For those who came in late, the Business Today-Indica Research Index of Consumer Sentiment (BT-IRICS) stood at 136 in January 2003 and hopeful customers were seen scanning the horizon for the one sign that they should go out, spend, and be happy. By April the index had dropped to 133-no great cause for alarm in the times of an unwarranted war and a global epidemic. So, why do we feel we have lost an opportunity?

First off, the three-point dip certainly doesn't do justice to the three months that were. Jaswant Singh presented one of the most consumer-friendly budget India has seen in recent times. The Indian cricket team just stopped short of winning the ICC World Cup. The US went to war against Iraq. And SARS (Severe Acute Respiratory Syndrome) laid China and parts of South Asia low. The budget and India's performance at the World Cup should have seen consumer sentiment improve. And while the war and SARS may have offset this to some extent, nothing can really explain a three-point fall. After all, the war ended before it could impact the Indian economy substantially and while SARS has hurt India's trade with parts of South Asia, and affected shipments to the US (these go through Singapore and Hong Hong), there is a growing school of thought that India, in a twist that reeks of schadenfreude, could actually benefit from China's misery.

RICH LIKE US?

SECs A & B: They're actually twins Is it time to question Indian marketing's holy cow, the education-occupation defined socio-economic classification (sec)? For, responses related to a consumer's intention to buy a durable in the April 2003 round of BT-IRICS, are just the same across secs A and B. And the two mirror each other even on the intent to spend more across product families. Does this mean the sec has stopped being a meaningful consumer differentiator? Our opinion is, in some categories, it has. "Look at cell phones," says B. Narayanaswamy, Director, Indica Research. "Occupation-type, and its needs of travelling and being in touch, are more critical demand parameters than education." That apart, a decade of satellite television does seem to have homogenised aspirations across secs. Still, the similarity may stem from the desire of consumption angst-driven sec b consumers to ape their sec a brethren." "It has been our experience that sec b and sec c consumers have this need to look good, and therefore, a huge overstatement, in either intentions or reported consumption, happens here," says Shripad Nadkarni, Vice President (Marketing), Coca-Cola India. So, what gives?

One way to deal with the dip is to simply ignore it. Agro Tech Foods' CEO Utpal Sengupta recommends this course of action. "A three-point difference is hardly any change; therefore, not much should be read into this." Then, there's the fact that March is when consumers invest in tax-saving schemes, April and May, the months when they plan a break with their families, and June and July, that time of the year when schools and college reopen. Each of the three entails a substantial non-consumption outgo and probably account for the minor (less than 10 per cent) fall in purchase intent. Indeed, none of the major happenings of the past three months, it now turns out, could have ever had an impact on confidence. In February, when this magazine reported the findings of the second round of the consumer confidence survey carried out in January, this writer posited that a consumer-friendly budget or a sterling performance by the Indian team at the ICC World Cup could act as a trigger and boost confidence. Now, with the benefit of hindsight, it turns out we couldn't have been more off the mark. Well, one lives and learns. "It will be a long time before global events start impacting Indians," laughs Atul Sobti, Senior Vice President (Marketing), Hero Honda. "And sentiment is a grey word here." That rules out Iraq, although, strangely enough, a BT-IRICS poll has two-thirds of the respondents stating that the war had changed things for the worse in India's business domain. And the budget, explains Saumitra Chaudhuri, the Chief Economist of rating agency ICRA, "just about tinkers with consumer expectations; the direction of the broader economic policy is already set".

The nationwide strike by truckers could have hit confidence hard had it lasted, but it petered out in 10 days, just as it was beginning to impact the supply of consumer goods. And the hard-nosed, value-seeking Indian consumer, while applauding the Indian cricket team's heroics in South Africa simply refused to hitch her economic and consumption outlook to them. Evidently, only direct, tangible things affect her sentiment, and that too, only when she allows them to. Still, there's a world of difference between January's BT-IRICS of 136, and April's 133. Here's why.

DURABLES: MASLOW'S HIERARCHY

The desire for higher-order durables: cars are in; refrigerators, out. On the face of it, marketers vending durables should be in mourning. After all, hasn't the proportion of consumers that believes there is no time like the present when it comes to buying durables declined by 5 percentage points between January and April 2003? If marketers aren't grieving, attribute it to the growing demand for higher-order durables. Consumers today are keen about cellular phones, CD players, computers, even cars! "Old products, like direct cool refrigerators and alternatives like a BAI for washing machine exist," explains Rajeev Karwal, CEO of appliance major Electrolux Kelvinator. "The need is fulfilled and the new purchase is low on priority." This, despite the fact that the penetration is just about at the half-way mark for refrigerators and not even a third for washing machines! "In durables, the dominant motivation in India is becoming lifestyle upgradation," says Santosh Desai, President, McCann-Erickson. So more consumers intend (and desire) buying higher-order lifestyle enhancers such as mobile phones, computers, CD players, and cars. Anything, at all, that tells the world they've arrived.

An Arrangement In Black And White

A dip of a mere three points would suggest that there is no significant improvement, or corresponding decline in consumer sentiment. Nothing could be farther from the truth. A closer look at the results of the third round of the BT-IRICS survey shows that there is a major change in the proportion of people who expect things to remain the same. Some portion of these believe things will change for the good; others, for the worse. For instance, there is a 6 per cent increase in the number of the respondents that says its current income is higher than it was three months ago, and a 4 per cent increase in the number of those that says it is lower.

What does this mean? Is it that consumers, tired of holding their breath and waiting for the tide to turn have finally made up their minds? Or is it, as Pradeep Srivastava, the Chief Economist of the National Council of Applied Economic Research (NCAER), puts it, "a sign of vulnerability-it says more people see more people around them doing either better or worse." That could have an impact on future consumer sentiment. For better or for worse, it is too early to tell. And this is what makes the third edition of the BT-IRICS poll a watershed of sorts.

What makes the analysis of the findings of this survey even more interesting is the fact that the Indian consumer seems to believe her destiny is independent of broader economic and business trends. So, while she expects things on the income, employment, and financial status front to improve, she also expects business to suffer. "As a people, we do not have a sense of the economy in terms of the broad interest rate regime, GDP growth, or employment," says Santosh Desai, President, McCann Erickson. "Only derived effects like the movement of the stockmarket and prices register on our radar." That could explain why consumers turned sour on the budget. The stockmarket rubbished it and inflation has been on an upward slope since August last (around 3 per cent to 6.14 per cent now).

FMCG GROWTH: RED HERRING!

FMCG Growth: She must be joking Is it for real? The fast moving consumer goods (FMCG) sector has been in a state of perpetual decline for the past two years. So where does the fact about consumers saying they plan to spend more on such daily needs as soaps, shampoos, detergents and groceries and less on indulgence-driven categories like soft drinks, fruit juices and ice creams fit in? One plausible explanation could be that with inflation at 6.14 per cent, its highest in the past three years, consumers are readying themselves to spend more on the same. "We haven't seen any change in our overall FMCG sales off late," says Ramesh Ramanathan, President, Food World Supermarkets, a view that corroborates our theory. That still doesn't explain the contrary consumer view on spending less on categories such as soft drinks. One could reason that with both players (Coca-Cola and Pepsi) dropping prices, consumer anyway get more for less, obviating the need to spend more. "Today, consumers are interested in products other than FMCGs," says Subhiksha Supermarkets Managing Director, R. Subramanian. "These offer no additional benefit or value and are overpriced." That should put paid any hopes that FMCG majors nurtured. As always, there is a difference between what the consumer says, and what she means!

What She Doesn't Tell

Despite all this, the Indian consumer springs a surprise when she says this is the time to buy an automobile (in the same breath she also says this isn't such a great time to be spending on a durable). Even in automobiles, it is cars, not two-wheelers that have caught her fancy (See Durables: Maslow's Hierarchy). And although she says she expects to spend more on FMCGs, companies vending these products would do well to hold back on the bubbly: her reaction may stem from an anticipated increase in prices (See FMCG Growth: Red Herring). "We have been growing, but the market sentiment hasn't been great," admits Ramesh Ramanathan, President, Food World Supermarkets.

Marketers have tried their best to kick-start the growth engine: across categories, from detergents to direct-cool refrigerators, prices have come down, but to little avail. "Even for nominal growth, marketers need to ring in epochal changes," says B. Narayanswamy, Director, Indica Research. They would do well to take a cue from the Rs 5,500 crore-a-year carbonated soft drinks (CSD) market. Today, this market is growing at over 20 per cent, courtesy its new value offering of Rs 5 for a 200-ml offering. Why companies vending fruit juices-fruits are the most expensive products in a household's food basket and most consumers consider them a luxury-cannot do the same will remain a puzzle.

Still, it may not be fair to blame marketers, although it must be said that they didn't do enough in the first quarter of this year to change all those "may-buys" (and there were several) into "will-buys". "It is clear that there can't be a major push-factor to consumer sentiment if the economy doesn't do well," says NCAER's Srivastava. In a country where people underplay their hopes for the morrow out of fear of divine reprisal, it would be a folly on the part of marketers to just wait for sentiment to turn upbeat. Come to think of it, the opportunity that we spoke of at the beginning of this article still seems to be around. After all, what is a mere three-point drop in sentiment in the wake of the war and SARS. The redemption for marketers lies not in what the survey says, but what it doesn't.

additional reporting by Venkatesha Babu, Nitya Varadarajan, Debojyoti Chatterjee,
Abir Pal and E. Kumar Sharma

INDICA RESEARCH INDEX OF CONSUMER SENTIMENT: APRIL-MAY 2003 The Indica Research Opinion: Cruising Along

Indica Research's Executive Director, B. Narayanaswamy The Indica research index in April 2003, as it stands at 16.2, is a tad less than where it was in January. The indexed figure is a 133 vs. a 136 in January. In sum, no change. The last four months have witnessed, however, a budget, the Iraq war, the SARS outbreak, and the news of a possibly below-normal monsoon in India, and possibly above-normal pleasantness with Pakistan. How do these square up with the fact that the confidence index has not changed? The data would suggest that the proportion of those who see the future outlook as 'same' has dropped. But they have shifted in roughly equal numbers into becoming optimistic or pessimistic. So there is a change, but the shifts are cancelling out each other. From a consumption standpoint, the 'next four months' when seen from a date in April have traditionally been months when nothing much happens. These are inauspicious months for weddings in many parts of the country; even for home purchases or shifts in some parts. Categories that have a direct relation to the summer witness a seasonal peak-fans, ice cream, ACs, soft drinks, refrigerators. The one other category that enjoys its seasonal high is education-be it formal or the informal sector of tuition and coaching and computers and preparations for the various CAT's. HOW WE DID IT » Total sample 1,219 » 10 cities: Delhi (124), Mumbai (122), Chennai (120), Bangalore (124), Hyderabad (120), Kolkata (120), Ahmedabad (124), Lucknow (124), Cochin (120) and Nagpur (121) » Purely random sampling process; Equal representation of male and female, all age groups, SEC A and SEC B » Face-to-face interviews using a structured questionnaire » The questionnaire covered three core areas: current assessment of economic situation, expectation about the future economic situation and overall consumption mood » Besides key variables for indexing, the survey also measured explanatory measures » All data was weighted; each variable first indexed for nett optimism » Data then indexed as proportion of total score possible » This index then weighted to arrive at All India Index of Consumer Confidence So, from an SEC A/B householder's point of view, monies need to be planned for-for school or college fees, uniforms and books, application fees or a small vacation-all are expenditures away from the categories that are counted for the larger perception of growth or buoyancy. So it's difficult to tell whether a positive trend was arrested by the disquiet arising from, say, the Iraq War or the SARS outbreak or the Budget. Unlikely though, in our view. The '91 war had a clear and powerful effect in India: in the oil crisis that it precipitated, the forex crisis and the thousands of Indians returning home. None of that this time round. The SARS outbreak in China has also-thankfully-not assumed any significant dimension in here so far. Nor has the budget created any big boost or a dampener. We noted in February that "the Budget would be an important event, and has the opportunity to propel all of (the move to optimism) forward into actual economic performance and to energise the consumption end". The Budget does not seem to have done this in any significant way. So life hums on. And here's wishing that the umbrella and raincoat and cold remedy categories see a sharp spike.