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MARKETING
Riding The Boom

The thrill of the buy is back for upwardly mobile urban consumers who are now willing to pay more for better products. And companies are stoking demand through clever financing options. If all goes well, this could well snowball into the biggest economic boom to be seen in recent times.

By Seema Shukla.

The Mehtas' consumption orgy began innocently enough, with a letter in the mail. Monika Mehta picked up the mail that evening-Manoj was stuck at a meeting in the office-and didn't spare a second look for the innocuous envelope. She knew it was from Manoj's credit card company, and since it wasn't sealed, she surmised that it was another one of those offers for a discount holiday-in Puri or some equally unattractive place-they'd never avail of. She was wrong. The letter, as Manoj informed her later, was from his credit card company all right, but the gist of its contents was that the consumer finance division of the bank that had issued his card had 'pre-approved' him for a car loan. "I am going to upgrade to a Matiz," he announced.

The Mehtas were what market researchers call a Double Income No Kids (dink) couple. Both were in their mid-twenties, had been married for 37 months, and had jobs in great companies. Still, Manoj did have a perfectly good car, a three-year-old Maruti 800 that they had bought soon after marriage (and for which they'd just finished paying). But upgrade Manoj did. That was in April.

In May, Monika insisted that they trade-in their television for a 29" flat-screen one. In June, the Mehtas felt the need for a larger refrigerator-they'd bought a 165-litre plain-vanilla one three years back-and bought a 300-litre frost-free. And in July, they holidayed in Europe, courtesy a travel agent's liberal vacation-now-pay-later offer.

Today, happiness is being a marketing professional selling something targeted at the urban rich-what researchers refer to as the higher socio economic classifications (SECs). The almost-orgiastic consumption behaviour exhibited by people like the Mehtas has brought a spring to the step, and a song to the lips of most marketers. The collective belief of marketers is that they're standing at the edge of something big. That is the only thing they seem to be able to agree upon. Some insist this phenomenon is confined to centres; others claim it is in the process of cascading down to the rural hinterland. Some believe the boom-for that is what it is-is on; others predict that it isn't here yet, but will soon be. And everyone offers the same universal rationale: globalisation, liberalisation, the influence of satellite television, wider choice, higher disposable incomes, the burgeoning number of dinks, and the emergence of the golden oldies. The numbers do tell the tale of a boom-to-be. A MasterCard International Master Index survey found that the consumer confidence in India during the period January to March, 2000, was 70.1 (on a 100-point scale), compared to 44.5 during the period July-September, 1999. MasterCard believes the index is a lead indicator of consumer behaviour over the subsequent quarter or two. According to the National Council for Applied Economic Research (NCAER), the number of the very rich (those who are defined as individuals who buy the most expensive products), consuming classes (those that buy the bulk of consumer goods marketed in the country), and climbers (those who own or purchase slightly expensive consumer durables like B&W televisions, sewing machines, and mixer grinders) will touch 129.2 million in 2000-01, and 170.5 million in 2006-07. And the Centre for Industrial and Economic Research (CIER) estimates the demand for products and services at $150 billion in 2000-01, and $520 billion by 2009-10. Predicts S.R. Mohnot, 71, Executive Chairman, CIER: "The boom will peak by 2005."

The good news, though, seems to be restricted to the urban centres. And most of the products and services that are part of this boom are high-end ones targeted at mature users in the metros. Says Arun Adhikari, 45, Executive Director (Personal Products), Hindustan Lever Ltd. (HLL): "The boom is currently restricted to the upper class. For the top 20 per cent of the urban population i.e., 50 million people, there is increasing consumer confidence, aspirations are increasing as well as disposable income." That figure may appear insignificant in the Indian context, but it is higher than the population of first world countries like Belgium and Netherlands, and, as Adhikari sums up, can serve as the basis "of a good economic boom".

Still, the patient will inherit the masses. Those companies that look beyond the urban boom and manage to overcome the many entry-barriers to the rural market are likely to discover a rapidly maturing market. Agrees Rohtash Mal, 45, Chief General Manager (Marketing & Sales), Maruti Udyog: "Although the main action is in the urban centres, the boom has trickled down to the rural areas too. The rural consumer's aspirations have grown over the past few years."

With opportunity comes danger. The news that the customer is on the prowl again isn't exactly a positive development for companies. And the fact that families like the Mehtas are willing to spend more for a feature-laden offering doesn't bode well for companies interested in peddling their antiquated wares (with cosmetic make-overs in some cases). Says Arvind K. Singhal, 42, Managing Director, KSA Technopak: "Only the strong shall live. Those (companies) that fail to react will end up dead."

Driving the boom

Call it an aberration engendered by three factors: increased purchasing power, greater choice, and the eagerness of companies to make it easy for the consumer to acquire what he or she wants to. Says Vibha Paul Rishi, 39, Executive Director (Marketing), Pepsi: "Today the consumer has the luxury of choice. She is becoming more discerning because of this." If choice is the new axiom driving the boom, its corollary-keeping up with the Joneses-is as old as the hills. Explains T.K. Oommen, 62, Professor of Sociology, Jawaharlal Nehru University: "Consumers are apt to compare their status with those in the same socio-economic strata. This reference-group behaviour helps spread demand."

If consumers weren't exercising their choice last year, or the year before, there were reasons for it: the recession, the liquidity crunch, and the fact that money was trapped in a stock market that was moving upward with the frenzy of a freed kite. Why, 1999 even saw consumers lowering their expectations and 'downtrading' (opt for less expensive offerings than they otherwise would have) in product categories like soaps and detergents. Circa mid-2000, the pent-up demand is breaking the surface, especially in the urban areas. Some market observers like Neeraj Garg, a 29-year-old manager with consulting firm A.T. Kearney, predict that the boom will be here in six months: "There is a huge backlog of demand. Many consumers have deferred their purchases because of the bad times."

If the recession forms the crust of this boom, then satellite television, the availability of easy financing options, and the gradual spread of organised retail constitute the toppings. Says Vasanth Kumar, 40, Vice-President (Marketing), Madura Garments: "Today, the Indian consumer is more open to value-added products. This can be attributed to rising aspirations. And exposure to satellite TV is one reason for this." That's exactly what marketers said during the last boom (1994-1995). The difference? The first boom came about when people discovered that the number of ways in which one could blow up money had increased ten fold almost overnight. This boom is riding on the back of savvier consumers opting for value-added products and services. One company launches a flat-screen television, and suddenly, the competitive centre of gravity of the entire CTV industry moves to flats. The 'uptrading' trend is even more pronounced in the case of consumers replacing an existing durable with a new one. Explains Santosh Desai, 37, Executive Vice-President, McCann Erickson India: "If the consumer has spent sufficient time on one rung of the ladder, she is willing to move up." Ergo, no company hoping to benefit from the boom is talking volumes. It's value that's on everyone's minds.

Only, value doesn't automatically translate into a willingness on the part of the consumer to spend more. Companies still have to hardsell their products and services. Consumer finance, for instance, has a significant role to play in sustaining the boom. Says Ajay Kapila, 37, Vice-President (Sales & Marketing), LG (India): ''We couldn't be more thankful to consumer finance companies for reducing the actualisation's gap.'' Adds Ramesh Sobti, 50, Country Head, ABN Amro: "The extent to which financing has helped the boom can be gauged from the fact that over 45 per cent of the cars sold in the country, over 30 per cent of the consumer durables sold, and an increasing number of foreign holidays, are financed."

If financing is one of the glimmer-twins that provides sustenance to the boom, organised retailing is another. The same consumer who spends Rs 500 at a neighbourhood grocery store is likely to spend more at a supermarket. The reason? An increased opportunity to spend. Says K.N. Iyer, 34, CEO, Piramyd, the anchor store at the Ajay Piramal-promoted Mumbai-mall Crossroads: "Organised retailing has a big role to play in the boom. Aspirants identify with retail outlets, which is why they throng stores like ours."

Surviving the boom

Six years back, when the boom of '94 happened, all a company had to do to benefit from it was just to be there. Today, though, only those prepared for the boom will thrive. Those that aren't ready could well end up not surviving the boom. In many ways, being caught in a boom is like navigating through an electric storm-there's no telling where the next high-voltage strike will happen. To live through the boom, companies will have to ensure that their marketing system is sensitive enough to capture customer changes in real time. And that their marketing-mix has enough flexibility to deal with any variable the boom may throw their way. Says Gautam Advani, 34, Chief of Marketing, Domino's Pizza India: "Normally companies have one business plan, and come rain or shine, there are no changes made in this. Now, there's a need to keep several strategic options open."

The boom is also expected to impact entire supply chains. Some companies may find out that they have to have a far more active brand communication agenda. Others may discover the need to pamper retailers. And still others could realise that the key to surviving the boom is the creation of a vendor-base that can cope with the consumers' increasing demand for variety.

Segmentation, many marketers believe, will be the key to leveraging the boom. Put simply, a company that seeks to respond to the boom by segmenting its markets intelligently will create (or position) product or service offerings for each viable segment, thereby tapping into not just one large boom, but many small ones. Says Siddarth Varma, 38, CEO, Reebok India: "A segmented approach reflects an evolution in the marketer's understanding of the Indian consumer. It will be at the level of the metros and the non-metros. Then-within the metros-the rich and the not-so-rich."

While following this approach, some companies may realise that they can optimally tap the boom by focusing on two or more large market segments, leading to the emergence of dual-or multiple-strategies. Explains Simon Bell, 33, Principal, A.T. Kearney: "However much the increase in demand for high-value products, there will continue to be high market for entry-level products." Some companies, like HLL, are focusing on both ends of the spectrum: the FMCG monolith is entering the micro-credit business, and launching a basket of low-end brands to stoke demand at the rural end without diluting its focus on the high-end, albeit with another basket of brands. Avers Adhikari of HLL: "Some companies limit their approach to the premium segment, some to the lower segment. HLL has the strength, capability, and ambition to operate across the spectrum."

The caveat (for there surely must be one): it is easy to get carried away by the hype surrounding the boom and launch high-end offerings. Or make-over a product and position it at a higher price point. That may not work. Agrees Raj Jain, 41, Executive Director (Marketing), Whirlpool India: "It is foolish to assume that just because the customer is looking for something better, you can charge more." In the end, those likely to make the most of this value-driven upsurge are those who realise that just as there is a rule-book for managing the recession, there is one to manage the boom.

 

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