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2009

RECENT TRENDS IN THE


CONSUMER BUYING BEHAVIOUR
IN HOUSE APPLIANCES IN INDIA

AMIT KUMAR
OVERVIEW
India in its 62 years of journey ghas seen manifold increase in the income of its denizens
(Rs.38,084 as on 2009) and this has led to paradigm shift in the purchasing behavior of
the people here. There is a discernible shift in the consumer’s preference in favour of
higher end , technologically superior branded products, the demand being spurred by
increasing consumer awareness and preference for new models.

This shift is also because of the increase in manufacture of branded products and
narrowing down of price between branded and non-branded goods. Competition has
forced the companies to offer efficient after sales service and support and this, in turn,
has swayed customer preference for branded products.

Post liberasition there has been inundation of goods transcending the borders and the
customer has a wider choice; breaking the shackles of the consumers regarding
limitations of choices. Indian consumer durables market used to be dominated by a few
domestic players like Godrej, Allwyn, Kelvinator, and Voltas. But post-liberalization
many foreign companies have entered into India, dethroning the Indian players and
dominating the market. The major categories in the market are CTVs, refrigerators, air-
conditioners and washing machines.

The rural market is growing faster than the urban markets, although the penetration
level in rural area is much lower. The CTV segment is expected to be the largest
contributing segment to the overall growth of the industry. The rising income levels,
double-income families and increasing consumer awareness are the main growth
drivers of this industry. In addition to them the young nature of population and easy
finance options are also fueling the market and its dynamics.

Consumers today are more indulgent in market place than their predecessors. There has
been shift in the definition of needs and wants. For example a mobile phone is more of a
need today then a want. Westernisation has influenced the psyche of the Indian
customers to a degree.

This report is an attempt to reflect the changes in the consumer buying behavior in the
Indian Market especially in home appliances buying .
CONSUMER CLASSES
For the purpose of study I am using the classification given by NCAER .According to the
National Council for Applied Economic Research (NCAER), India’s premier economic
research institution, based on consumption indicators, which is more relevant for
ascertaining consumption patterns of various classes of goods there are five classes of
consumer households, ranging from the destitute to the highly Affluent, which differ
considerably in their consumption behavior and ownership patterns across various
categories of goods. These classes exist in urban as well as rural households both, and
consumption trends may differ significantly between similar income households in
urban and rural areas.

Structure for Indian consumer market:


Consumer Annual 1996 2001 2007 Change
classes income
The rich 215,000& more 1.2 2 6.2 416%
The consuming 45 – 215,000 32.5 54.6 90.0 179%
class
The climbers 22 – 45,0000 54.1 71.6 74.1 37%
The aspirants 16 – 22, 0000 44 28.1 15.3 65%
The destitute Below Rs- 33.2 3.4 12.8 61%
16,0000
Total 164.8 180.7 199.2 21%

FACTORS AFFECTING CHANGING CONSUMER BEHAVIOR


CONSUMER BUYING PROCESS

INDUSTRY CLASSIFICATION
The consumer durables industry can be broadly classified as consumer electronics and
consumer appliances. The consumer appliances category can be further segmented as
white goods and brown goods.
THE KEY PLAYERS AND THEIR PRODUCTS
MARKET ANALYSIS
 Industry sales were US$ 4.5 billion in value in 2006-07 and more than 7 million units in
volume terms.
 Plasma display panels and liquid crystal display TVs have registered an average growth
of more than 250% 2006-07 and the trend is expected to continue.
 Split ACs have been growing at a much faster rate than window ACs- growth of 97% in
the year 2006-07 and the trend is expected to continue.
 Mobile phone production is expected to grow at a compound annual growth rate of
28.3% from 31 million units in 2006 to 107 million units in 2001
 The sectors which have recorded excellent growth rates of more than 20 per
cent in terms of quantity produced are Air Conditioners (25 per cent), Split Air
Conditioners (42.6 per cent) Micro Wave Woven (27.3 per cent), DVDS (25 per cent)
VCD/MP3 (20 per cent), Color Picture Tube (23 per cent,).

 The sectors which have recorded high growth rates between 10 and 20 per cent
in April-March 2004-05 over the corresponding previous period are Color Television
(12%), Window Air Conditioners (18.8 per cent), Washing Machines (18.1 per cent Watch
(10%), Frost Free Refrigerators (13.8%),

 Some sectors which have recorded moderate growth of 0 to 10 per cent are refrigerators
(5 per cent),), clock (8 per cent), Direct Cool Refrigerator (2.8 per cent)

 The sector recording negative growth is B&W TV (- 16.7%)

 The Refrigeration Industry has reached 3.9 million units in 2004-05 from 3.7
million units in the last year with a growth of 5 per cent.

 The Air-Conditioners Industry has reached at 1.2 million units during 2004-05
with a growth of 25 per cent from 9.8 lakh units in 2003-04.

 Washing Machines is estimated to have grown by 18.1 per cent from 1.35 million
units in 2003-04 to 1.6 million units in 2004-05.

 Microwave ovens has grown by 27.3 per cent growth with 3.5 lakh units
compared to 2.75 lakh units in 2003-04.

 The Indian Colour Television industry has grown by 12.1 per cent in 2004-05 by
reaching 9.25 million units in 2004-05 from 8.25 million units in 2003-04.

 The B&W TV has recorded a negative growth of 16.7 per cent from 3 million
units in 2003-04 to 2.5 million units in 2004-05.
 Watch and clock have registered growth of 10 per cent and 8 per cent from 20.6
mn units and 26.3 million units in 2003-04 to 22.6 mn units and 28.4 mn units in 2004-
05.
 The VCD/MP3 industry has registered 20% growth and has achieved production
of 8.4 million units. The unorganized sector has occupied a major share in
manufacturing and supplying VCD/MP3.
 DVD Players are estimated to have grown by 25 per cent in 2004-05 with the
volume estimated to be 625000 units.

 The first half of the year and the first quarter of the financial year, 2005 has seen
a little setback for the domestic consumer electronics and durables industry with
the two largest segments of the industry - color televisions (CTV) and
refrigerators facing decline in production and sales during the period.
But the Air conditioners and washing machines market have grown at the rate of
20% .

 The de-growth seen in the first quarter of the current fiscal has been
mainly due to the value added tax (VAT) regime introduced in April,
2005, as held by the industry representative.

 Overall, the refrigerator segment had achieved a negative growth of 4.3 per cent
in volume terms and two per cent in value terms during the period.
 Production of consumer durables:

Production item unit 2003- 2004-2005 % growth


2004
Consumer
durables/white goods
Refrigerator Lakh units 37 38.85 5.0
Frost free Lakh units 7.33 8.34 13.8
Direct cool Lakh units 29.67 30.51 2.8
Air conditioners Lakh units 9.8 12.25 25
Window Lakh units 7.22 8.58 18.8
Split Lakh units 2.58 3.68 42.6
Washing machines Lakh units 13.55 16 18.1
Microwave ovens Lakh units 2.75 3.5 27.3
Consumer
electronics
Value overall 14500 156600 8.0
Color television Lakh units 82.5 92.5 12.1
Color television Rs Crore 7000 7580 8.0
B&W TV Lakh units 30 25 -16.7
B&W TV Rs crore 482.55 361.5 -25.0
VCD MN units 7.2 8.4 16.7
DVD Nos 50,000 62500 25
Watch Lakh units 206 226 9.7
Clock Lakh units 263 284 8.0
KEY GROWTH DRIVERS FOR CONSUMER
DURABLES

Rise in disposable income: The demand for consumer electronics has been rising
with the increase in disposable income coupled with more and more consumers falling
under the double income families. The growing Indian middle class is an attraction for
companies who are out there to woo them.
Availability of newer variants of a product: Consumers are spoilt for choice when
it comes to choosing products. Newer variants of a product will help a company in
getting the attention of consumers who look for innovation in products.
Product pricing: The consumer durables industry is highly price sensitive, making
price the determining factor in increasing volumes, at least for lower range consumers.
For middle and upper range consumers, it is the brand name, technology and product
features that are important.
Availability of financing schemes: Availability of credit and the structure of the
loan determine the affordability of the product. Sale of a particular product is
determined by the cost of credit as much as the flexibility of the scheme.
Rise in the share of organized retail: Rise in organized retail will set the growth
pace of the Indian consumer durables industry. According to a working paper released
by the Indian Council for Research on International Economic Relations (ICRIER),
organized retail which constituted a mere four percent of the retail sector in FY07 is
likely to grow at 45-50% per annum and quadruple its share in the total retail pie 16% by
2011-2012. The share will grow with bigger players entering the market.
Innovative advertising and brand promotion: Sales promotion measures such as
discounts, free gifts and exchange offers help a company in distinguishing itself from
others.
Festive season sales: Demand for color TVs usually pick up during the festive
seasons. As a result most companies come out with offers during this period to cash in
on the festive mood. This period will continue to be the growth driver for consumer
durable companies.
Consumer Durables: Industry size,
growth and trends
During FY07, volume share of the single largest consumer durable was color TVs at
30%, followed by refrigerators and air conditioners at 18% and 13% respectively.
Washing machines and other assorted consumer durables captured a share in the total
volume by 5% and 34% respectively.

Television Sets: Growth in sales


FY07 witnessed the highest number of TV sets being sold when compared to the
previous two corresponding years. As per CMIE, growth in sale of TV sets was slower at
14.3% during FY07 when compared
to a 21% growth in the previous year.
On the demand side, domestic
consumption of refrigerators declined
by almost 4% between FY05 and
FY08, while imports climbed. The
imposition of anti-dumping duties on
import of colour picture tubes will hit
the manufacturing costs of CTVs
produced in India. Further, the
reduction in the general rate of excise
duty (CENVAT) from 16% to 14% as
proposed in the Union Budget for
FY09 will not have any effect on the
selling price of colour TVs. This is
because the combined effect of rising input costs and a higher interest burden will
negate the effect of such reduction.
REFRIGERATOR: DEMAND AND SUPPLY SIDE DYNAMICS

According to CMIE
statistics, domestic
consumption of
refrigerators witnessed a
decline between FY05 and
FY08, while exports grew.
From 3% of the total
consumption in FY05,
exports grew to7% of the
total consumption in FY08.
On the supply side,
domestic production of
refrigerators in the total
supply remained at the
same levels in the past
three years ended FY08. At
99% each in FY06-08, the
share of production
reported a mere 100 basis
point increase over FY05,
as imports slided. The
refrigerator industry posted
a sluggish performance
since the beginning of FY09 on the back of volatile steel prices. The first quarter saw a
production growth of a mere 50 basis points to 2.18 mn units, as per CMIE.
Sales of Consumer ElectronicsCompanies
The consumer electronic goods industry underwent a slowdown during the last quarter
of FY08. According to CMIE, the industry witnessed a slower 10.5% growth in the Mar
08 quarter compared to a substantial 17.4% growth in the previous corresponding
quarter. Domestic consumer electronics companies together reported a subdued sales
growth of almost 17% in FY07, on the back of a robust 40.5% growth in FY06. While the
larger companies reported robust growth in sales, it was the smaller ones whose sales
were negatively affected that eventually brought down the industry sales growth.
INDUSTRIAL GROWTH
The industrial sector grew in moderation during FY08 at 8.5% on the back of a
comparatively higher growth of 11.5% during the previous fiscal. The country’s real GDP
grew by 9% during FY08; a tad lower than 9.6% in the previous fiscal. The consumer
durables segment witnessed a fall in production particularly for items where consumer
preferences have shifted towards newer products. Shifting in the consumption pattern
coupled with rising input costs of steel, iron ore etc, may further affect the production
levels of these goods. On the supply side newer variants of consumer durables on the
back of technological advancements have flooded the market, whereas on the demand
side it is the prospering middle class and consumerism which have led to changing
demand patterns.

Foreign Direct Investment

The net Foreign Direct Investment (FDI) inflows to India increased from US $ 22 bn in
FY07 to US $ 32.3 bn in the following fiscal. During 2007 and 2008, the share of FDI in
the electronic goods segment remained flat at 0.2%, coming on the back of a 1.5% share
in CY06.
CHANGING ATTITUDES OF TODAY’S
CUSTOMERS
Today customer likes to indulge in buying spree. No more the customers buy only to
fulfill their basic needs and emphasise on savings itself.

Indian consumers have become value sensitive and are not much price sensitive as was
the case earlier. If they feel that a particular product offers them more value and its price
is high, even then they are willing to buy the product.

The Indian consumers strictly follow their culture, tradition and values, as a result of
which foreign companies were forced to give an Indian touch to them in order to
succeed in India. McDonalds, MTV, Pepsi, Star TV, Coca Cola India and many more had
to Indianise themselves to flourish in India. Karva Chauth is celebrated with more zeal
and enthusiasm than the Valentine Day.

The Indian consumer of today gives preference to features of a product rather than its
brand name. The trend that higher segment consumers only buy the top brands has also
come to an end.

Even after liberalization Indian companies and brands are doing very well. It is clearly
evident from the fact that despite many foreign brands being sold in India, Raymond is
still India’s largest textile company and Haldiram is doing well despite the presence of
McDonalds and Pizza Hut.

The consumers today are not confined to a single brand and prefer change rather than
sticking to the same brand. Not often do we see any home with cars of the same brand or
household products of the same brand.

The use of credit card for shopping is a new emerging trend in India. Also consumers
are availing credit or loan from banks and other financial institutions to fulfill their
needs and wants.
The Indian consumers are spending thick and fast on premium and luxury products.

The Indian consumers have shown another major change in their buying behaviour.
They just don’t want availability of products, they also want better experience, services
and ambience. This has led to the growth of shopping malls where shopping,
entertainment and better facilities are all available under one roof. To a great extent
the presence of heavy weight such as the pantaloons, big bazaar, croma , nilgiris etc has
given a huge fillip to the growing market by not only selling products but also the
experience. The Indian consumer are much more inclined to the organized sector.

The rural Indian consumers are also showing signs of change. They have all the modern
amenities at their home and their standard of living is fast improving. The rural
households have earned huge money due to price rise in real estate. They are also
shifting towards industrial and services sector, hence their purchasing power is
increasing. It is reflected in their living standard and possession of all electronic gadgets
and luxury cars.

There is a stiff competition in the Indian market today and it has become a buyer’s
market from seller’s market. Customers are the ultimate beneficiary of the fierce
competition in the market. Competition has reduced prices to a great extent and has
forced the manufacturer to maintain product quality to sustain in the highly competitive
market.

Though in a small way internet and and telemarketing have also caught the attention of
the Indian customers. Dell. Amazon .com, etc have carved a good niche for them in the
sector.

The consumers today do not mind availing credit as when needed. So credit availability
has become a key factor for determination of a buying a good. Consumers are also
availing the information available on net through various forums and websites.
MARKETERS REPONSE TO CONSUMER
ATTITUDE
With change in consumer buying behaviour the companies also made necessary changes
in their marketing strategies. The changes include:

1) Launching of premium products by companies to fulfill requirements of high class


consumers.

2) Since purchasing power of rural India has increased, the companies have started
shifting their focus towards rural India to capture untapped rural market. This has
reaped huge benefits for companies like in cases of PepsiCo, Coca Cola India and other
FMCG companies.

3) Companies not only aim to sell their products but also aim to provide better after
sales services to its consumers. For example companies have provisions to send their
technicians to repair the cars struck at highways or other outer locations due to
technical failure or in case of a mishap. This improves the company’s credibility and
helps to build its customer base .

4) Companies design their products on the basis of market segmentation so that they
have products to suit every pocket and requirement.

5) Due to sharp growth in the communication sector, companies are providing many
schemes and plans to attract customers. For example mobile service providers provide
lifetime option and free calls to other mobile users under a specific plan of the company.

6) Due to fierce competition in the electronics market and people’s willingness to


purchase hi-tech products the rates of LCD and plasma TVs have been slashed by 25%-
30%. Through this strategy electronic companies received very good response from the
consumers in the recent past and were able to build a considerable market for their
products.

7) Indian consumers have developed a liking for foreign tours and holidays. This has led
to development of many travel agencies that provide a planned foreign tour at a
reasonable price. What is even more interesting is that the customer does not have to
pay the amount in lumpsum, instead, he has the facility to make the payment in
monthly installments according to his convenience.

8) Consumers of India have developed a tendency to save travel time. For such
consumers low fare or low cost carriers are available that provide air travel facility at a
very affordable price.

9) Consumers of India want better housing facilities. The construction companies are
fulfilling this requirement of consumers by providing them luxurious houses, exquisite
interiors, round the clock water and electricity supply, full time security, club house,
gymnasium, etc. within the premises.

10) Indian consumers are increasingly becoming aware of the importance of health and
hygiene. Hence companies are making products to suit their health like low calorie, low
fat food. As far as hygiene is concerned companies have fully mechanized their plants to
maintain hygiene and pack the food in such a way that it remains fresh for longer period
of time and does not lose its nutritive value before consumption.

11) The need for internet is fast growing. To fulfill this need of consumers, mobile
manufacturing companies are providing internet access facility on mobile phones. This
has revolutionized the communication sector and provided a means of communication
that was never ever in anybody’s dreams till a few years back.

12) Indian consumer’s liking for credit is also increasing rapidly. Hence many financial
institutions have come into existence in India and are flourishing. Banks have also
become liberal in their loan and credit policies.
THE ROAD AHEAD
The rising rate of growth of GDP, rising purchasing power of people with higher
propensity to consume with preference for sophisticated brands would provide constant
impetus to growth of white goods industry segment.

Penetration of consumer durables would be deeper in rural India if banks and financial
institutions come out with liberal incentive schemes for the white goods industry
segment, growth in disposable income, improving lifestyles, power availability, low
running cost, and rise in temperatures.
While the consumer durables market is facing a slowdown due to saturation in the
urban market, rural consumers should be provided with easily payable consumer
finance schemes and basic services, after sales services to suit the infrastructure and the
existing amenities like electricity, voltage etc.

Currently, rural consumers purchase their durables from the nearest towns, leading to
increased expenses due to transportation. Purchase necessarily done only during the
harvest, festive and wedding seasons — April to June and October to November in North
India and October to February in the South, believed to be months `good for buying’,
should be converted to routine regular feature from the seasonal character.

Rural India that accounts for nearly 70% of the total number of households,
has a 2% penetration in case of refrigerators and 0.5% for washing
machines, offers plenty of scope and opportunities for the white goods
industry.

The urban consumer durable market for products including TV is growing annually by 7
to 10 % whereas the rural market is zooming ahead at around 25 % annually.
According to survey made by industry, the rural market is growing faster
than the urban India now. The urban market is a replacement and up
gradation market now.
The increasing popularity of easily available consumer loans and the expansion of hire
purchase schemes will give a moral boost to the price-sensitive consumers.
The attractive schemes of financial institutions and commercial banks are
increasingly becoming suitable for the consumer. Consumer goods
companies are themselves coming out with attractive financing schemes to
consumers through their extensive dealer network. This has a direct bearing on
future demand.

The other factor for surging demand for consumer goods is the phenomenal growth of
media in India. The flurry of television channels and the rising penetration of cinemas
will continue to spread awareness of products in the remotest of markets.

The vigorous marketing efforts being made by the domestic majors will help the
industry.

The Internet being now used by the market functionaries that will lead to intelligence
sales of the products. It will help to sustain the demand boom witnessed recently in this
sector.

The ability of imports to compete is set to rise. However, the effective duty protection is
still quite high at about 35-40 per cent. So, a flood of imports is unlikely and would be
rather need based.

Reduction in import duties may significantly lower prices of products such as


microwave ovens, whose market size is quite small in India. Otherwise, local
manufacturing will continue to stay competitive. At the same time, there will be some
positive benefits in the form of reduction in input costs. Washing machines and
refrigerators will also benefit from lower input costs.

According to a study by the McKinsey Global Institute (MGI), Indian incomes are likely to grow
three-fold over the next two decades and India will become the world's fifth-largest consumer
market by 2025. In the given scenario, urban markets will continue to fuel the Indian economy
for quite some time to come.

Moreover, expenditure by the middle class accounts for the bulk of India’s urban
consumer expenditure. About 61 per cent of total urban income comes from households
that can be classified as middle class—earning between US$ 1,493 and US$ 9,955 a year.

Further, India is likely to see rapid urbanisation, with around 45 per cent of Indians
living in urban areas by 2050, up from 30 per cent in 2007-08, according to a study co-
authored by National Council of Applied Economic Research's (NCAER) Rajesh Shukla
and Future Capital Research's Roopa Purushothaman.

According to a report by McKinsey, India's overall retail sector is likely to grow to US$
419.93 billion by 2015.

According to global real estate consultant, CB Richard Ellis, India has moved up to the
39th most preferred retail destination in the world in 2009, up from 44 last year. The
turnover of the organised retail segment in India is pegged at around US$ 8.1 billion. It
is expected to reach US$ 51 billion by 2010.

Retail opportunity is slated to rise by about US$ 160 billion in India in five years. In
urban India, modern retail is likely to grow from the current 9.6 per cent of total retail
to 26 per cent in the next five years, as per Technopak Advisors

The Indian consumer durables market seems to be relatively untouched by the


economic slowdown. The consumer durable goods output witnessed a 2.5 per cent rise
in durables output in the first quarter of 2009, according to a report by the Development
Bank of Singapore (DBS).

Colour televisions have seen an increase in sales, growing 2 per cent to 2.8 million units
in January-March 2009, according to the figures released by ORG-GFK.

Whirlpool is on the expansion mode and is targeting a 22 per cent share of the US$
423.28 million washing machine market in India by the end of 2009, and is launching a
range of new products with an investment of US$ 4 million for the same.
Moreover, a large number of hi-technology durables are expected to flood the US$ 4.03
billion Indian durables market in 2009. Samsung, LG, Haier and Videocon are among
companies planning new product launches in the coming months
CONCLUSION
The Indian consumer remains one of the most upbeat globally. The Nielsen Global
Consumer Confidence study, conducted by Nielsen, a market research company
revealed that Indians are "the most optimistic lot globally who think that their country
will be out of the economic recession in the next twelve months."

In fact, it is widely believed that the Indian market will fuel the growth of multinational
companies in the coming years. While most leading companies are cutting costs in the
US and Europe, they see India as a strategic market, which can fuel their growth.