What's
on her mind is in her shopping bag. Or will soon be. How she feels-confident,
unsure, apprehensive-has some bearing on how much she spends, on
what and when, and how much she saves.
Which is why marketers look at measures of
consumer confidence closely. Going purely by the math of the BT-Indica
Research Index of Consumer Sentiment (BT-IRICS), consumer confidence
is up a whopping 36 per cent since August 2002. In absolute terms,
consumer confidence was a mere 12 then, on a total of 100. Today,
it is 16.6. The index (taking 12 as equivalent to a base point of
100) has moved up to 136.
Ergo, consumers feel better today, than they
did in August 2002, but 136 doesn't really translate into a feeling
of happiness-far from it.
Marketers, those weathervanes that register
the slightest turn-of-breeze are aware of this change: "The
mood of optimism has grown," says Oscar Braganza, President,
Food World Supermarkets, "but it isn't a euphoric movement
but a slow gentle one."
There is a rational explanation for the lifting
of the gloom: fears of an Indo-Pak war have receded; the economy
hasn't imploded like it was supposed to; the Sensex has moved up
since last year's lows; the latest reshuffle in the Vajpayee government
has strengthened the reforms lobby; even the drought ended up being
a near-drought.
Far From Good
Yet, the absence of bad news is not good news.
Thus, while pessimism-scores on a host of parameters are down, optimism-scores
have barely inched up.
A sampling: The proportion of consumers that
feels it will be worse off financially next year, as compared to
this year is down 10 per cent, but the proportion that feels it
is better off is up a mere 2 per cent. And the proportion that believes
businesses have it bad today is down 16 per cent, from 51 per cent
in August 2002 to 35 per cent.
The result of this is a there-but-not-yet-consumer:
her expectations have gone up but as Soumitra Choudhary, Chief Economist
at rating agency ICRA puts it, she "is confused". That's
evident in the spend-save equation: the proportion of consumers
advocating spending less is up 8 per cent, but that of those that
believe it is time to save more is up a mere 2 per cent.
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28% believe real incomes will
grow this year. And a significant proportion of consumers believe
this si the right time to buy a house or a consumer durable |
Still, saving and spending aren't mutually exclusive
black-and-white options: there's a growing swathe of grey in the
consumer firmament, the undecideds, their numbers up a significant
6 per cent.
Their caution is perfectly justified. Finance
Minister Jaswant Singh's budget could either reinforce the growing
confidence of consumers or nip it in the bud. And paranoia over
job security and rising prices rules large.
Businesses, of course, are confident that most
consumers believe the worst is over and that the slightest positive
sign from the finance minister will trigger a spurt in demand. "There
is huge retail money waiting to pour into equities," gushes
Jigar Shah, Vice President at brokerage K.R. Choksey. But only if
the budget does away with taxes on dividends and long-term capital
gains. There are other variables, yes, but in the near-term horizon,
it is fears over what Big B holds that influences consumer behaviour.
"The wait for the budget is the only thing keeping consumption
in rein now," explains Soumya Mohanty, Senior Vice President,
Indica Research.
The Worst Is Over
Businesses would like to think otherwise. "Barring
a war in Iraq, and only if that leads to an increase in oil prices,
consumer confidence doesn't look like facing any reversals,"
says Shripad Nadkarni, Vice President (Marketing), Coca-Cola India.
Marketers, then, are gambling on growth, the consumer's reluctance
to break out the bubbly be damned.
Their reasoning: even a one-point increase
in the consumer confidence index means things are changing for the
better. "All indications point to an inflexion point in consumer
confidence," says Dalip Sehgal, Executive Director (New Ventures
& Marketing Services), Hindustan Lever Limited. "If January
sales hold out, the market will be in a hugely positive frame of
mind."
However, marketers would do well to remember
that consumer confidence, as measured by BT-IRICS is up since August
2002. On an absolute scale, with zero signifying complete lack of
confidence and 100 signifying complete confidence, it stood at 12
in that month. With that as the base, BT-IRICS has moved up to 136
points. That is a significant increase, but only when compared to
August. In absolute terms, the consumer is still not very confident.
The worst may be over, but it is going to take a while before consumer
confidence reaches the level marketers would like to see it at.
The Lag Effect
It takes time for an increase in consumer confidence,
a mere blip on the graph, to translate into demand and, consequently,
higher sales. Food World's Braganza claims sales of impulse products
(as opposed to need-based ones) are up. A significant proportion
of consumers believe this is the right time to buy a house or a
consumer durable and an impressive 28 per cent believes real incomes
will grow this year. That, by itself, should reflect in climbing
sales graphs. But only in the right context.
Marketers could provide that context if they
focus on innovations instead of depending on promotions.
A freebie, especially an attractive one, could
result in an immediate increase in sales but the phenomenon is likely
to be temporary. For sustainable long-term sales growth, there's
nothing quite as effective as the old fashioned marketing ploy of
providing an innovative solution to a consumer problem. Or catering
to a very real need. Companies have been loath to do this.
A short-sighted focus on the next-quarter's
financial results has caused them to place an undue emphasis on
promotions. If consumers haven't gone out and bought televisions
or refrigerators, then, it is partly because companies haven't really
given them enough reason to.
Jaswant Singh could help. He has already articulated
his desire to put more money in the wallets of the working class
and housewives. If, on March 1 he is perceived to have done so,
expect a further increase in consumer confidence.
Even something as inconsequential (from the
macro-economic perspective, that is) as a good performance by India
in the Cricket World Cup could lead to an increase in consumer confidence.
And if Singh comes through on February 28,
and India on March 23, expect BT-IRICS to go through the roof. It
could even zoom from the negative part of the scale to the positive.
Forget consumer confidence, that would be sheer consumer delight.
additional reporting by Abir Pal,
Venkatesha Babu, Debojyoti Chatterjee, and Nitya Varadarajan
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