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Introduction to FMCG Industry

1.1 What is FMCG?
Fast Moving Consumer Goods (FMCGs) are defined as products which are sold quickly at
relatively low costs. These are mainly non-durable consumer goods which are required
extremely frequently and in some cases almost daily by a consumer. This sector covers a
wide range of products such as detergents, toiletries, food products, tooth paste, shampoos,
beverages, milk etc.

Some of the Major FMCG Companies in India are:
*Hindustan Unilver
*Nestle India
*Godrej Consumer products Ltd
*Dabur India Ltd
The term Fast moving consumer goods (FMCG) refers to those retail goods that are generally used or
replaced in short period of time i.e. a day, a week, a month, & within one year. FMCG is also known
as Consumer Packaged Goods (CPG). These products are relatively sold at low cost.
FMCGs have a short life, either as a result of high consumer demand or because the value of product
deteriorates gradually. It comprises consumer non-durable products that include food, beverages,
personal care, & household care. Goods such as meat, fruits & vegetables, daily products & baked
goods – are highly perishable.
Among all the sectors FMCGs industry is one of the fourth largest sector in the country & growing at
a booming rate over the years. The Indian FMCG industry is mainly classified as organised &
unorganised. The FMCG sector is highly segmented as different products are made for different
segments in the society.

FMCG products have following characteristics:
1. Individual products are of small value. However all FMCG products put together form a significant
part of an individual’s monthly budget. For example a consumer biscuits, tooth paste, shampoos, food
products etc in a month. Each of these individual items are not very expensive ,however the total cost
of all these products account for about 97% of a consumer’s monthly budget.
2. A Consumer tends to purchase FMCG products extremely frequently and whenever the products
are required by him. The reason for this is that most of the products are perishable and non-durable
and hence a consumer buys them as and when the need arises.

3. A consumer does not spend too much time in making his/her decision when it comes to buying a
FMCG product.
4. Advertising and suggestions of friends and neighbours usually play a major role for trial of new
FMCG products.
5. FMCG products come in wide range and often cater to necessities, comfort and luxury items. Since
FMCG products cover such a wide range, they often cater to the entire population. Hence price and
income elasticity of demand varies across products and consumer

INDUSTRY CLASSIFICATION:The FMCG industry is characterised by low margins. The FMCG segment can be classified under two
segments –
A: Premium segment:- Premium segment covers mostly to higher / upper class which is not price
sensitive but brand conscious.
B: Popular segment:- The popular or mass segment consists of consumers belonging to the semiurban or rural areas who are not brand conscious.Products sold in the popular segment have lower
prices than premium segment.

PEST ANALYSIS:Pestel analysis is a tool to understand the environment in which business operates, & the opportunities
& threats that lie within it. By understanding the environment in which it operates, it can take
advantage of the opportunities & minimizing the threats. Specifically PESTEL analysis is useful tool
for understanding risks associated with markets growth or decline, & directing business to grow.
P – Political factors
E – Economic factors
S – Socio-cultural factors
T – Tecnological factors
A PEST analysis is a measurement tool, looking at all the external factors of the organization. It is
often used within a strategic SWOT analysis (strength, weaknesses, opportunities & threats analysis).

POLITICAL FACTORSPolitical stability : Political stability is one of the important most factor which influence the growth of
business directly. If Political stability is higher, then it leads to perfection in business & on the other
hand if there is unstability the business will have to suffer.

Taxation policy : Tax policy of government will affect the price of inputs & it ultimately affect the
prices of final products & it will directly affect the sale of product.
Government intervenes : This indicates that at what level the government intervences in the economy.
If the government intervence is more sometimes it helps the organization at large extent.
Subsidies : The subsidies which are provided by government to different organisation at different
level also help it to grow at faster rate & helps the organisation in reducing the finance which is to be
funded from outside & it directly reduces interest amount paid in favour of fund raised from outside.
Trading policies : This indicates the policies related to import & export of goods and services from
different nations. If the policies are favourable more goods & services will be imported & exported, &
on the other hand if policies are unfavourable it will restricts the import & export.
Labour law : Labour law also affect the organisation, for example- child labour, a child below 14 year
of age can not work In factory or any hazardious place.

Interest rates : Interest rate directly affect the cost of capital, if the interest rate is higher the cost of
capital will increase & if it is lower then cost of capital will be lower. This directly affect the profit of
the organization & it’s growth.
Tax charges : If the tax charged by the government is lower then it will reduce the product price & if
it is higher then it will increase the prices of the products.
Exchange rates : This shows that what is the exchange rate or foreign currency rate. If exchange rate
is higher more amount is paid on import of goods & if it lowers less amount is to be paid & on the
other hand if it is higher the amount received will be more & if it is lower the amount received will be
National income : National income is important factor as if affect the growth of the organisation. If
per capita income is more the amount spend will be more & if it will be lower the amount spent will
be less.
Economic growth : Economic growth is important factor in the development of the organization. If
economy grows at a higher speed it will directly affect the growth of the organization.
Inflation rate : Inflation means the rise in the value of all the product in the economy, if inflation rate
is higher the cost of products will be higher & if inflation rate is lower the cost of product will be
lower. This directly affect the growth of the organization.

Demographics : Demographics is the study of human population in the economy. It helps the
organzation to divide the markets in different segments to target a large of customers. For Exampleaccording to race, age, gender, family, religion, & sex.

Distribution of income : This shows that how income is distributed in the ecconomy. It directly affect
the purchasing power of the buyers. And ultimately leads to increase or decrease in the consumption
level of the products.
Changes in life style : Change in life style also leads to increase or decrease in the demand for
different commodities. For example- presently LCD & LED TV’s have replaced Digital displayed TV
set, this shows that the changes in life style of consumers.
Consumerism : This indicates that a large number of options are available while purchasing of goods
to consumers, so the choice becomes easy & quality products can be choose by consumers. So while
purchasing a consumer have different choices to select product according to his needs.
Education levels : Education is one of the most important factor which influence the buying power of
consumer, while selecting a particular good a consumer should know all it’s features so it can
differentiate them with another products.
Law affect social behaviour : Different laws are made by the government to safe guard the rights of
consumers. For example- Consumer protection act, this law indicates that a consumer can file a case
against a seller if he finds that he is cheated.

Advancement in technology : New technology helps in economising the scale of production, this
means that new technology helps in increasing the level of production, & reducing the costs of inputs,
& maximising the level of profits.
Discoveries & innovation : Advancement in technology will leads to discoveries & innovations &
further improvements in technology so as to improve perfections in the production process.
Competitive forces : Advancement in technology will also leads to competition in the markets, more
quality products will be provided to consumers to cover a large number of market.
Automation : Change in technology will leads to automation, this means that with new technology
labour required is less as machines are automatic. All the works are done automatically by the
machines as earlier it is labour oriented. Now all the work is machine oriented.
Obselete rate : Day-by-day new inventions are made so the rate of obselete is higher, as in Computer
LAPTOPS have replaced the PC. This shows that the technology becomes obselete very fast.
Research & development : This department plays a vital role in the development of the organization.
As this department always do research that what are the demand of the markets & how to make
advancements so the organization can survive in the competitive world.

Introduction to Electronic industry
India is the fifth largest economy in the world and has the second largest GDP
among emerging economies. Owing to its large population, the potential

consumer demand is almost unlimited and consequently under appropriate
conditions, strong growth performance can be expected. In fact, the liberalization
of the economy in 1991 has led to rapid growth. The electronics industry, in
particular, is emerging as one of the most important industry in the Indian
The electronics industry in India dates back to the early 1960s. Electronics was
initially restricted to the development and maintenance of fundamental
communication systems including radio-broadcasting, telephonic and telegraphic
communication, and augmentation of defense capabilities. Until 1984, the
electronics sector was primarily government owned. The late 1980s witnessed a
rapid growth of the electronics industry due to sweeping economic changes,
resulting in the liberalization and globalization of the economy. The economic
transformation was motivated by two compelling factors - the determination to
boost economic growth, and to accelerate the development of export-oriented
industries, like the electronics industry.
The electronics industry has recorded very high growth in subsequent years. By
1991, private investments - both foreign and domestic - were encouraged. The
easing of foreign investment norms, allowance of 100 percent foreign equity,
reduction in custom tariffs, and delicensing of several consumer electronic
products attracted remarkable amount of foreign collaboration and investment.
The domestic industry also responded favorably to the politic policies of the
government. The opening of the electronics field to private sector enabled
entrepreneurs to establish industries to meet hitherto suppressed demand.
Improvements in the electronics industry have not been limited to a particular
segment, but encompass all its sectors. Strides have been made in the areas of
positioning and networking systems, and defense. The result has been a
significant trade growth that began in the late 1990s.
Despite commendable achievements in the sphere of electronics, considerable
telecommunications, and transportation sectors must still be augmented so that
high economic growth can be sustained.
The Indian Electronics Industry is a text for investors who are considering India
as a potential investment opportunity. The book is designed to cover various
segments of India's electronics industry, which include telecommunications,
consumer electronics, computer hardware and software, and medical electronic
systems. The authors have examined the roles of government, major companies
in electronics including the multinationals, research organizations, and
educational institutions in establishing the infrastructure.

LG controls 114 local subsidiaries all over the world .The are 82000 people work for this
company. LG accept as true that technological innovation is the only way to achieve the
market. So its delivery latest technology to the customer.
Main external and out of control factor that influence an organization decision making and
change the performance and strategies The major factor are
1. Political factor
2. Ecomnomic factor

3. Social factor
4. Technical factor

Political Analysis:
LG Electronics‟ is the intercontinental Company which has a range of industrialized Units
and sources. The company focus the international market for his product .the political
environment nothing but how the law and government taxation policy influence an
organization .There is a lot of political interaction has integrated in this business and it has
operated between the political and legal factors. This factor may increase the cost of factor
some time it decrease the product cost. The LG electronics facing lots of problem while its
production and exporting goods to the overseas.

Economic Analysis:
LG has a very big competitive market in world and it have constant development in their
innovation in electronics equipment , secondary products, planned process of LG etc.. it
have leads to sell goods to other countries . The LG contribute the world wide stock market
and money market also. The LG have well and strong economic source and it has capable
of introduce some new technology to the electronic market. LG leads the electronics market
with enormous technology and economic resource. The below the table shows the financial
highlight of LG electronics. The sale of the company is constantly increase the last seven
year it possible by the good economic status

Technological Analysis:
The LG has more technology shock towards its electronics product. In every manufactured
goods in LG they improve their technology and they became a first world exporter of the
country. The LG has a huge technology like LCD, plasma TV, Games and, Laptops,Videos,
CDMA Mobile phones with a number of features. The challenger cant beat its clear imagery
their technology towards its innovation of product. The 3D Plasma TV , Camera with
massive features like clear images and slide activities, high battery etc..
The LG introduce lots of new technology to the digital world such as This business group
has entitled more quality product and services to the customer. it has introduced lot of
technology in every business group of product. Recently the LG has introduced 3k model of
Camera which has lot facilities and clear images. It is a exiting product to the market. and
also the company has introduced more innovative product like 3D products, professional
cameras, Blue ray Disk, increasing network services etc.. The LG has lead its technology
and it introduce number of products with exclusive features to the market.

Socio-cultural Analysis:

LG Corp has introduced the number of product to the different customer into the society.
Mainly it has introduced for easy usage with several option of different user. It has
introduced to the delighting product to the customer. The LG product such as laptop, various
electrical products, mobile devices, ipod, ipad, financial services, network system etc. So it
has changing life style of the LG user. LG increase its ethical standard contributes in
Research and development and health of the organisation. It also leads to image of the

Cost Leadership of AMUL
AMUL’s objective of providing a value proposition to a large customer base led naturally to
a choice of cost leadership position. Given the low purchasing power of the Indian consumer
and the marginal discretionary spending power, the only viable option for AMUL was to
price its products as low as possible. This in turn led to a focus on costs and had significant
implications for managing its operations and supply chain practices (described later).
Focus on Core Activities: In view of its small beginnings and limited resources, it became
clear fairly early that AMUL would not be in a position to be an integrated player from milk
production to delivery to the consumer23. Accordingly, it chose a strategy to focus on core
dairy activities and rely on third parties for other complementary needs. This philosophy is
reflected in almost all phases of AMUL network spanning R&D, production, collection,
processing, marketing, distribution, retailing etc. For example, AMUL focused on processing
of liquid milk and conversion to variety of dairy products and associated research and
development. On the other hand, logistics of milk collection and distribution of products to
customers was managed through third parties.
However, it played a proactive role in making support services available to its members
wherever it found that markets for such services were not developed. For example, in the
initial stages, its small and marginal member farmers did not have access to finance,
veterinary service, knowledge of basic animal husbandry etc. Thus to assure continued
growth in milk production and supply, AMUL actively sought and worked with partners to
provide these required services. In cases where such partnerships could not be established,
AMUL developed the necessary capabilities and provided the services. These aspects are
Managing Third Party Service Providers: Well before the ideas of core competence and the
role of third parties in managing the supply chain were recognized and became fashionable,
these concepts were practiced by GCMMF and AMUL. From the beginning, it was
recognized that the core activity for the Unions lay in processing of milk and production of
dairy products. Accordingly, the Unions focused efforts on these activities and related
technology development. Marketing efforts (including brand development) were assumed by
All other activities were entrusted to third party service providers. These include logistics of
milk collection, distribution of dairy products, sale of products through dealers and retail
stores, some veterinary services etc. It is worth noting that a number of these third parties are
not in the organized sector, and many are not professionally managed. Hence, while third
parties perform the activities, the Unions and GCMMF have developed a number of
mechanisms to retain control and assure quality and timely deliveries (see the sub-section on

Coordination for Competitiveness later in the paper for more details). This is particularly
critical for a perishable product such as liquid milk.
Financial Strategy: AMUL’s finance strategy is driven primarily by its desire to be selfreliant and thus depend on internally generated resources for funding its growth and
development. This choice was motivated by the relatively underdeveloped financial markets
with limited access to funds, and the reluctance to depend on Government support and thus
be obliged to cede control to bureaucracy. AMUL’s financial strategy may thus be
characterized by two elements: (a) retention of surplus to fund growth and development, and
(b) limited/ no credit, i.e., all transactions are essentially cash only. For example, payment for
milk procured by village societies is in cash and within 12 hours of procurement (most,
however, pay at the same time as the receipt of milk). Similarly, no dispatches of finished
products are made without advance payment from distributors etc. This was particularly
important, given the limited liquidity position of farmer/suppliers and the absence of banking
facilities in rural India. This strategy strongly helped AMUL implement its own vision of
growth and development. It is important to mention that many of the above approaches were
at variance with industry practices of both domestic and MNC competitors of AMUL.

LG adapts cost leadership and Differentiation
competitive strategy:
LG Corp has a lot of competitor and it have to lead its market. Before LG has a lot manufacture
and process to do the lot product innovation and it introduced into the market. In 2008 because
of the recession the LG has reached its declined stage and the sales of growth has very low into
the market. So the LG has take a effective decision of cost cutting system. It implemented the
cost cutting system into the market. Many manufacturing unit has cut the process of product and
it decreases the manufacturing product for some period. It leads to cutting the prices of product
and it become a more sales by the segement of low prices. The LG devices like Mobile phones,
ipod, laptops especially in W series of models has high cost than the competitive. But it has more
features than the competitor. This segment of LG has focusing the particular quality customer to
buy the product. The cost leaderships strategy has increase its product effectiveness and sales
growth to the company.
LG has more feature than the competitor product. The devices like LG digital camera, LG Vaio,
LG mobile phones, PCs, Networking system etc., it has used the various technologies and it
includes various features. Every product must differentiate from the competitor product. Presently
the LG introduced the 3D products its play station and it games etc. It increase its product
designs, technology, features etc to leads its competitive market.

BCG matrix is a framework created by Boston Consulting Group to evaluate the strategic
position of the business brand portfolio and its potential. It classifies business portfolio into
four categories based on industry attractiveness (growth rate of that industry)
and competitive position (relative market share). These two dimensions reveal likely
profitability of the business portfolio in terms of cash needed to support that unit and cash
generated by it. The general purpose of the analysis is to help understand, which brands
the firm should invest in and which ones should be divested.

Relative market share. One of the dimensions used to evaluate business portfolio is
relative market share. Higher corporate‟s market share results in higher cash returns. This is
because a firm that produces more, benefits from higher economies of scale and experience
curve, which results in higher profits. Nonetheless, it is worth to note that some firms may
experience the same benefits with lower production outputs and lower market share.

Market growth rate. High market growth rate means higher earnings and
sometimes profits but it also consumes lots of cash, which is used as investment to
stimulate further growth. Therefore, business units that operate in rapid growth
industries are cash users and are worth investing in only when they are expected to
grow or maintain market share in the future.
There are four quadrants into which firms brands are classified:
Dogs. Dogs hold low market share compared to competitors and operate in a slowly
growing market. In general, they are not worth investing in because they generate
low or negative cash returns. But this is not always the truth. Some dogs may be
profitable for long period of time, they may provide synergies for other brands or
SBUs or simple act as a defense to counter competitors moves. Therefore, it is
always important to perform deeper analysis of each brand or SBU to make sure












Strategic choices: Retrenchment, divestiture, liquidation
Cash cows. Cash cows are the most profitable brands and should be “milked” to
provide as much cash as possible. The cash gained from “cows” should be invested
into stars to support their further growth. According to growth-share matrix,
corporates should not invest into cash cows to induce growth but only to support
them so they can maintain their current market share. Again, this is not always the
truth. Cash cows are usually large corporations or SBUs that are capable of
innovating new products or processes, which may become new stars. If there would
be no support for cash cows, they would not be capable of such innovations.
Strategic choices: Product development, diversification, divestiture, retrenchment
Stars. Stars operate in high growth industries and maintain high market share. Stars
are both cash generators and cash users. They are the primary units in which the
company should invest its money, because stars are expected to become cash cows
and generate positive cash flows. Yet, not all stars become cash flows. This is
especially true in rapidly changing industries, where new innovative products can
soon be outcompeted by new technological advancements, so a star instead of
Strategic choices: Vertical integration, horizontal integration, market penetration,
market development, product development
Question marks. Question marks are the brands that require much closer
consideration. They hold low market share in fast growing markets consuming large
amount of cash and incurring losses. It has potential to gain market share and
become a star, which would later become cash cow. Question marks do not always
succeed and even after large amount of investments they struggle to gain market
share and eventually become dogs. Therefore, they require very close consideration
Strategic choices: Market penetration, market development, product development,

Advantages and disadvantages
Benefits of the matrix:

Easy to perform;

Helps to understand the strategic positions of business portfolio;

It‟s a good starting point for further more thorough analysis.

Growth-share analysis has been heavily criticized for its oversimplification and lack
of useful application. Following are the main limitations of the analysis:

Business can only be classified to four quadrants. It can be confusing to classify an SBU that
falls right in the middle.

It does not define what „market‟ is. Businesses can be classified as cash cows, while they
are actually dogs, or vice versa.

Does not include other external factors that may change the situation completely.

Market share and industry growth are not the only factors of profitability. Besides, high
market share does not necessarily mean high profits.

It denies that synergies between different units exist. Dogs can be as important as cash
cows to businesses if it helps to achieve competitive advantage for the rest of the company.

The fast moving consumer goods (FMCG) segment is the fourth largest sector in the Indian
economy. The market size of FMCG in India is estimated to grow from US$ 30 billion in 2011 to
US$ 74 billion in 2018.
Food products is the leading segment, accounting for 43 per cent of the overall market. Personal
care (22 per cent) and fabric care (12 per cent) come next in terms of market share.
Growing awareness, easier access, and changing lifestyles have been the key growth drivers for
the sector.
What are FMCG goods?
FMCG goods are popularly known as consumer packaged goods. Items in this category include
all consumables (other than groceries/pulses) people buy at regular intervals. The most common
in the list are toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish,
packaged foodstuff, and household accessories and extends to certain electronic goods. These
items are meant for daily of frequent consumption and have a high return.
Rural – set to rise
Rural areas expected to be the major driver for FMCG, as growth continues to be high in these
regions. Rural areas saw a 16 per cent, as against 12 per cent rise in urban areas. Most
companies rushed to capitalise on this, as they quickly went about increasing direct distribution
and providing better infrastructure. Companies are also working towards creating specific
products specially targeted for the rural market.
The Government of India has also been supporting the rural population with higher minimum
support prices (MSPs), loan waivers, and disbursements through the National Rural Employment

Guarantee Act (NREGA) programme. These measures have helped in reducing poverty in rural
India and given a boost to rural purchasing power.
Hence rural demand is set to rise with rising incomes and greater awareness of brands.
Urban trends
With rise in disposable incomes, mid- and high-income consumers in urban areas have shifted
their purchasing trend from essential to premium products. In response, firms have started
enhancing their premium products portfolio. Indian and multinational FMCG players are
leveraging India as a strategic sourcing hub for cost-competitive product development and
manufacturing to cater to international markets.
Top Companies
According to the study conducted by AC Nielsen, 62 of the top 100 brands are owned by MNCs,
and the balance by Indian companies. Fifteen companies own these 62 brands, and 27 of these
are owned by Hindustan UniLever.
The top ten India FMCG brands are:
10. Marico Industries



What the millenniums expect
According to a study by TMW and Marketing Sciences that surveyed 2,000 people across
different age groups ranging, young consumers are the most „rational‟ and likely to spend more
time weighing up potential purchases. The survey also suggests that younger people are using
recommendations from their peers about products and services in order to make rational
purchase decisions. According to the study, shoppers aged 18 to 24 are 174 per cent more likely
to use recommendations on social media than shoppers aged 25 and over.
Another key factor today is – speed. Today's consumer wants packaged goods that work better,
faster, and smarter. The “ need for speed" trend highlights the importance of speed as a
potentially decisive purchase factor for packaged goods products in a world where distinctions
between products are shrinking.

Younger consumers express the greatest need for speed, not a huge surprise for the
smartphone generation. Datamonitor's 2013 Consumer Survey found that younger consumers
those in the 15-24 year old age group were twice as likely to say that "results are achieved
quickly" has a "very high amount of influence" on their health and beauty product choices than
consumers in the oldest age group, those aged 65 or older. Speed matters, and 2014 will almost
certainly see the introduction of new game-changing timesavers.
Road Ahead
FMCG brands would need to focus on R&D and innovation as a means of growth. Companies
that continue to do well would be the ones that have a culture that promotes using customer
insights to create either the next generation of products or in some cases, new product
One area that we see global and local FMCG brands investing more in is health and wellness.
Health and wellness is a mega trend shaping consumer preferences and shopping habits and
FMCG brands are listening. Leading global and Indian food and beverage brands have
embraced this trend and are focused on creating new emerging brands in health and wellness.
According to the PwC-FICCI report Winds of change, 2013: the wellness consumer, nutrition
foods, beverages and supplements comprise a INR 145 billion to 150 billion market in India, is
growing at a CAGR of 10 to 12%.

Consumer electronics grows at a faster pace during 2012
Consumer electronics registered faster volume growth in 2012 compared to 2011. This was mainly due
to the positive influence of strong economic development and rising disposable incomes during the year.
Increasing demand for tablets, smartphones and LED TVs ensured positive volume growth for consumer
electronics in 2012. The country’s urban youth showed a greater propensity to purchase new devices as
income levels rose. Product innovations and frequent launches of high-tech new products stimulated
retail growth during 2012.
Volume sales of tablets rise as manufacturers launch affordable options
A number of leading companies launched tablets at affordable prices in India during 2012, ensuring that
the surging demand for tablets continued. Volume sales of tablets were slightly lower than sales of
laptops at the end of 2012. However, the gap between volume sales of laptops and tablets had
decreased significantly. Tablet volume sales exceeded volume sales of laptops in 2013 as high-spec
tablets are becoming available at affordable prices. Volume sales of laptops slowed down during 2012,
although laptops still managed to register positive volume growth.
Mobility a prime factor in boosting consumer electronics sales
India’s leading mobile network providers such as Bharti Airtel, Tata Docomo, Vodafone and BSNL all
registered increases in their mobile internet service consumer bases in 2012 as mobile internet became
increasingly prevalent in India. Increasing numbers of urban consumers are benefiting from the
convenience of portable computing, boosting demand for smartphones and tablets. Such devices allow
consumers to browse the internet for information, send and receive e-mails, engage in social networking
and stay connected, leading to increased convenience in their daily lives. As Indian consumers are likely
become increasingly reliant on mobile internet services by the end of the review period, sales of
electronic gadgets fulfilling the mobility needs of the consumers such as tablets, smartphones, laptops
and e-readers are likely to register further growth.

Multinational companies maintain their leading positions in consumer electronics
Nokia India Pvt Ltd and Samsung India Electronics Pvt Ltd continued to lead consumer electronics in
India in 2012. Each of these companies has invested significant amounts in India and regularly
introduces new products, remaining one step ahead of competitors as well as engaging in strong
marketing campaigns and establishing strong distribution networks. LG Electronics India Pvt Ltd and
Sony India Pvt Ltd were the other leading multinational companies in 2012. Micromax Informatics Ltd
with its strong smartphone and tablet portfolios was able to maintain third position in consumer
electronics in India during 2012.
Growth expected to remain strong in consumer electronics over the forecast period
Overall sales of consumer electronics in India are expected to remain strong as new products,
technological innovation and increased features continue to be developed throughout the forecast
period. As internet penetration is likely to increase over the forecast period, tablets, e-readers and
smartphones are set to achieve strong growth. The compulsory digitisation of cable television is likely to
be fully implemented by the government of India during the forecast period, resulting in strong demand
for LCD TVs and home cinema and speaker systems.

The degree to which a demand or supply curve reacts to a change in price is
the curve's elasticity. Elasticity varies among products because some products
may be more essential to the consumer. Products that are necessities are
more insensitive to price changes because consumers would continue buying
these products despite price increases. Conversely, a price increase of a good
or service that is considered less of a necessity will deter more consumers
because the opportunity cost of buying the product will become too high.
A good or service is considered to be highly elastic if a slight change in price
leads to a sharp change in the quantity demanded or supplied. Usually these
kinds of products are readily available in the market and a person may not
necessarily need them in his or her daily life. On the other hand, an inelastic
good or service is one in which changes in price witness only modest changes
in the quantity demanded or supplied, if any at all. These goods tend to be
things that are more of a necessity to the consumer in his or her daily life.
To determine the elasticity of the supply or demand curves, we can use this
simple equation:
Elasticity = (% change in quantity / % change
in price)
If elasticity is greater than or equal to one, the curve is considered to be
elastic. If it is less than one, the curve is said to be inelastic.
As we mentioned previously, the demand curve is a negative slope, and if

there is a large decrease in the quantity demanded with a small increase in
price, the demand curve looks flatter, or more horizontal. This flatter curve
means that the good or service in question is elastic.

Meanwhile, inelastic demand is represented with a much more upright curve
as quantity changes little with a large movement in price.

Elasticity of supply works similarly. If a change in price results in a big change
in the amount supplied, the supply curve appears flatter and is considered
elastic. Elasticity in this case would be greater than or equal to one.

On the other hand, if a big change in price only results in a minor change in
the quantity supplied, the supply curve is steeper and its elasticity would be
less than one.

A. Factors Affecting Demand Elasticity
There are three main factors that influence a demand's price elasticity:
1. The availability of substitutes - This is probably the most important factor
influencing the elasticity of a good or service. In general, the more substitutes,
the more elastic the demand will be. For example, if the price of a cup of
coffee went up by $0.25, consumers could replace their morning caffeine with
a cup of tea. This means that coffee is an elastic good because a raise in
price will cause a large decrease in demand as consumers start buying more
tea instead of coffee.
However, if the price of caffeine were to go up as a whole, we would probably
see little change in the consumption of coffee or tea because there are few

substitutes for caffeine. Most people are not willing to give up their morning
cup of caffeine no matter what the price. We would say, therefore, that
caffeine is an inelastic product because of its lack of substitutes. Thus, while a
product within an industry is elastic due to the availability of substitutes, the
industry itself tends to be inelastic. Usually, unique goods such as diamonds
are inelastic because they have few if any substitutes.
2. Amount of income available to spend on the good - This factor affecting
demand elasticity refers to the total a person can spend on a particular good
or service. Thus, if the price of a can of Coke goes up from $0.50 to $1 and
income stays the same, the income that is available to spend on coke, which
is $2, is now enough for only two rather than four cans of Coke. In other
words, the consumer is forced to reduce his or her demand of Coke. Thus if
there is an increase in price and no change in the amount of income available
to spend on the good, there will be an elastic reaction in demand; demand will
be sensitive to a change in price if there is no change in income.
3. Time - The third influential factor is time. If the price of cigarettes goes up
$2 per pack, a smoker with very few available substitutes will most likely
continue buying his or her daily cigarettes. This means that tobacco is
inelastic because the change in price will not have a significant influence on
the quantity demanded. However, if that smoker finds that he or she cannot
afford to spend the extra $2 per day and begins to kick the habit over a period
of time, the price elasticity of cigarettes for that consumer becomes elastic in
the long run.
B. Income Elasticity of Demand
In the second factor outlined above, we saw that if price increases while
income stays the same, demand will decrease. It follows, then, that if there is
an increase in income, demand tends to increase as well. The degree to
which an increase in income will cause an increase in demand is called
income elasticity of demand, which can be expressed in the following

If EDy is greater than one, demand for the item is considered to have a high
income elasticity. If however EDy is less than one, demand is considered to
be income inelastic. Luxury items usually have higher income elasticity
because when people have a higher income, they don't have to forfeit as
much to buy these luxury items. Let's look at an example of a luxury good: air
Bob has just received a $10,000 increase in his salary, giving him a total of
$80,000 per annum. With this higher purchasing power, he decides that he
can now afford air travel twice a year instead of his previous once a year. With
the following equation we can calculate income demand elasticity:

Income elasticity of demand for Bob's air travel is seven - highly elastic.
With some goods and services, we may actually notice a decrease in demand
as income increases. These are considered goods and services of inferior
quality that will be dropped by a consumer who receives a salary increase. An
example may be the increase in the demand of DVDs as opposed to video
cassettes, which are generally considered to be of lower quality. Products for
which the demand decreases as income increases have an income elasticity
of less than zero. Products that witness no change in demand despite a
change in income usually have an income elasticity of zero - these goods and
services are considered necessities.