income. A dollar a day per capita is a reasonable income in India.
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Why Bother about the Bottom of the Pyramid Contd.

Sensible investment for the future Guaranteed income growths Favorable change in social attitudes Poor but not backward any more
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Characteristics of the BOP Consumer

1. They have all kinds of Productivity devices that help them earn more 2. They do complicated value processing, have complicated financial models* 3. They innovate their own product solutions to make them Value- right** 4. They are technology embracers not rejecters
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A generic framework for understanding LowIncome Consumers better Segmenting low-income consumers Understanding spending power & patterns beyond Annual Income Improving buyer power Understanding value processing & budget balancing
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13. Winning in the Indian market
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13. Winning in the Indian Market

Creating blockbuster relevance- Do not wait for electricity rather marrying LED, Solar energy & nano tech Creating perceived value advantage Getting the business economics right*
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What MNCs do differently in their approach to the Indian Market?

Ask the right question Eschew value arrogance Recognize & accept : 1. India is multi-tiered & multi- layered market & needs a multi- pronged strategy 2. Emerging markets are not the way developed markets were in their infancy Forget the thresholds of Income above which consumption takes off
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Generated by Foxit PDF Creator Foxit Software http://www.foxitsoftware.com For evaluation only.

We are like that only

1. Made for India

1. Made for India

Made for India

Made for India

2. The mixed message from Consumer India

2. The mixed messages from Consumer India

The mixed messages from Consumer India Contd.

3. Why bother with Consumer India?

3. why bother with Consumer India?

why bother with Consumer Contd. India?

why bother with Consumer Contd. India?

why bother with Consumer Contd. India?

4. Understanding Consumer Indias demand structure

4. understanding Consumer Indias demand structure

Population & GDP Ranking of BRIC and the USA

Source: The world Factbook 2007

Consumer Stratification by Income & Expenditure

% of population by income percentile

National Income share of each %

Consumpt GDP per capita ion expenditu indexed re share %

understanding Consumer Indias demand structure Contd.

understanding Consumer Indias demand structure Contd.

understanding Consumer Contd.

Affluence Layers Based on Income (NCAER)

Two CT V whe eler 7 47 70 75 66 77 91

Refr Air car iger con ator diti one r 4 34 62 64 68 81 100

Affluence layers based on Income Percentiles (IRS)

Affluence layers based on Income Percentiles (IRS)

Affluence layers based on consumption intensity (IRS Consumption Pyramid)

10% 35% 40%

21/105 71/355 83/415

65=3.2 32=1.6 15=0.75

45-55 30-70 11-89

Consumption Profile of Layers in consumption Pyramid (IRS)

1/5 21/105 71/355 83/415

Penetration of consumer goods in Rural India

2000 3.7 3.2 39.1 9.8 13.3

2005 11.1 4.2* 54.2 12.2 31.9**

GDP distribution in class, mass, bottom of pyramid India (2003-4)

34.1 1878 36.1 662 29.7 265

204.6 216.6 178.2

Growth in numbers of HH in each income group

Source: NCAER, MISH Surveys, 2002

Projected Growth in Number of HH in each income group

Source: NCAER, MISH Surveys, 2002

Liberalizations impact on Indias Schizophrenia

7. demographic, psychographic & social determinants of consumption

7. demographic, psychographic & social determinants of consumption

Socio economic Classification (SEC)

The Urban SEC system

The Urban SEC System Contd.

The Rural SEC System

Semi- pucca Kuchcha R4 R4 R3 R3 R3 R2 R2 R2

Relative Purchasing Power Across SECs

Relative Purchasing Power across SECs

Defining My Target India in terms of SEC

Defining My Target India in terms of SEC Contd.

Psychographic Determinants of Consumption

8. How to read & predict change in Consumer India?

8. How to read & predict change in Consumer India

9. Cultural foundation of Consumer India