A combination of economic factors and changing consumer preferences has led to the emergence of new consumer segments in India. KPMG describes the drivers behind emerging consumer segments in India. STOrai features:
The retail industry in India has been growing steadily for some years now and this trend is likely to continue into the next decade. Euromonitor estimates that the retail industry has grown at 12% since 2007 – slowing economic growth has not impacted the consumption story.
India as a country is witnessing the emergence of some key consumer segments. Tapping these segments successfully could hold the key to sustainable growth for retailers. There are three forces shaping the growth of new consumer segments namely:
a. Rising income levels
c. Online purchase behavior.
Rising income levels has led to an increase in the number of affluent in the society. While the definition of income range may vary, a few characteristics of these consumers include their preference for high quality, variety, brands and the need to ‘stand out’ and be serviced differently. It is observed that typically, these consumers have entered into a new phase of their lives with jobs, marriages, relocation, etc. and have become decision makers for the purchase of various products in different categories.
NCAER data shows the structural shift that rising income levels creates. In 2011, 56% of households had income levels less than Rs 112,000 per annum. By 2015-16 this will decrease to 43%. This means that roughly 10% of the Indian market will be ready to consume new categories.
Rapid urbanization and lifestyle changes have also leaving consumers with less time leading to emergence of the ‘time starved’ segment of consumers. Consequently, convenience becomes the most important factor for them and they are usually willing to pay a premium for services. While service is fast becoming a must-have across segments, some innovative business models have managed to strike gold with these consumers without compromising on profitability. For example, retailers of consumer durables – e.g. Croma, Viveks – have realized that customers are willing to pay for a plan which covers regular maintenance of all their consumer durables. In Croma’s case, the solution is ‘extended warranty insurance’ underwritten by Group company TATA AIG General Insurance Co, but in Viveks’ case, they have chosen to create a line of business employing 400 engineers and technicians to deliver the service.
First-time consumers in any new category constitute a separate segment. Managing adoption is critical – there are ample examples in the retail sector of players who successfully introduced new products and categories and created a niche for themselves. They have overcome traditional purchase barriers such as trust, pricing and awareness through innovative means. The best example of this was Big Bazaar’s “Sabse Sasta Din” – which created ‘event based’ offers – drawing in the aspirational consumer and converting her into a first time consumer.
Online consumers constitute one of the most dynamic emerging consumer segments. Their purchase basket is constantly evolving, leading to the inclusion of more categories, driven by factors such as value consciousness and convenience. While increasing openness to purchase new categories presents an opportunity to capture new consumers, retaining existing consumers has become a challenge due to growing expectations on service aspects such as timely delivery and refund. In the last two years, most e-tailers have invested heavily in their supply chain – and the market is now moving to omni-channel retail – i.e. where customers are able to chose their point of delivery / returns / service.
The bottom of pyramid segment in India continues its movement up the consumption ladder. This movement is also marked by drastic changes in their consumption habits. There is likely to be a shift from ‘product push’ from companies to ‘pull’ driven consumption based on specific needs of the segment. Few players are well placed to serve specific need of these consumers and opportunity exists to target low hanging fruits in this segment for new entrants in the market.
With economic slowdown and rising inflation, shoppers in India are increasingly becoming attuned to the discount culture and are actively seeking discounts in their daily purchase regimes as well. Retailers have responded to this trend by bringing in more promotional and discount offers for their products. These cost-conscious consumers are typically brand conscious, with purchase characterized by bulk buys and active deal hunting. Innovative approaches have successfully linked these offers to specific business objectives such as increasing footfalls on certain days, increasing sales of some categories, etc. targeted at well defined target consumers. Retailers such as “Loot” have built a business model by targeting this customer segment.
Future market opportunity is beyond metros — in ‘rurban’ India — with advancements in the media and telecommunication facilities. The rurban consumer is steadily and quietly evolving, new categories and products are being consumed, the ‘occasional’ is becoming ‘routine’, ‘commodities’ are transforming into ‘brands’ and ‘loose’ is becoming ‘packaged’. While concerns around infrastructure continue to pose a challenge, successful models targeting rurban consumers have seamlessly dovetailed into existing setups without having to reinvent the wheel.
The heterogeneity of consumption drivers underscores the task ahead for players in the retail industry. There are lessons from both within and outside the retail sector that can be leveraged to create consumer connect and forge long-termties.
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