Microwaves, air-conditioners, fully automatic washing machines, smartphones, kitchen appliances, LCD television, et al are making inroads in the homes of consumers in the smaller towns and the hinterland
BestMediaInfo Bureau | Delhi | April 18, 2013
The first decade of the 21st century brought a kind of tectonic shift in the Indian consumer market, especially in the non-metros. These became the real market for consumer durable companies as disposable incomes in these towns shot up impressively leading to higher sales of consumer durables brands. Microwaves, air-conditioners, fully automatic washing machines, smartphones, kitchen appliances, LCD television, et al made inroads in the homes of consumers in the smaller towns and the hinterland. Consumer durable brands, which were focusing only on metros earlier to sell their premium products, realised the potential of these unexplored markets, which were slowly becoming the engine of growth.
Gautam Kiyawat, CEO of Madison, feels that the explosion in durable purchases will continue for a long time. “Obviously there has been an explosion in durable purchases and this will continue for many years.”
Citing the reasons behind the paradigm shift in consumer behaviour over the past decade, Deba Ghoshal, Marketing Head of Voltas UPGB, said, “With the advent of modern trade, organised trade and brand shops, consumers in Tier II towns are better exposed to new products. Hence aspirations and expectations have gone up. Simultaneously, mass media has played a vital role in generating demand for consumer durables in Tier II towns in the last decade. Digital has made inroads in decision making as evolved consumers take well informed decisions after running diligent searches on the internet.”
Besides product awareness, after-sales service infrastructure has also improved in Tier II towns, motivating consumers to take decisions in favour of high ticket durable purchases. However, average price points have not moved upwards and these consumers demand the best products at the most affordable prices.
On the other hand, in Tier III towns, distribution and retail is not yet that organised, hence exposure to products is limited. Service infrastructure and power availability are also major issues. Hence penetration is still relatively slow for home appliances, particularly ACs and microwaves.
A Neilson study says that in small towns, value growth is driven more by consumer pull and less by distribution gains. "As distribution inroads are made in these smaller Indian towns and as brands find ways to connect with small town Indian, we will continue to see a stronger proportion of value growth being led by consumer pull. As we look at the small-town opportunity, we find that these towns are quickly making transition from a push to pull based consumer economy," the study says.
Brand expert Harish Bijoor thinks consumer durables brands have understood that the real India pulsates in small towns and the companies are tailoring their strategies according to the new markets.
“Consumer durable brands are penetrating markets wide and deep. India pulsates in its small towns. Durable companies have understood this, and the biggest successes in the realm of kitchen appliances, durables of every kind, micro-wave ovens included, are from the small towns of Indian. The action has shifted,” said Bijoor.
“In the Consumer Electronics domain, in Tier I and II markets, the market has certainly shifted from CRT (conventional) TVs to LCD/LED panels. This is purely due to price erosion in the flat panel segment. Hence you see an invasion of flat panels in all these towns,” Ghoshal told BestMediaInfo.com.
However, in the Home Appliances domain, the market has not shifted entirely towards augmented products. In Refrigerators, India still consumes 79 per cent Direct Cool Refrigerators (single door), and only 21 per cent constitutes Frost Free Refrigerators (double door). In Washing Machines, 70 per cent volumes come from the basic Semi-Automatic Twin Tub Washing Machines, while 20 per cent comes from Top Loading Fully Automatic WM, and only 10 per cent come from Front Loaders.
Hence the country continues to be a price sensitive market, especially in Tier II & III.
In ACs, however, despite of low penetration, the market has shifted towards Split ACs of higher star rating. While five years back Window ACs constituted 70 per cent of the market, today Split ACs are 70 per cent of the market. This has been made possible due to continuous consumer education regarding low cost of ownership of higher star rating ACs, and multiple benefits of Split ACs. Plus, an evolved consumer, who has bought a window AC earlier, would like to graduate to a more aspirational Spilt AC.
Voltas’ Ghoshal pointed out that the penetration varies depending upon the specific product categories in the consumer durables category. “While the overall CTV (Colour Television including CRTs and Flat Panels) penetration is at 55- 60 per cent, Home Appliances drop down further in terms of penetration. Refrigerator penetration is at 19 per cent, Washing Machine is at 7 per cent, MW at 2 per cent, and AC is at 3.5 per cent. Hence there is a long way to go for Home Appliances,” Ghoshal said.
While in Tier I metro's (10L + pop strata towns) which are approximately 35 towns, the penetration of Home Appliances is higher, and it is also growing in Tier II mini-metros (5L to 10L population strata, which number approximately 39 towns); the penetration is not very robust in Tier III (1L to 5L pop strata) which are approximately 320 towns.
“This Tier III belt has seen good growth from a Consumer Electronics (CTV) perspective, but not from a Home Appliances perspective. Hence there is ample room and potential for growth in Tier III towns,” observed Ghoshal.
Brands which were earlier focusing on English newspapers to advertise their premium brands, have now taken to Hindi and other language papers to reach the small towns. “The combined share of Hindi and vernacular dailies has risen from 53 per cent in 2008 to 61 per cent in 2012,” says a recent FICCI report.
Language-wise Average Issue Readership and revenue split:
|AIR Split||Revenue Split|
The share of English print advertisement volume declined from 32 per cent in 2011 to 27 per cent in 2012. Vernacular dailies continued to enjoy volume growth with their share increasing from 37 per cent in 2011 to 39 per cent in 2012, the report says.
A brand such as Panasonic which was predominantly seen as an urban brand, started getting 45 per cent of its sales from non-metros. Encouraged with high growth in non-metro cities, brands such as Whirlpool, Samsung and Panasonic started spending 30- 40 per cent of their marketing budget in small towns.
With growing potential, brands are still planning to increase their ad spend further in small towns. “There is a lot of development in non-metro cities which has resulted in income generation and higher disposable income for people in this region,” a Panasonic spokesperson told BestMediaInfo.com.
“As of now the ratio of spends for metro vs non-metro is 70:30, but going further, we plan to increase the amount of our spend on marketing in the non-metro markets especially focusing to more local activities,” the Panasonic spokesperson added.
Air-conditioning and commercial refrigeration major Blue Star plans to focus on tier III and IV towns and to increase its presence in the market it recently commissioned a study. The company found that they were witnessing higher demand for ACs in small towns, especially spilt ACs. Blue Star known for its commercial air-conditioning (AC) business, now intends to enhance advertising and brand promotion in these towns to become a major player in residential air-conditioning.
Bijoor feels that consumer durable brands should come out with innovative ways to tap these markets. “New markets mean new ways of reaching out. The language in use is that much more real, and less devoid of hype which sells in urban India. Functionality is driving the market, and cosmetics of the products on offer are sealing loyalty indices,” he said.