Posted in Finance Articles, Total Reads: 2696
, Published on 13 March 2014
India is a land of contradictions. The Forbes list of billionaires features 55 Indians & in the same country around 20 crore people earn less than $2 a day. The reforms unleashed in 1991 by the Narsimha Rao Govt. pushed India from being a closed- socialist economy to an open- capitalist society. These reforms created opportunities that could be taken advantage of only by a privileged few which resulted in a skewed growth across the country. But over the time period, better inclusive economic & social growth created a segment of people who broke the shackles of subsistence living and embraced consumerism.
But still the inequality exists, with one part of Indians becoming more global in their aspirations & desires and the other part fighting for its existence daily. Consumerism is still in its infancy in our country; consumer awareness is low due to the apathy and lack of education among the masses.
The Land of extremes
Despite all these contradictions, many international companies have reacted to the prospective growth of India’s consumer market. They are subsequently trying their hardest to woo Indian consumers in every possible way to create brand loyalty and increase their investments in the current Indian markets. India with a $1.8 trillion economy & about one sixth of the global population is one of the most lucrative consumer markets in the world. Products across all categories are selling like hot cakes. FMCG sector is one of the beneficiaries of this high domestic consumption led growth. The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13.1 billion. All the major FMCG players have a prominent presence in the Indian market. The rural Indian FMCG market size alone is considered to be around Rs. 48000 crore. All the major FMCG players are present in rural India & consider rural marketing strategically important for their business. As popularized by Mr. C.K Prahlad “The fortune at the bottom of the pyramid” can be seen in all its glory in India. The rural FMCG markets are driven by volumes. Margins are lower & products are sold in small sachets. With better livelihood options available for the rural Indians & steady income being generated, the rural growth seems to be a sustainable story & not a fairy tale. With better connectivity & presence of intensive distribution channels across the rural hinterlands, rural consumption is powering the growth of the large FMCG companies like HUL, ITC e.t.c.
The Malls & the village shops – Polarization
The Urban Indian markets form 25% of the markets and driven mostly by higher margins. All the premium products are present & the Indian market is engulfed by a rapid consumerism wave. Indians are splurging like never before. Consumerism is the new religion of modern India and malls have become its cathedrals. Premiumization is a must across all categories now in order to attract the burgeoning affluent Indian consumer. Urbanization and rising education level has stimulated this growth. With increasing awareness & connectivity, Indians are conscious of the products available internationally and demand goods & services comparable with the global standards. Luxury brands like Armani, Gucci have entered India & and there’s a long ling list of companies still awaiting their entries. Higher end FMCG products like premium shampoos, deodorants and other high-end personal care products are in huge demand among the affluent urban Indian. The global Indian is ready to shell out money for his/her wants & demands and is not price-conscious any more. FMCG has to keep delivering to the whims & fancies of this affluent group, if it wants a margin-led growth in urban India.
As we have seen, FMCG growth in India is fueled by all sections across the hierarchical pyramid. The Indian consumer’s pyramid is itself in transition to a diamond shape, with the burgeoning middle class at the center. The middle-class of Indian society is expected to swell to over ten times its current size. These changing parameters should be at the centre of a firm’s business & operational strategies. The companies will have to respect the common Indian’s growing aspirations and create products & services which satisfies his/her wants & demands. The premium product demanding section is growing and the rural section’s purchasing power is increasing. The companies would have to bring a balance in their strategies & employ tactics which would respect the needs & wants of these two extreme segments and hence bring sustainability in their profit making mechanisms. In order to keep doing well in India, the MNC’s should engage with the communities & try to grow with them instead of growing at their expense.
This article has been authored by Rajwinder Singh from IMRB International
2. Times of India website
3. The economic Times
5. The Hindu
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