MARKET ANALYSIS-DEMAND DRIVERS, SEGMENTS & PREFERENCES FMCG SECTORS 1. Introduction.

The Indian FMCG industry is over INR 1300 billion in size. It touches the life of every Indian and therefore has perhaps the widest reach among all industries in India! The industry has tripled in size over the last 10 years, growing much faster than in past decades. The industrys potential to grow further and faster is awesome, given the low penetration of most categories and rising consumer incomes. Given the inherently essential nature of the products, the sector is more or less immune to recessionary pressures. The last decade has seen the sector grow by 11 per cent annually. Robust GDP growth, opening up of rural markets, increased income in rural areas, growing urbanization along with evolving consumer lifestyles and buying behaviours have all been drivers of this growth. Over the next decade, all the above drivers are expected to continue to impact the industry favourably. 2. The FMCG market Players can be categorised into three well-identified sets of players operate within a highly developed and intensely competitive landscape of the Indian FMCG market. (a). Foreign players who are present through their subsidiaries such as Unilever, P&G,Nestle and PepsiCo. (b). Strong Indian players with established national presence such as Marico, Dabur and Godrej Consumer Products. (c). Regional or small domestic players, such as Ajanta, Anchor, CavinKare etc., who are present in a few regions of the country Apart from these, there are regional and small-scale FMCG players such as small tea producers and organic food producers, who mainly compete by offering low-priced products with similar looks or packaging compared to the bigger brands, to the right consumers typically based in rural areas or in small towns. These players with lower corporate overheads and clear focus on specific consumer requirements have a competitive edge over larger FMCG players. The trends across 3. Demand-side Drivers: environments Which, will shape the industry by 2020 are consumers, markets, and

Rural demand

Exports

(a) Consistent GDP Growth: The Indian economy has been consistently growing over the last few years. The growth rate in over the decade has been 7%. This has resulted in improve in purchase power as well as the base (b) Increasing Consumer Income: Increase in incomes is largely an outcome of economic growth across sectors. Over the past few years, India has seen increased economic growth, with a continuing and substantial impact on consumer disposable incomes enabling good growth for the FMCG sector. (c) High Private Consumption: The Indian economy, unlike most Asian economies, has a very high rate of private consumption (61%). Of that, a further 60% is due to retail spends goods and products that people consumer, as opposed to services or essential consumption items like rent and education. (d) Rising Urbanization:India has 70% of its population living in rural areas. With rising urbanization, more people will have exposure to modern products and brands and thus shift to branded and packaged goods and products. By 2015, an additional 75 million consumers will have moved into cities, not only buying FMCG products for themselves but also serving as a conduit for information and goods to their families still in rural India. (e). Increasing Discretionary Spends Another encouraging factor is the falling spends on basic food items which frees up consumer income for other categories of FMCG products. This trend is noticeable among both urban and rural consumers. (f) Exports: India is one of the worlds largest producers of a number of FMCG products but its exports are a very small proportion of the overall production. Cheap labour and quality product & services have helped India to represent as a cost ad-vantage over other Countries. Even the Government has offered zero import duty on capital goods and raw material for 100% export oriented units. Multi-National Companies out-source its product requirements from its Indian company to have a cost advantage. India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashew apart from being the second largest producer of rice, wheat, fruits & vegetables. It adds a cost advantage as well as easily available raw materials. (g) Rural Demand: Rural marketing has become the latest marketing mantra of most FMCG majors. True, rural India is vast with unlimited opportunities, waiting to be tapped by FMCGs.So its not surprising that the Indian FMCG sector is busy putting in place a parallel rural marketing strategy. Among the FMCG majors, Hindustan Lever, Marico Industries, Colgate-Palmolive and Britannia Industries are a few of the FMCG majors who have been gung-ho about rural marketing. Seventy per cent of the nations population, i.e., rural India, can bring in the much-needed volumes and help FMCG companies to log in volume-driven growth. 4. Demand for FMCG products is set to boom by more than 100 per cent by 2015. It will be driven by a rise in the share of the middle class from 67 per cent in 2009 to 88% in 2015. The boom in various consumer categories, further, indicates a latent demand for various product segments. For example, the upper end of very rich and a part of the consuming class indicate a small but rapidly growing segment for branded products. The middle segment, on the other hand, indicates a large market for the mass end products. The BRICs report indicates that Indias per capita disposable income, currently at $556 per annum, will rise to $1150 by 2015another FMCG demand driver. Spurt in the industrial and services sector growth is also likely to boost the urban consumption demand. 5. Segments. What is market segmentation?

Lets us first see what market segmentation means is: Markets are Heterogeneous; Segmentation divides them into Homogeneous Sub-Units. The market for a product is

nothing but the aggregate of the consumer of that product. We also know that consumer of a product vary in needs, motivates, characteristics, and buying behaviour. It means that the market for a product is essentially a heterogeneous unit. Markets break up the heterogeneous market for product into several sub units, or sub markets, each relatively more homogeneous within itself, compared to market into a number of sub markets/ distinct sub units of buyer , each with relatively more homogeneous characteristics, is known as market segmentation. It is the Consumers who are Segmented, Not Product, nor Price: Markets, sometime, speaks of product segments and price segments and use these expressions as synonymous with market segments. It is the consumers who are segmented, not the product, nor price. Market is about people who consume the product, not about the product thats gets consumed. Similar is the position about the price segments. In marketing there is talk of price slots in segmentation. But it does not mean that the price slots constitute the segments. What it signifies is that different offers are made available matching the differing price preference of the consumer segments involved. Price slots and specific products offers thereof are just a derivative of segments of consumers. It is the consumer, who invariably defines the segments, not product, nor price slots. 6. Why segment the market? Market segmentation benefits the market in several ways. y Facilitates Right Choice of Target Market Segmentation helps the marketer to pick up his target market properly. It does this by enabling him to distinguish one customer group from another within market and by showing him, which segments of the market match his situation and should, hence, form his target market. y Facilitates Effective Tapping of the Chosen Market Segmentation enables the markets to crystallize the needs of each of the chosen segments and make offer that match them. When buyers are handled after segmentation, the response from each segment will be more homogeneous. This in turn, will help the marketer develop marketing offers/programmers that are most suited to each segments. y Makes the Marketing Effort More Efficient and Economic Segmentation also makes the marketing more efficient and economic. It ensures that the marketing effort is concentrated on selected and well-defined segments. After all, for most firms, the resources would benefits if its efforts were concentrated on selected segments- the ones that match the firms resources and are most productive and profitable. y Helps Identify Less Satisfied Segments and Concentrate on Them Segmentation also helps the marketer to asses to what extent existing offers in the market matches the needs of different customer segments and which are the less satisfied segments.

7.

Market can be segmented using several bases

A market/ consumer population for a product can be segmented using several relevant bases. The major ones include:      Geographic Demographics Socio-cultural Psychographic Buying Behavior

8. The FMCG industry in India can broadly be categorized or segmented into following categories on the basis of above categories as: (a) Geographic: Segmentation of consumer based on factors like climate zone, continents/ country, region, state, district, and urban/rural area, constitutes For FMCG geographic segmentation is Urban and Rural, North & South and regional (b) Demographics: Segmentation of consumer based on variables such as race, religion, community, language, age, stage in family cycle, gender, marital status, family size, occupation, economic position/income/purchasing capacity level, and social status ,of the consumer demographic segmentation. The FMCG sector in this category has Kids/Youth/Old, women/men, Middleclass/Rich/, Married/Unmarried . (c) Socio-cultural: Culture and social class are the two main bases of segmentation. Culture: Culture influence consumer behavior, deeply. A given culture brings in its own unique pattern of social conduct. A person usually acquires his cultural attributes right at his childhood. Culture includes religious, caste, traditional, language, pattern of social behaviour. Social Factor: Social group of varying types exert influenced on the consumer. Social group include family, peer group, close colleges. They adopt their common life style. In FMCG : Veg/Nonveg; Regional Culture(Particularly Food and Garment sector) (d) Psychographic: Psychographic Segmentation groups customers according to their life-style and buying psychology. Shampoos, soap and all FMCG products buying behaviour segmentation is used

9.

Products wise segmentation:

FMCG products categories are:

Category Household care

Food and beverages

Personal care

Products Fabric wash (laundry soaps and synthetic detergents), household cleaners (dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellents, metal polish and furniture polish) Health beverages, soft drinks, staples/cereals, bakery products (biscuits, bread, cakes), snack food, chocolates, ice cream, tea, coffee, soft drinks, processed fruits, vegetables, dairy products, bottled water, branded flour, branded rice, branded sugar, juices, etc Oral care, hair care, skin care, personal wash (soaps), cosmetics and toiletries, deodorants, perfumes, feminine hygiene, paper products

The preference for a product by the customer is 9. Preferences Segment wise: determined by various factors like Price, Brand, culture, gender, age, regional and FMCG products are no exception. (a) Brand: Earlier, Indian consumers were using nonbranded apparel, but today, clothes of different brands are available and the same consumers are willing to pay more for branded clothes. Its the quality, promotion and innovation of products that can drive many sectors. The upper middle class and rich are now mostly brand conscious, it is lower middle class, rural and middleclass who has to be targeted by offering the same product at lesser price with different (cheaper) packaging and thus brand loyalty can be built up. (b) Price: Indian consumer is very price conscious. Many a times the companies have resorted to price war and predatory price to capture this market segment and hence build brand loyalty. (c) Gender: Gender preferences are now becoming more predominant in Indian consumer. Best example is the launch of Fair N lovely for men. Presently most of the personal care products are targeting both segments of gender separately. There is a market for further gender segmenting in Shampoos and hair conditioners.

(d) Regional: India being diverse country with diverse culture and food habits has different preferences across the region on products in general and food clothes in particular. (e) Age: The preferences for few products vary as per age, this segment is not fully exploited yet. FMCG companies mostly targeting the babies, youth and kid segment, there is a vast scope and market for launching products particularly personal care, clothing and food(healthy) targeting the middle age and old. A case in this regard is: Hair conditioners are mostly targeted at younger generation, there is increasing population of middle age who use hair dye to colour their hair, which makes the hair dry. The hair conditioners may be launched separately targeting this group. The preferences change (f) Herd preference (FADDISM): micro trends and due to fad or In-thing syndrome because of

10. The product wise penetration of the FMCG industry if analysed from table 3 it is evident that product wise preference is for daily use necessary like soap, detergent. The preferences for branded toothpaste, shampoo and personal care items are still very very low. Their lies the huge opportunity. .