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“THE CHANGING INDIAN CONSUMER
DURABLES INDUSTRY-AN OUTLOOK”
SUBMITTED TO: Prof. Samarendra Mahapatra
SUBMITTED BY: Roshan Kanoo (08DM076)
INSTITUTE OF MANAGEMENT AND INFORMATION SCIENCE BHUBANESWAR
This report is an outcome of mutual support and guidance of many persons towards whom I am indebted. I express my profound reverence and heartfelt gratitude to Prof. S.Mahapatra who suggested me proper guidelines towards the project and for his unconditional co-operation and kind support in preparing the report and doing the activities required for the same.
TABLE OF CONTENTS
SL. NO. 1 1.1 1.2 2 2.1 2.2 2.3 2.4 3 3.1 3.2 3.3 4 4.1 4.2 5 5.1 5.2 5.3 6 6.1 6.2 6.3 7 8 HEADINGS OVERVIEW Key Growth Drivers for Consumer Durables Major Hurdles and Challenges INDUSTRY ANALYSIS Industry Classification Success in the Industry would depend on the following factors Profiles of Key Consumer Durable players Opportunities and Challenges CONSUMER ANALYSIS Consumer Classes Changing Attitude of Today’s Customers Marketer’s Response to Consumer Attitude MARKET ANALYSIS Consumer Electronics Household Appliances PRODUCT ANALYSIS Television Consumer Electronics Market in India – CTV CTV Industry Post Liberalisation COMPETITION ANALYSIS Competition Overview India as an Emerging Force in Television Market Market Measurement and Forecasting THE ROAD AHEAD CONCLUSION PAGE NO. 4 4 5 6 6 7 7 10 11 11 12 13 14 14 15 16 16 18 18 20 20 22 23 25 26
India in its 62 years of journey has 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 behaviour 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 liberalisation 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 fuelling 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 behaviour in the Indian Market especially in home appliances buying.
1.1 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. 4|Page
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 colour 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.
1.2 MAJOR HURDLES AND CHALLENGES PLAGUING THE INDIAN CONSUMER DURABLES SECTOR:
Threat from new entrants, especially global companies: The domestic consumer durables sector faces threat from newer companies, especially from global ones who have technologically advanced products to offer. Rivalry and competition: Presence of a large number of players in the domestic consumer durables industry leads to competition and rivalry among companies. Threat from rivalry and competition poses a threat to domestic companies. Potential markets remaining yet untapped: A large segment of the domestic market, mostly the rural market is yet to be tapped. Tapping this yet untapped and unorganised market is a major challenge for the Indian consumer durables sector. Threat from substitute products/services: The domestic consumer durables industry is plagued by threats from substitute products. Easy accessibility to theatres/multiplexes, especially in urban areas has turned off the viewership from TV to a large extent. With the advent of a horde of FM radio stations, radio sets have now substituted TVs. Customer power with respect to availability of choice: The availability of a wide product line on account of most products being homogeneous, poses a threat for companies operating in the consumer durables sector. Customers have the choice of both domestically produced and imported goods, with similar features.
2. INDUSTRY ANALYSIS
2.1 INDUSTRY CLASSIFICATION
THE INDIAN CONSUMER DURABLES INDUSTRY CAN BE SEGMENTED INTO THREE KEY GROUPS CONSUMER DURABLES WHITE GOODS • Refrigerators • Washing machines • Air conditioners •Speakers and audio equipment KITCHEN APPLIANCES/BROWN CONSUMER ELECTRONICS GOODS • Mixers • Mobile phones • Grinders • Microwave oven • Irons • Electric fans • Cooking range • Chimneys • Televisions • MP3 players • DVD players • VCD players
ATTRACTIVE AREAS FOR INVESTMENT • High-end colour TVs – High-end, flat screen TVs, plasma display panels and liquid crystal display TVs registered an average of more than 100 percent growth in 2007–08 and the trend is expected to continue • Split air conditioners – Split air conditioners have been growing much faster than window air conditioners, growing at 97 percent in 2006–07 compared to 32 percent growth for window air conditioners. • Distribution and retail – With the rural and semi-urban markets opening up avenues for expansion, the need to have a strong distribution network is crucial for companies to remain price competitive • Mobile phones – The mobile phone market grew at 29 percent in 2007–08 over the previous year. The market is expected to grow at a compound annual growth rate (CAGR) of about 28.3 percent from 2006 to 2011
2.2 SUCCESS IN THE INDUSTRY WOULD DEPEND ON ADDRESSING KEY FACTORS
Market positioning and branding Addressing key customer requirements that act as demand drivers by proactive marketing and establishing strong brand association
Product technology Providing technologies that benefit the customer through low power consumption, low service requirement, low cost of operation, etc.
Distribution and service network From saturated urban regions to lowpenetration rural areas and tier-II/III towns, distribution networks and brand recognition will continue to play significant roles
Attractive locations With raw materials forming a significant chunk of costs, production facilities located near ports to import cheaper raw materials could provide an advantage
2.3 PROFILES OF KEY INDIAN CONSUMER DURABLES PLAYERS (key players and their product)
COMPANY VIDEOCON INDUSTRIES GODREJ WHIRLPOOL OF INDIA MIRC ELECTRONICS PANASONIC VOLTAS BPL LIMITED ELECTROLUX SAMSUNG HOOVER LG ELECTRONICS EUREKA FORBES SONY BLUESTAR BAJAJ ELECTRONICS NOKIA PRODUCTS REFRIGERATOR,WASHING MACHINES,T.V.,A.C, MICRO WAVE REFRIGERATOR, AIR CONDITIONER REFRIGERATOR, WASHING MACHINES TELEVISION TELEVISION REFRIGERATOR, WASHING MACHINES REFRIGERATOR, TELEVISION VACCUM CLEANER, REFRIGERATOR VACCUM CLANER, REFRIGERATOR, T.V, MOBILE PHONES VACCUM CLEANER WASHING MACHINES,REFRIGERATOR.T.V.,MOBILE PHONES VACCUM CLEANER TELEVISION, MOBILE PHONES, DVD PLAYER AIR CONDITIONER GEYSERS, ELECTRIC FANS MOBILE PHONES
• Bluestar is the largest central air conditioning company with a network of 23 offices, four Modern manufacturing facilities and around 2,000 employees. • It has established its leadership in the field of commercial refrigeration equipment ranging From water coolers to cold storages. • The company plans to increase production capacity by setting up a new manufacturing plant at Thane and is also looking to enhance its product range, which comprises developing special Purpose products and comfort applications. • Bluestar is the largest central air conditioning company with a network of 23 offices, four modern manufacturing facilities and around 2,000 employees Whirlpool was established in 1911 as first commercial manufacturer of motorized washers to the current market position of being world's number one manufacturer and Marketer of major home appliances. The parent company is headquartered at Benton Harbour, Michigan, USA with a global presence in over 170 countries and manufacturing operation in 13 countries with 11 major brand names such as Whirlpool, Kitchen Aid, Roper, Estate, Bauknecht, Laden and Agnes. Today, Whirlpool is the most recognized Brand in home appliances in India and holds a market share of over 25%. The company Owns three state-of-the-art manufacturing facilities at Faridabad, Pondicherry and Pune. In the year ending in March '06, the annual turnover of the company for its Indian Enterprise was Rs.1, 375 crores. According to IMRB surveys Whirlpool enjoys the status of the single largest refrigerator and second largest washing machine brand in India
WHIRLPOOL OF INDIA
• The company offers engineering solutions in areas such as heating, ventilation and airconditioning, refrigeration, electro-mechanical projects, textile machinery, machine tools, mining and construction equipment, materials handling, water management, building Management systems, indoor air quality and chemicals. • Its operations have been organised into four independent, business-specific clusters: air conditioning and refrigeration, unitary products, engineering products and international Operations. • It has tied up with RBS Home Appliances Ltd for the use of 640 service centres that Voltas has Across the country for after-sales services.
Godrej India was established in 1897, the Company was incorporated with limited Liability on March 3, 1932, under the Indian Companies Act, 1913. The Company is one Of the largest privately-held diversified industrial corporations in India. The combined Sales during the Fiscal Year ended March 31, 2006, amounted to about Rs. 58,000
Million (US$ 1,270 million). The Company has a network of 38 Company-owned Retail Stores, more than 2,200 Wholesale Dealers, and more than 18,000 Retail Outlets. The Company has Representative Offices in Sarjah (UAE), Nairobi (Kenya), Colombo (Sri Lanka), Riyadh (Saudi Arabia) and Guangzhou (China-PRC).
• The company is engaged in the marketing of various consumer household and industrial goods • It manufactures the erection and commissioning of transmission line towers, telecom towers, mobile telecom towers and wind energy towers. • The company is planning to outsource manufacturing of gas appliances and water dispensers,
which will be marketed under its own brand. • It is also planning to introduce inverters and two new lines of business.
A survey carried out by FICCI last year indicated that the consumer durable goods sector is all set to witness 12 percent growth this year. Spurred by a marked shift in consumers’ preference for highend products from premium brands floating superior technology. Clearly, the aspiration to own premium lifestyle products among consumers has gone up. The rural Indian market, which accounts for nearly 70 percent of the total number of households, witnessed a 25 percent annual growth while the urban consumer durables market reflected an annual rate of 7 to 10 percent. CE companies are re-working their strategies for the ensuing summer season, considered to be a good period for the industry. A cut in customs duty on inputs will enhance the manufacturing competitiveness of the industry by reducing cost and boosting demand and sales. Rationalization of taxes, clearly, seems to be a universal demand across the CE sector. This will ensure manufacturers in India have a level playing field as against their counterparts in the import business. Fast growing product segments such as flat panel TVs, LCD TVs, Plasma TVS, Slim CRT TVs, frost-free refrigerators, fully automatic washing machines, split air-conditioners, DVD players, microwave ovens, home theatre systems – products entailing high aspiration value are likely to see a growth in consumption. The consumer durables sector is set to close the current financial year with 12% growth, 0.5 percentages point more than the growth registered last fiscal, according to a Ficci survey. The survey is based on feedback from the consumer durables industry, allied industry organisations and government agencies. Technological improvements, falling prices due to competition, aggressive and innovative marketing and declining import tariffs have contributed to the strong growth. According to the survey, many high-end products such as LCD TV, MP3, DVD, split air-conditioner, high end washing machine do not find place in the list of items covered by the Central Statistical Organisation (CSO) for calculating official data. These items, however, have seen impressive growth. The sectors which are projected to achieve ‘excellent’ growth rates of more than 20% in terms of units manufactured are air-conditioner (25%), split air-conditioner (60%), frost-free refrigerator (54%), washing machines (20 %), fully-automatic washing machine (35 %), microwave oven (35 %), high-end flat panel TV (100 %) and DVD (25 %). The sectors which are expected to record high growth rates between 10% and 20 % are refrigerator (11 %) and colour TV (15 %). India has an increasingly affluent middle class population that, on the back of rapid economic growth, has made the country’s consumer electronics industry highly dynamic. The industry has been witnessing significant growth in recent years due to several factors, such as retail boom, growing disposable income and availability of easy finance schemes. But still, the consumer electronics goods, like refrigerators, microwave and washing machines have low penetration in the country, representing vast room for future growth.
Propelled by growing middle class population, changing lifestyle and rapid urbanization, the Indian consumer electronics industry is forecasted to grow at a rapid rate of 10% to 12% in the coming few years. Volume sales of washing machine will be driven by growth in fully automatic category during 2008-09 to 2011-12. 9|Page
The market for televisions in India is changing rapidly from the conventional CRT technology to Flat Panel Display Televisions (FPTV). Currently, the split between CRT and FPTV is around 97% and 3% respectively, and the share of FPTV is projected to increase at robust rate in near future. Frost-free refrigerator sales, certainly growing at a much faster pace than the direct-cool category, are anticipated to drive the Indian refrigerators market over the forecast period. The AC market in India is projected to grow at 30% to 35% for the coming few years. Driven by young population, demand for MP3 players and digital video appliances are anticipated to surge at double-digit rate in near future. The low penetration level of consumer electronics goods coupled with increasing preference for comfort and luxurious goods are widely attracting the foreign as well as domestic players to the industry.
2.4 OPPORTUNITIES AND CHALLENGES
THE CHALLENGES Heavy taxation in the country is one of the challenges for the players. At its present structure the total tax incidence in India even now stands at around 25-30 per cent, whereas the corresponding tariffs in other Asian countries are between 7 and 17 per cent. About 65 per cent of Indian population that lives in its villages still remains relevant for some consumer durables companies. This India, at least a large proportion of its constituents, still buys black and white TVs and doesn't know what flat screens are. Also, foraying into these rural markets has a considerable cost component attached to it. Companies not only have to set up the basic infrastructure in terms of office space, manpower, but also spend on transportation for moving inventory. Even LG and Samsung, which are touted as having the largest distribution network in the country, have a direct presence only in 15,000 to 18,000 of the around 40,000 retail outlets (for consumer durables) in the country. Poor infrastructure is another reason that seems to have held back the industry. Regular power supply is imperative for any consumer electronics product. But that remains a major hiccup in India.
THE OPPORTUNITIES 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.
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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.
3. CONSUMER ANALYSIS
3.1 CONSUMER CLASSES
Even discounting the purchase power parity factor, income classifications do not serve as an effective indicator of ownership and consumption trends in the economy. Accordingly, the National Council for Applied Economic Research (NCAER), India’s premier economic research institution, has released an alternative classification system 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, i.e. starting with the destitute, the aspirant, the climber, the consuming class and the rich, which differ considerably in their consumption behaviour 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. Consumer spending For long, the consumer has been the poster-boy of the “India growth story”. The demographic shift in favour of a younger working population and the upward-bound income levels have been cited to 11 | P a g e
support the view that, no matter what goes wrong with the global economy, the Indian consumer will continue to splurge. But this assumption is now being challenged, with the prospect of pay cuts and even layoffs beginning to materialise. Is the slowdown taking a toll on the Indian consumer? CONSUMER DURABLES: NO SLOWDOWN YET Sales of consumer durables do not yet show signs of a dramatic slowdown. Overall production for categories such as washing machines, refrigerators and televisions grew 7 per cent in 2008, based on numbers captured in the Index of Industrial Production. Month-on-month production numbers this financial year, however, are erratic. Taking published production figures of consumer durables as a sales indicator, categories such as television sets and washing machines recorded better growth in the previous two quarters, while air-conditioners suffered sharp declines. However, IIP numbers may not fully represent ground reality, as sales of high-end consumer electronics such as mobile handsets and LCD televisions, key drivers of durables sales in recent years, are not captured here. Helped by healthy replacement demand and price-cuts, manufacturers such as Samsung and LG have seen a sharp increase in LCD TV sales in 2008. Samsung reported a doubling of its Indian LCD TV sales in 2008, even as the television segment overall notched up a 15.8 per cent growth. Future growth may, however, hinge on the availability of consumer finance, with about 1520 per cent of total durables sales relying on finance.
3.2 CHANGING ATTITUDES OF TODAY’S CUSTOMERS
Today customer likes to indulge in buying spree. No more the customers buy only to fulfil 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 fulfil 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.
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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 consumers 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 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.
3.3 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 fulfil 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
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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 lump sum; instead, he has the facility to make the payment in monthly instalments 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 fulfil 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.
4. MARKET ANALYSIS
For the purpose of doing the market analysis the whole consumer durables market has been divided into two parts i.e.; Consumer electronics and Household appliances. Now analysis has taken into account the market value, market value forecast, market volume, and market volume forecast.
4.1 CONSUMER ELECTRONICS
The consumer electronics market consists of the total revenues generated through the sale of audio visual equipment and games console products designed primarily for domestic use. The audio visual equipment includes CD Players, DVD Players / Recorders, hi-fi systems, home theatre, in-car entertainment systems, portable digital audio, radios, televisions and video recorders. Games consoles segment includes both home use and portable consoles. After posting decelerating growth
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between 2004-2008, the Indian consumer electronics market is expected to follow similar pattern in the forthcoming years up to 2013. The Indian consumer electronics market generated total revenues of $4,196.6 million in 2008, representing a compound annual growth rate (CAGR) of 9.5% for the period spanning 2004-2008. In comparison, the Chinese and Japanese markets grew with CAGRs of 13.4% and 6% respectively, over the same period, to reach respective values of $26,077.9 million and $22,492.5 million in 2008. Electricals and Electronics Retailers’ sales proved the most lucrative for the Indian consumer electronics market in 2008, generating total revenues of $3,821.7 million, equivalent to 91.1% of the market's overall value. In comparison, sales from Discount, Variety Store, and General Merchandise Retailers generated revenues of $302 million in 2008, equating to 7.2% of the market's aggregate revenues. The performance of the market is forecast to decelerate, with an anticipated CAGR of 6.4% for the five-year period 2008-2013, which is expected to drive the market to a value of $5,727.7 million by the end of 2013. Comparatively, the Chinese and Japanese markets will grow with CAGRs of 5.7% and 1.2% respectively, over the same period, to reach respective values of $34,433.6 million and $23,822.4 million in 2013. MARKET VALUE The Indian consumer electronics market grew by 7.7% in 2008 to reach a value of $4.2 billion. The compound annual growth rate of the market in the period 2004-2008 was 9.5%.Electricals and electronics retailers’ sales proved the most lucrative for the Indian consumer electronics market in 2008, generating 91.1% of the market's overall revenues. Sales from discount, variety store, and general merchandise retailers generated 7.2% of the market's aggregate revenues. MARKET VALUE FORECAST In 2013, the Indian consumer electronics market is forecast to have a value of $5.7 billion, an increase of 36.5% since 2008. The compound annual growth rate of the market in the period 20082013 is predicted to be 6.4%.
4.2 HOUSEHOLD APPLIANCES
The household appliances market reflects the sale of six product sectors: refrigeration appliances (including fridges, freezers and fridge freezers), cooking appliances (including cookers, microwaves, ovens, cooker hoods, food processors and toasters), washing appliances (including washing machines, clothes dryers and washer-dryers), room comfort and water heater appliances (which include air conditioning, circulating and ventilation fans, space heaters and water heaters), vacuum cleaners, and dishwashers. The market value has been calculated using manufacturer selling prices. The performance of the market is forecast to decelerate, with an anticipated CAGR of 10% for the five-year period 2008-2013, which is expected to drive the market to a value of $7.7 billion by the end of 2013.The Indian household appliances market has grown at a strong rate in recent years. Further strong growth is expected for the forecast period. The Indian household appliances market generated total revenues of $4.8 billion in 2008, representing a compound annual growth rate (CAGR) of 12.5% for the period spanning 2004-2008. In comparison, the Japanese and Chinese markets grew with CAGRs of 1.1% and 7.5%, respectively, over the same period, to reach respective values of $18.6 billion and $24.4 billion in 2008. Market consumption volumes increased with a CAGR of 13.2% between 2004-2008, to reach a total of 34.7 million units in 2008. The market's volume is expected to rise to 52.2 million units by the end 15 | P a g e
of 2013, representing a CAGR of 10% for the 2008-2013 periods. Refrigeration appliance sales proved the most lucrative for the Indian household appliances market in 2008, generating total revenues of $1,445.3 million, equivalent to 30% of the market's overall value. In comparison, sales of cooking appliances generated revenues of $1,405 million in 2008, equating to 29.1% of the market's aggregate revenues. The performance of the market is forecast to decelerate, with an anticipated CAGR of 10% for the five-year period 2008-2013, which is expected to drive the market to a value of $7.7 billion by the end of 2013. Comparatively, the Japanese and Chinese markets will grow with CAGRs of 0.4% and 4.7%, respectively, over the same period, to reach respective values of $18.9 billion and $30.7 billion in 2013. MARKET VALUE The Indian household appliances market grew by 9.4% in 2008 to reach a value of $4.8 billion. The compound annual growth rate of the market in the period 2004-2008 was 12.5%. MARKET VOLUME The Indian household appliances market grew by 11.8% in 2008 to reach a volume of 34.7 million units. The compound annual growth rate of the market volume in the period 2004-2008 was 13.2%.Refrigeration appliance sales proved the most lucrative for the Indian household appliances market, generating 30% of the total revenues. In comparison, cooking appliance sales account for a further 29.1% of the market's revenue. MARKET VALUE FORECAST In 2013, the Indian household appliances market is forecast to have a value of $7.7 billion, an increase of 60.7% since 2008. The compound annual growth rate of the market in the period 20082013 is predicted to be 10%. MARKET VOLUME FORECAST In 2013, the Indian household appliances market is forecast to have a volume of 52.2 million units, an increase of 50.4% since 2008. The compound annual growth rate of the market volume in the period 2008-2013 is predicted to be 8.5%.
5. PRODUCT ANALYSIS
INTRODUCTION In the last five years colour television industry (CTV) has witnessed drastic changes in the intensity of competition. Exchange schemes, free gifts, price offs, prizes, deferred payment schemes and other incentives as promotional tools have been deployed by the players, which certainly have made the market, vibrant and pulsating. A major factor contributing to the growth has been availability of consumer financing schemes. Concomitantly the industry has been witnessing a 16 | P a g e
new scenario with a new market profile. The entrenched position of the Indian market leaders in CTVs’ like Videocon, BPL and Onida has been challenged by MNCs such as LG, Samsung, Sony, Philips, AIWA, Akai, Panasonic, Sansui and Sharp; some in a perceptible way, others threatening to do so. The industry is going through turbulent transformation. Companies are relooking at their strategies and are desperate for growth. Since this is a technology driven industry, companies need to constantly improvise, innovate and customise their products. Coloured cabinets, headphones, 3D 360 degree sound technology and e-mail TV, plasma TV and golden eye technology are just a few examples. The last few years have seen a quantitative and qualitative change in TV technology and software. With the advent of several local and foreign satellite channels, demand for CTVs has seen a rise. In fact, the television manufacturing industry has come a long way since the big black and white TV sets to the modern day ultra-thin Plasma and LCD TV sets. With the ever changing technology the Television industry has adapted itself suitably to cater to the changing tastes of the consumer. Although the top players viz. LG, Sony, Videocon, Phillips, Samsung and Onida have drastically reduced prices, they have gained more volume due to increasing market size and higher penetration levels, coupled with conscious shift towards flat colour televisions. Aggressive and innovative marketing strategies and technological advances have led to strong brand differentiation and prices. In the process the industry has evolved with products available at different price points at all levels. This process was also facilitated by growth in production in the organised segment and domestic availability of multinational brands due to lowering of import duties and other liberal measures. The television industry appears to have two clearly differentiated segments. The MNCs have an edge over their Indian counterparts in terms of technology, aggressive marketing strategy, economies of scale in branding through international events and associations combined with a steady flow of capital. INDUSTRY ANALYSIS- 5 FORCES MODEL Michael Porter’s Five Forces Model provides a robust and time-tested framework for analysing any industry, reflected in the strength of the five forces (industry competitors, potential entrants, and threat of substitutes, power of buyers and power of suppliers). The collective strength of the five forces determines the ultimate profit potential in an industry, where profit is measured in terms of long term returns on capital invested (Porter, 1980). The elements of each of the above forces and the extent and /or effect of each element in the context of the television industry have been analysed and enumerated below. THREAT OF NEW ENTRANTS • Most current players are global players • New entrants will need to invest in brand, technology, distribution CUSTOMER POWER • Multitude of brands across price points — wide variety of choice for customers SUPPLIER POWER • Indigenous supply base limited — most raw materials are imported COMPETITIVE RIVALRY • Number of well-established players; several new players entering
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• Good technological capability • Many untapped potential markets THREAT OF SUBSTITUTES • Unbranded products and cheaper imports could enter the market Overall, the sector is a dynamic one, with significant growth opportunities.
5.2 CONSUMER ELECTRONICS MARKET IN INDIA: COLOUR TELEVISION
The consumer electronics market is one of the largest segments in the electronics industry in India. Catering to a population of more than 100 crores people, the consumer electronics industry in India is poised for strong growth in the years to come. It is predicted that the Indian audio/video consumer electronics industry will grow to Rs.26,931.13 crores ($6.59 billion) by 2011, rising at a Compound Annual Growth Rate (CAGR) of 10.0 per cent from Rs.18,390 crores ($4.5 billion) in 2007.The growth will be aided by a multitude of factors, including: •Growing consumer confidence due to rising disposable incomes; •Easy financing schemes that are making purchases possible; •Increased local manufacturing; •Expanding distribution networks; •Sporting events, such as the Cricket World Cup. Television continues to be the mainstay of the consumer electronics industry in India with the transition slowly occurring to newer technologies such as LCD and PDP. The history of the Indian television industry dates back to 1982, the year when India hosted the Asian Games. There was a huge demand for colour televisions all through the 80s. In 1984-1985, the colour television industry was growing at an astounding rate of 140.3%. However, in 1985-86, it fell to 68.6%, 15% in 1988-89 and finally in the year 1989-90 it touched a rock bottom level of 5%. In 1991-92, the Indian economy was going through a balance of payment crisis. As a result of this, for the first time in the history of Indian colour television, one saw a deceleration in the sales of colour televisions at -14.5%. During this period, the prices of colour televisions skyrocketed due to the high import duties imposed on colour picture tubes.
5.3 THE COLOUR TV INDUSTRY POST LIBERALISATION:
The Colour TV industry in India has seen a gamut of changes in the past one decade as liberalization set in the Indian subcontinent making its market highly competitive and consumer driven. With the fast changing liberalization policies, changing and growing demands of the consumers made the industry competitive. The constant desire of the companies (domestic or international) to have a major share in the market often leads them to die many deaths which has became a hackneyed phenomenon in this sector of Liberalized India if the companies are not in able to cope with changing reforms and the changing tastes and preferences of the consumers. 18 | P a g e
The foreign player entered the Indian market since the Indian economy increasingly interdependent almost over the last one and half decades. Consumers in India with open markets on an average are enjoying lower prices, improved consumption, improved savings and rising standards of living. Before liberalization in India, the consumer was at the mercy of the producer and savings management were prevailing in the sense that individuals saved and then consumed. This might be because of no financing facilities, no credit card facilities and moreover demand side economic were prevailing. After liberalization the total scenario has changed- consumers in India moved from savings management to expenditure management. This is because of the availability of goods and services at lower price, availability of credit cards, availability of finance at low interest and in some cases zero interest and moreover the death of power of monopoly in many sectors because of the entry of the foreign players. Producers have become price takers rather than price setters. The tastes and preferences, life style and consumption patterns of the consumers have also changed. Like other third world countries, people in India have started spending much more money on eating out; started buying a flat or a car because of the availability of credit cards and easy financing facilities; more number of people have been travelling abroad after liberalization and there has been a distinct shift from joint family system to that of nuclear families. As per the estimates of the confederation of Indian Industry (CII) the Indian consumer durable industry is Rs 20,000 crores business industry. The industry is highly dominated by the foreign players occupying the top slots in the market shares. From a recent data obtained from the Equitymaster.com the market share of all the MNCs in the colour TV segment is about 65%. The biggest attraction for these players is the growing Indian middle class, which is approximately 250 million, and also low penetration levels characterize this market. Most of the segments in this sector are characterized by intense competition, emergence of new companies (especially MNC’s), introduction of state-of-the-art models, price discounts and exchange schemes. There is a significant shift today. 15-20 years ago, it was a Seller's market. Customers had to buy what was available. There was absolutely no choice. But today, it is entirely different. It is a Buyer's market. There is plenty of choice, both in terms of brands and the items. It has helped in widening the product base of consumer durables. Also, technological changes have helped the boom in the industry. TV sets are still the fastest growing category among household durables. During the last two years 11.5% of Indian homes bought a TV set. This figure is even higher among the top eight metros at 21.3% about one in every five home in these cities acquired a TV set in the last two years. As a result of which the entrenched position of the Indian market leaders in CTVs’ like Videocon, BPL and Onida has been challenged by the MNCs such as LG, AIWA, Akai, Panasonic, Samsung, Sony, Philips and Sharp; some in a perceptible way and others threatening to do so. Some of the growth drivers because of which CTV market is growing fast are: •Increased awareness •Increase in disposable income •Emergence of nuclear families •Rising availability •Declining prices Many MNC and domestic companies are now making India as a manufacturing centre because: •Low cost skilled labour •Tax free zones i.e. SEZs •Qualified workforce •Untapped domestic market •Excellent supply base for glass and colour picture tubes. Some economic measures that have also played a role in this phenomenal growth are: •Custom duty on colour picture tubes (CPT’s) lowered to 20% from 25% •Abatement rates on TV sets have changed from 35% to 40% •Special additional duty on customs of 4% was done away with •Single rate of excise duty at 16%
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6. COMPETITION ANALYSIS
6.1 COMPETITION OVERVIEW
Samsung India (CURRENT MARKET SHARE-37%)
Initially the strategy of Samsung in India was to create premium image by emphasising global brand. After facing stiff competition from another Korean major- LG, Samsung also started playing price game. In 2004 it reverted back to its premium positioning, although it resulted in some loss of market share. In line with the Global Digital Initiative of the Parent Company, Samsung India acquired digital leadership in India by introducing its digital ready televisions like the 40" LCD Projection TV, 43"Projection TV and the Plano series of Flat Colour televisions.
LG India (CURRENT MARKET SHARE-23%)
LG Electronics rightly understood the consumer motivations to create magnetic products, price them strategically, position them sharply and keep making the magnetism more potent. Having understood the finer differences in consumer motivations, it opted for sharp-arrow ‘reasons-to-buy’ differentiation over the ‘blanket-all approach’ taken by most of the other players. It is an aggressive marketer. It focuses on low and medium price products.
Toshiba India Private Limited (TIPL) is the wholly owned subsidiary of Japanese Electronics giant Toshiba Corporation and was incorporated in India on September 2001. Toshiba had a presence in India since 1985 and was represented in India through their Liaison Office.
Sony India (CURRENT MARKET SHARE-21-22%)
Sony Corporation, Japan, established its India operations in November 1994. In India, Sony has its distribution network comprising of over 7000 channel partners, 215 Sony World and Sony Exclusive outlets and 21 direct branch locations. The company also has presence across the country with 21 company owned and 172 authorized service centres.
Sharp India Ltd
Sharp India ltd was incorporated in 1985 as Kalyani Telecommunications and Electronics Pvt Ltd, the company was converted into a public limited company in the same year. The name was changed to Kalyani Sharp India in 1986. The company was entered into a joint venture with Sharp Corporation, Japan - a leading manufacturer of consumer electronic products to manufacture VCRs/VCPs/VTDMs. The company manufactures consumer electronic goods such as TVs, VCRs, VCPs and audio products. The products were sold under the Optonica brand name. Sharp has a production base in 26 countries with 33 plants, and its products are used in 133 countries. The company was accredited with the ISO-9001 certification in the month of February, 2001.
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Hitachi India Ltd (HIL) was established in June 1998 and engaged in marketing and sells a wide range of products ranging from Power and Industrial Systems, Industrial \Components & Equipment, Air Conditioning & Refrigeration Equipment to International Procurement of software, materials and components. Some of HIL’s product range includes Semiconductors and Display Components. It also supports the sale of Plasma TVs, LCD TVs, LCD Projectors, Smart Boards and DVD Camcorders.
Mirc Electronics (ONIDA)
• The company commands strong brand equity among consumers largely owing to the success of its Onida brand. • High-quality designs have made the company a leading player in the electronics and entertainment business. Its popular devil ad although had engendered a strong emotional pull towards the brand, technologically it represented no advancement. The company plugged the gap by touting its digital technology. Like Videocon, it has also been able to hold its market share. The world-class quality of Onida has enabled the company to make a breakthrough on the export front. Onida is a leading brand in Gulf market and also exports its models to Africa, Bangladesh, Sri Lanka and Nepal. It has technical tie-up with the Japan Victor Company, better known as JVC. So focused is Onida on positioning itself on the premium, high-tech plank that it is even planning to push its own envelope on obsolescence, much like Intel has been doing in its own industry. The strategy is aimed at further broad basing the product offering of the company, which has largely dominated the top-end of the television market, across multiple market segments. Besides understanding the strategy adopted by different players, several other factors- industry growth, concentration and balance, corporate stakes, fixed cost, and product differences need to be analysed to determine the extent of rivalry between the existing players.
Videocon (CURRENT MARKET SHARE-12%)
• It is the market leader in the consumer electronics and home appliances segments in India; the company manufactures home appliances such as refrigerators, microwave ovens, compressors, air conditioners and washing machines. • It has plans to acquire Daewoo’s consumer electronics businesses worldwide to bring LCD TVs, plasma TVs and components into its fold; the move would also help it acquire a consuming partner for the recently-acquired Thomson’s picture tube business. Videocon has always been a price player and has an image of a low price brand. This entails providing more features at a given price vis-à-vis competitors. It has taken over multinational brands to cater to un served segments, like Sansui- to flank the flagship brand Videocon in the low to mid priced segment, essentially to fight against brands like BPL, Philips, Onida and taken over Akai- tail end brand or brands like Aiwa. Videocon is one of the largest manufacturers of television and its components in India and thus has advantages of economies of scale and low cost due to indigenisation. It has the widest distribution network in India with more than 5000 dealers in the major cities .It also has a strong base in the semi-urban and rural markets. Due to its multi-brand strategy, it has at present multiple brands at the same price point. This has led to a state of diffused positioning for its brands. It has also led to a cannibalisation of sales among these brands. The flagship brand Videocon has lost market share due to the presence of Sansui in the same segment. Because of reduction in import duties on CPT the cost advantage of Videocon is also on the decline. Hence it is facing rough weather and also trying to boost exports. 21 | P a g e
Panasonic India (CURRENT MARKET SHARE-6%)
Panasonic Corporation based in Osaka, Japan is a worldwide leader in the development and manufacture of electronic products for a wide range of consumer, business, and industrial needs. Panasonic Electric Works Co., Ltd. traces its roots to the company started in 1918 by Konosuke Matsushita. Panasonic India plans to invest USD 100 million in its new plasma TV production facility in 2011. The company currently has five production units in the country, at Noida, Gurgaon, Vadodara, Chennai and Delhi. It also launched the worlds slimmest, 1-inch plasma TV called Vierra PDP Z1.According to Panasonic The market potential for plasma TV was much greater in India than China, the demand for such high-end sets was increasing at a rate of 4-10 per cent in the country. The company has priced its plasma TV between Rs 24,000 and Rs 30 lakh (for a 103-inch screen). It has already sold ten such units this month.
6.2 INDIA EMERGING AS A FORCE IN THE TELEVISION MARKET
In India, where 70 percent of citizens earn less than $5,000 a year, buying a television is not an option for many consumers. Surprisingly, however, Indians have shown remarkable interest in buying televisions, even the more-expensive flat-panel sets, mostly because of increased awareness, rising availability and declining prices. “India is emerging as a major force in the global television market in terms of domestic consumption as well as in production of sets”, while there remain disparities in terms of the economic status of television buyers, set sales in India are experiencing strong growth. India’s television market is set to grow to 18.7 million units by 2011, expanding at a Compound Annual Growth Rate (CAGR) of 9 percent from 12.1 million units in 2006. On the revenue side, overall television sales will reach $4 billion by 2011, rising at a CAGR of 9.6 percent, up from $2.5 billion in 2006. CRTs still dominate market
While Flat-Panel-Display (FPD) televisions are gaining sales momentum in India, CRT televisions still have a leading position in the nation because the higher prices of Liquid Crystal Display Televisions (LCD-TVs) and plasma sets have discouraged their adoption in most parts of the country. Many consumers in India buying their first television sets are looking at 21-inch and smaller CRTs as starter sets. However, this carries over to the replacement market as well, where consumers are attracted to 29-inch flat-face CRT TVs as alternatives to LCD-TVs because of their lower prices. It is the urban areas, where consumers are looking for replacement sets or buying second televisions, where there is a likelihood of flat panels gaining some market share.
Manufacturing on the rise
Television set manufacturing continues to rise in India, with both domestic and overseas firms increasing their production bases in the country. This is due to a number of reasons, including:
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• Low-cost skilled labour. • Availability of a qualified workforce. • An untapped domestic market. • Special economic zones that provide tax-free environments. • Other tax and financial support breaks.
Factories in India are cropping up in less-developed regions because of tax breaks given by the government in order to improve the living conditions of citizens as well as to promote investments in television production in the country. India has an excellent component supply base in terms of manufacturing facilities for glass and colour picture tubes so it makes it a good fit for companies striving to take advantage of this emerging market.
6.3 MARKET MEASUREMENT AND FORECASTING
Demand forecasting and sales forecasting are important for any marketing planning and control as it serves the basis for comparison over a period of time. Forecasting helps in identifying and solving marketing and sales problems. Further, they are also used for setting performance standards. If the marketer knows the different tools and their application and is familiar with the market forces, most often, 90-95% of the forecast is good. Besides, it is increasingly felt that the forecast should generally be in a range rather than just having a single point forecast. Forecasting exercise involve understanding market potential. Consider the example of a product such as a T.V set .To estimate the market potential for T.V sets in India, we have to know the number of households .Assuming that each household will have a T.V set , we can say that that the market potential for T.V sets is equal to the number of households in the country .And if we assume that six people constitute a household, we have about 142 million households Ideally, this is the market .But then , we know that 25% of Indian population is below the poverty line and hence will not be able to buy T.V sets Besides, almost 40% of Indians are in low income group and given the prices of T.V sets, they too may not be able to afford it. So, one is left with only 35% of the total population which is the real market that needs to be targeted. One might ask why this is so? The answer lies in the fact that the size of any market is based on the number of buyers who might exist for a particular marketing offer. These buyers need to have three characteristics: · Interest in the product · Income to be able to afford the product · Access to the product Based on these characteristics .we have arrived at 35% of the total Indian population to be the size of the total market. Market potential is the limit approached by the market demand as industry’s marketing expenditures approach infinity, for a given environment, in other words, market potential 23 | P a g e
refers to the upper limit of market demand. It is important for us to understand that there are three key terms involved in defining the market potential. These are · Market demand · Marketing expenditure by the industry · Defined market environment Market demand refers to the total volume that could be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing programme. It is important to note that demand could be measured in physical or monetary terms. Demand is always for a specific time frame. An important dimension to be understood is also the fact that market demand is not a fixed number but a function of specific conditions. It is for this reason that it is called market demand function of market response function. In the above example of T.V sets, as more income is generated in the Indian economy following higher economic growth rate, the demand for T.V sets will increase .The demand for Colour T.V sets boomed in 1982-84 as Doordarshan started colour telecast, went commercial and beamed popular soap operas. We know that at any given time there is only one level of industry marketing expenditure. The market demand corresponding to this level is called market forecast. · Marketing demand as a function of industry marketing expenditure (assumes a given marketing environment) · Marketing demand in two different marketing environments This refers to a company’s share of the total market demand, it is subject to all the determinants of the market demand, plus the determinants of the company’s market share. Company Potential is the limit approached by company demand as its marketing effort increases relative to its competitors. The absolute limit to this potential is the market potential and this will be so only in a monopolistic situation. Sales Forecast refers to the estimates of future sales of company’s products. Various research and report had analysed the trends and opportunities within the India market and predicts that by 2012, LCD TV shipments will surpass those of CRT TVs in India. India has the second largest population in the world and an annual GDP growth rate of more than 8 per cent from 2002 to 2012, with a TV market that is projected to be 1.3 crores (13 million) units in 2008. CRT TV accounts for 92.9 per cent of those units in 2008, followed by LCD TV with 6.6 per cent and PDP TV with 0.5 per cent. However, research finds that the India flat panel TV market is just at the beginning of a real growth curve, with Y/Y growth of more than 100 per cent expected for each of the next five years. Growth will be driven by enhanced purchasing power, the digital broadcast (DTH, IPTV, STB cable) transition as well as consumer awareness and affordability of flat panel TVs. India's growing upper middle class is projected to be the greatest source of LCD TV purchasing 24 | P a g e
power. Research analyses the favourable demographics where more than 23 Million Indians— greater than the entire population of Australia—will enter this demographic in the next five years. Meanwhile, major brands like Samsung, LGE, Sony and Philips and Indian local brands like Videocon and Onida are all focusing promotional efforts around LCD TV. Several Chinese brands are also targeting India with their first exports.
7. 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 25 | P a g e
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 threefold 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 by National Council of Applied Economic Research's (NCAER). 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 JanuaryMarch 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
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.
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