INDIAN MARKETING

ENVIRONMENT

BY:-

Siddhant Mishra

INDIAN ECONOMIC GROWTH – (1990-2008)

Economic liberalization commencing from 1990 actually set the pace of India's growth story. The country was able to break away the traditional trend of 3 percent to 4 percent growth rate. Huge array of product and services entered the Indian market.

The growth and changes were not confined to economic and business; significant social changes were also taking place with trio of business ,technology and marketing together impacting the life of the individual, the home and the society.

India certainly became economically stronger and stood tall in the global stage, commanding the respect of the developed and developing world and drawing investment from all corners.

The world saw the way India---its people, economy and markets—were changing and growing. The world recognized India as an emerging global economic power.

YEAR INFLATION(CPI) PER CAPITA INCOME (INR) GDP(INR) CRORE

1990-91 13.88 % 6,270 5,31,814

1991-92 11.88 % 7,000 6,13,528

1992-93 6.31 % 7,899 7,03,723

1993-94 10.24 % 8,928 8,17,961

1994-95 10.22 % 10,283 9,55,386

1995-96 8.98 % 11,861 11,18,586

1996-97 7.25 % 13,492 13,01,788

1997-98 13.17 % 14,646 14,47,613

1998-99 4.84 % 16,528 16,68,739

1999-00 4.02 % 18,194 18,58,205

2000-01 3.77 % 19,115 20,00,743

2001-02 4.31 % 20,259 21,75,260

2002-03 3.81 % 21,529 23,43,864

YEAR INFLATION(CPI) PER CAPITA INCOME (INR) GDP(INR) CRORE

2003-04 3.77 % 23,775 26,25,819

2004-05 4.25 % 26,629 29,71,464

2005-06 5.79 % 29,869 33,90,503

2006-07 6.39 % 34,249 39,53,276

2007-08 8.32 % 39,384 45,82,086

2008-09 10.83 % 43,604 53,03,567

2009-10 12.11 % 49,402 61,08,903

2010-11 8.87 % 58,534 72,48,860

2011-12 9.30 % 66,997 83,91,691

2012-13 10.92 % 80,879 93,88,876

2013-14 6.37 % 90,688 1,04,72,807

2014-15 5.88 % 98,983 123,83,908

GDP GROWTH RATE OF INDIA

7.7% 8 % 7.9%

6.4% 7.3% 6.6%

5.4% 5.7% 4.3% 5.4%

1.4% 4% 3.8%

91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04

GDP GROWTH RATE OF INDIA

8.6% 9.3% 6.5% 9.5% 9.6%

9.3 % 8.4 % 8.4 % 7 % 7.2% 7.6% 6.7% 6.6%

6.2% 5.6%

04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16

THE DECLINE IN THE GROWTH STORY (2008-12)

• GDP growth rate went down to 6.5% in FY 2012 from the high of 9.6%in FY 2007 .

• Industrial output declined, between 2010-11 and 2011-12 the decline was 5.3%.

• Agricultural production was languishing.(the share of agriculture in the rural economy dropped from 74% in 1970 to 41% in 1993 to 40 % in 2007-08)

• Centre’s fiscal deficit kept going up; it reached the high point of 6.4% of GDP in FY 2010.

• Inflation shut up, reached double digit in FY 2010.Food inflation went disturbingly high.WPI based inflation was 9.6% in FY 2011.

• Household savings fell from 25.4% of GDP in 2009-10 to 22.8% in 2010-11

• Current account deficit (CAD)-excess of Import over Export- as a proportion of GDP rose to the highest ever level of 5.4% during Q2 of 2012-13 from 4.2 % of Q2 2011-12.(CAD- $22.3 Billion in 2012-13 from $18.9 Billion in 2011-12)

• The rupee depreciated, reaching a low of Rs.56 to US $ by 2011.capital flows, commodity prices, petroleum prices, trade deficit, all impacted the currency depreciation.

• India’s investment attractiveness declined; foreign investment took the reverse flow .FII’s were on selling spree, FDI was uncertain to enter.

• IT exports was in trouble as overseas customers cut IT spending.

• Job market became dull due to contraction in industrial and business activity.

THE MAIN CAUSE BEHIND THE SLOWDOWN SINCE 2008

The global crisis since 2007-08 led to risk aversion by investors.

Due to a variety of reasons- largely due to CAD-the rupee depreciated to a record low against the US $.

This combination of factors led to not only drying up of foreign direct investments and flight of capital to perceived safer havens but also a selling spree by FII’s.

As a consequence ,local stock markets fell.

Cost of dollar –denominated debts also went up due to acute weakness of the rupees.

All this hit Indian corporate sector hard.

Domestic controls followed; interest rates rose sharply ,cost of local debt increased ,liquidity became tight.

Weakness in local stock markets made access to local equity capital also difficult.

The rising fiscal deficit hand-tied the Govt. to come up with a public investment. In other words ,drying up of investment avenues---private ,public ,domestic and global—was the main cause for decline.

Governance problem in the country and lack of reforms also made a sizable contribution to this decline.

CAUSE BEHIND THE SLOWDOWN

AS PER GOVERMENT

Global economic crisis was the major cause of Indian's economic decline.

Global risk highlights the uncertainty in the Euro Zone and the US.

AS PER RBI• Petering out of investment . The impact of the decline in global growth

in our industrial output is no doubt there; but the domestic factors cannot be ignored. Between 2010-11 and 2011-12,there was 5.3% decline in our industrial output. Global growth declined by 1.4% points only during this period. Domestic interest increase too has contributed its bit to the decline in our industrial output, but the whole decline is not explained by it.

The interest increase and the global slowdown together accounted for only 2.2% out of 5.3% decline in our industrial output. The remaining was contributed by supply bottlenecks such as the shortage of coal and natural gas; these were substantial factors, and here investment was the real issue.

AS PER KELKAR COMMITTEE• In October 2012 KELKAR COMMITTEE

observed that the economy was in a situation of crisis due to 1991 economic crisis ,on the edge of a fiscal cliff and that if the present trend continued, the macro economic problems would get translated into a high fiscal deficit, and the resulting trends would be unsustainable.

• Worse, compared to 1991,the economic disorder of the country currently is much more dependent on the global economy.

REVIVAL SIGNS SINCE 2013According to CMIE estimates,

Gross domestic capital formation in the economy in FY 2012 was at 35.5% of the GDP. (CENTER FOR MONITORING OF

INDIAN ECONOMY)

Foreign investment – seems to be returning to the country.FII inflow exceeded $7.16 billion in first 11 months of FY 2012.

As per data released in April 2012 by the IMF, India's GDP in purchasing power parity

terms stood at, $ 4.46 trillion in 2011,higher than

Japan’s ,making it the third biggest economy after the United States and China.

The impact of the euro zone crisis is becoming less severe in India, as the country has been consistently reducing exposure

to European markets, and is leaning more towards other emerging markets in middle

east and Asia.

The IT sector is drawing the benefits of relocating its customer vertical revenue

model.

Despite the inflation the various sections of consumer

continue with their consumption. The upper

income segment, who were not influenced b the

downturns in the economy ,continue their consumption pattern .

Business like education ,entertainment ,travel and holidaying have been maintaining their tempo all along and they are now set

to grow faster.

In the rural market too, the dullness seen in the last three year is moving back, and with the reinforced social support

programmers of the Government ,the lower rung

of the rural consumer community will be purchasing

more.

INDIA No.3 In Purchasing Power2011 GDP in purchasing power parity ($ trillion)

Clearing of FDI in multi-brand retail, the partial control of petroleum products subsidy, and the banking reforms measures are cases in point. Reforms measures on pension, public distribution ,contract act,labour reforms, and sales tax plus FDI in other sectors like insurance are on its initial stage. Government decided to concentrate on coal ,power plants ,roadways ,ports, refineries, and optic fiber. It seems that even if the country is in no position to immediately revisit the boom period of 2004-08,but it can at least exit the decline of 2008-12 period and get back to higher growth track.

15.1$ 11.3$ 4.5$ 4.4$ USA CHINA INDIA JAPAN

Government Initiatives By End Of 2012 Give Hopes On Further Reforms

• Economic growth over the last two decades has brought in millions of new consumers. Size of India's “consumer spending” has been estimated $470 billion in 2011.

• A study by TECHNOPAK says that while in 1991,80% of spending of middle and upper income consumers was accounted for only six categories i.e. food & grocery, clothing & footwear, consumer durables & appliances, furniture, movies & entertainment and eating out. But by 2011,there were 20 categories in the list ,the items includes coaching,grooming,travel,gifting, kitchen and other home accessories , fitness and club membership and computing and communication devices.

INDIA'S CONSUMER MARKET GETTING MORE DYNAMIC

KEY FEATURES OF INDIAN MARKETING ENVIRONMENT

• The consumer market is expanding and getting more dynamic.

• Quantum jump in “consuming class household”.• Per capita annual income of Indian’s reached $1000 in 2010.

(Rs.49,402)• Favorable shift in consumption pattern.• Continuing growth of the middle class.• Midnight’s children (today’s senior citizens) form a new

market.• The young India expand into a major segment.• Another powerful segment, I-pad generation in the making.

• Dominance of service continue.• Growth of IT/e-commerce.• Rural market becomes game changer.• Retail grows, organized retail spreads,kiranas too grow.• Marketing communication scene, back in action mode.• Social media expands in size ,role and importance.• Huge mobile connectivity sets up the tone and pace.• A consumer aggression never before seen ,is emerging.

• The midnight’s children's have also become senior citizens. Unlike their predecessors, this new senior generation refuses to retire from life! They remain active spenders, suiting their old-cum-new life style, accounting for a generational shift in consumption pattern in certain categories of products and services.

• The youth segment has expanded into a much bigger segment, they want more growth ,more income ,more luxuries, they are also ready to work more. As a result, the youth market, whatever be the product/services, is on the upswing, garments, personal care, restaurants, mobile phones, tablets, PCs, music, gaming, holidaying have become big businesses.

• Credit is becoming a way of life with a large segment of Indian consumers. According to credit Suisse Emerging consumer survey 2011,the credit appetite of the Indian consumer keeps growing. In earlier years, for purchase of house 60% was paid on cash , and the balance on credit ,today the ratio is reversed, for cars 65% was spent as cash and the balance on credit ,today 60% is on credit. It seems for the modern day Indian consumers, their future is built on credit.

CHANGING PROFILE OF THE INDIAN MIDDLE CLASS

• A class growing in confidence• Acquires a new political power• Becomes India’s consumption community• Acquires new values, new orientation• Goes through a pattern of shift in outlook on consumption• Spending pattern undergoes a major shift• Moves from functional living to lifestyle living.• Moves from family need based spending to spending for luxurious products.• Goes after lifestyle product /activities.• Votes for premium products and international brands.• Goes for faster replacement of appliances/gadgets.• Seeks world class shopping experience.• Goes for modern apartments and gadgets.• Settle into the fast food culture.• Patronizes (to make oneself regular customer)the new generation coffee cafes.• Goes for beauty products.• Looking good becomes important.

Expanding Middle Class Drives FMCG Growth

A new growth in middle and upper middle class ensures

up trading to premium products.

UP TRADING

Economic growth leading to higher

disposable income with a younger

population is driving this trend

Population growth Increasing

penetration incomes to rural area move

change

INCREASING CONSUMPTION

A consequence of the rising disposable incomes with the expanding middle class

FMCG GROWTH LADDER

NEW CONSUMERS

SIZE OF PRIVATE CONSUMPTION IN INDIA

GDP US $1400 Billion

Public spending & investment US $616

Billion-44% Private consumption US $ 784 billion-56%

NON RETAIL US $ 314 BILLION-40%

RETAILUS $470 BILLION-60%

RURAL US $254 BILLION -54%

URBANUS $216 BILLION-46%

TOTAL HOUSEHOLDSRURAL URBAN TOTAL

167,826,730 78,865,937 246,692,667

RURAL URBANOne-room households 39.4 32.1Tap water 17.9 62.0Electricity 55.3 92.7

of which piped sewer system 2.2 32.7

of which no drainage 63.2 18.2Firewood for cooking 62.5 20.1LPG gas for cooking 11.4 65.0

Availing Banking Services 54.4 67.8Television 33.4 76.7

Computer(with internet) 0.7 8.3Computer (without internet) 4.4 10.4

Telephone (landline) 54.3 82.0 Telephone (mobile) 47.9 64.3

Bicycle 46.2 41.9Scooter/motorcycle/moped 14.3 35.2

Car/jeep/van 2.3 9.7None of the specified assets 22.9 7.0

Latrine facility in house

860770

The FMCG industry has clocked high double digit growth in the last five years

585

Golden years for FMCG

industry GDP growth of

approx 8% & rural

market speed up

1020

11601300

470 490 500540

FMCG Growth

6%

17%

GDP growth of

approx 5% annually

FY 2001 02 03 04 05 06 07 08 09 FY2010Figures in Rs. billion

GROWTH IN FMCG• Growth in consumer spending and growth in FMCG industry have close relation.• According to a study by the CII (confederation of Indian industry),FMCG industry has a growth in the last

decade to Rs. 1300 Billion.• Growing middle class has been a major driver of this growth.

• (BUSINESS TODAY, 2015) India's economic growth has been driven by domestic consumption.

Consumer Spending Category Wise 2011 Vs 16 (F) In $ Billion

Food and groceryApparelJewellery and watchesConsumer electronics and ITPharmacyFurnitureRestaurants and food jointsFootwearBeauty servicesHealth/fittnessOthersTotal

325.0

35.025.622.713.99.18.84.51.31.0

23.0

470.0

425.0 50.244.242.823.417.115.88.33.02.5

42.5

675.0

CATEGORY 2011 2016

GROWTH IN RETAIL SECTOR,ESPECIALLY MODERN FORMAT STORES(MFSs)

According to the estimates of Citigroup Investment Research, the size of India's retail industry was around $214 billion in 2006 and $255 billion in 2010. Modern format retailing with modern format stores- supermarkets, hypermarkets and shopping malls- is one of the component of the transformation in retail sector in India.

Changing demographic, including the increasing purchasing power and the change in lifestyle, have been fuelling the growth and changes in this area.MFS accounts for only 12% of FMCG sales in 2012 and it is expected that 2017 will see 30% contribution by MFS to FMCG. According to Nielson’s shopper trends survey 2011,56% of modern trade shoppers are becoming modern trade loyalist, it is a group who will allocate most of their budget at modern trade though they might also shop at the other format to an extent.

GROWTH IN SERVICE SECTOR

Service sector which has been the dominant contributor to India’s growth story is continuing the growth trend. The share of service sector in India's GDP ,currently 56% ,is projected to go up further , as industrial sector share currently at 25% is likely to remain static, agricultural sector currently at 19%, may further dip. There are several areas in service group like BFSI (Banking,Finance,Service,Insurance),housing,pharma& healthcare,education,hospitality,infrastructure, and organized retail are projected to experience four to five times growth over next decades.

Rs. 11,800 crores advertisement revenues for the television industry in 2011.

It amounts to 10-12 % growth over previous year. 13.8 crores homes with television. 80% satellite penetration. Indians spend Rs. 175 each month on paid television

channels. Growth of digital broadcasting.

Small channels become viable as digitization reduces distribution cost.

Kids and regional channells are growing. 30% increase in the number of channels watched in a

home with digital TV. Thirty-one million households had direct-to-

home(DTH) service in India by 2011 end.

GROWING TV AUDIENCE AND GROWING DIGITISATION

GROWTH OF IT/E-COMMERCE

Technology, especially IT, taking over and transforming many marketing task, is a vital part of the new marketing landscape. IT spending was $80 billion in 2012 and $65.23 billion in 2010 according to the IT research and advisory firm Gartner, hardware to be the fastest growing segment with a CAGR of 20.4%

(Compound Annual Growth Rate)

Online Marketing In India :- According to a study by the Internet And Mobile Association Of India (IAMAI) and Intelink Advisors,about 150

million people in India,or around 75 million households were ready for e-commerce by the end of 2011. But only less than 10 million or less than 7% out of those with the capability for e-commerce are engaged in active e-commerce. The report says the ‘core’ potential for consumer e-commerce is likely to increase to 230 million households by 2024-25.

According to a report by the Federation Of Indian Export Organization (FIEO),exports through the e-commerce route in India have grown to $1.4 billion in three years between 2010 and 2012.

India is still in the emerging stage in online marketing. It was only around 2010 that marketing on the internet really acquired a reasonable measure of progress in India. The key enablers of e-commerce –broadband and credit card penetration ,wireless connectivity ,penetration of computing devices –came together. The current e-commerce market size is estimated to be around $10 billion and is expected to grow to $200 billion by 2020.

Flipkart, eBay. In, infibeam.com, SoSasta.com, Indiaplaza.in, Naaptol.com and FutureBazar.com are among the popular marketing websites in India. Major internet based firms, such as Google, eBay, Yahoo and Facebook , have a large presence in India and all of them see good prospects of e-commerce in India. Amazon, which is often reffered to as the wal-mart of the web, has also entered India through junglee.com, the comparison shopping site. The travel sites have also been multiplying; these includes Yatra.com ,Cleartrip, Ixigo, Make My Trip And Trip Advisor.

In India the future of online marketing is kinked more to the internet expansion on the mobile phone. Presently, 600 to 700 million Indians are using mobile phones , only about 9% of users access the internet from mobile devices. So there is a great scope for raising internet users via mobile phones.

RURAL MARKET THE GAME CHANGER• Rural India accounts for 70% of India's population, 56% of national income,64% of the total

expenditure and one third of total savings. The traditional vision of the rural economy as all agriculture is clearly no longer valid; the share of agriculture in the rural economy dropped from 74% in 1970 to 41% in 1993 to 40 % in 2007-08.

• According to Nielson, more than 80% of FMCG products are growing faster in rural markets than in urban.

The Rural Market Of FMCG Products is outpacing urban growth

Rural market is likely to account for about half of the FMCG market by 2020,which is about one third now.

2 0

1 5

1 0

5

0

- 5

- 1 02003 04 05 06 07 08 09

RURAL

URBAN

• Mckinsey study, “The Bird Of Gold”, the rise of Indian consumer market will be larger than the total consumer markets in the countries such as South Korea, Canada, and almost four times the size of today’s urban Indian market.

• Rural market are becoming the game changer for Indian marketing environment. Many corporate are applying innovative strategies in rural marketing. As per a study report by Ernst and young, HUL sells 45% of its household products in rural markets, Hero sells 60% of its two wheelers, Dabur 40% of its personal care products, Dish TV 33% and TVS 50% of its two wheelers.

India’s rural income grew at a much faster pace between 2010 and 2012 than in the previous years, according to the provisional results of the 68th round of the consumption expenditure survey carried out by the NSSO (National Sample Survey Office).

• The increase in income came from several sources:- As per CRISIL reporta) Higher prices of farm products and higher agricultural wagesb) Higher wages in non-farm sectorsc) Remittances from migrants.(urban laborers from rural areas remit 70% of their income to their

homes)

d) Government initiated social welfare programs.e) Loan write-off[ C R I S I L - C R E D I T R A T I N G I N F O R M A T I O N S E R V I C E S O F I N D I A L I M I T E D ]

RESON BEHIND THIS GROWTH

TASK THAT NEED UNIQUE HANDLING IN TAPPING THE RURAL MARKETS

MARKETING COMMUNICATION

SEGMENTATION

PRICING STRATEGY

PRODUCT MIX STRATEGY

MR AND DATA MANAGEMENT IN RURAL MARKET

a. Based on climate/irrigation level.b. Demographic segmentation.c. The SEC (socio economic classification of consumer)

propensity to consume.d. Incomee. Nearness to town and exposure to urban lifestyles.

a. Specifically designed productsb. Modifying ‘what I have’ must replace to creating ‘what they don’t have’. i. The time tested tractor trailer Ii.Philips Hand Wound Radio. iii.CTV with battery backup Iv.Mobile phone with menu in local language, dust cover and torch V. Washing machine that runs on diesel.c. Offering the colors that are preferred.d. Package has to be appropriate i. pack size ii. Logos & symbols(nirma girl,the dettol sword & mortein genie)

Pricing may have to rest on a combined price-product-package strategy

a. chota coke-”panch matlab chota coke b. payment terms/credit facility c. special occasion pricing

1.Physical distribution through delivery van.2.Channel management as rural channel generally needs larger

stock .3.Selecting a media mix/promotion mix i. Formal- TV, radio cinema ,print media, wall paintings, POPs(point of purchase) ii. Informal- a. audio visual/publicity vans. b. puppet shows. c. promotional programmes like- P&G - Sangeeta Bhabhi’s ‘KAMYAB JODI’ Dabur Amla - ‘BANKE DIKHAO RANI’ a rural beauty show HUL – ‘KHUSHIYON KI DOLI’

The NDSSP(NATIONAL DATA SURVEY ON SAVING PATTERNS) survey reports, IRS(INDIAN READERSHIP SURVEY) reports and the reports of agencies like NCAER(NATIONAL COUNCIL FOR APPLIED ECONMIC RESEARCH),NSSO and the CMIE(Centre For Monitoring Indian Economy) also form useful sources, these data may not be in a format matching the requirement of the marketer. He has to extract the needed insights out of them and use them. Mudra Institute Of Communication Ahmedabad, MICA has developed the mica rural market ratings.

Project ‘Shakti’ By HUL :- A project initiated by HUL for economic development through micro enterprises in rural sector.

CHALLENGES POSED BY CURRENT MARKETING ENVIRONMENT OF INDIA

• Meeting the exact demand of ‘the new consumer’• Pressure on profit margins.• Erosion of brands ( Brands lose their pricing power)• Competition fast erases the firm’s advantages, competing becomes harder.• They need to be extensive as well as intensive in

distribution.• Communicating one-to-one and simultaneously

one-to-a billion• Marketing in a recession.• It all boils down to a single challenge, answering

the customers questions – ‘Am I Getting My Money’s Worth’

INDIA’S GROWTH STORY WILL BE A CONTINUING ONE

• Explaining India's growth potential ,an affluent society in one generation, a book by a US-based strategic advisory firm, projects that if certain conditions are observed, India can be an affluent society in the coming 25 years.

• According to US-based foreign –policy think tank forum, India's GDP will balloon to $17.8 trillion in 2050,sixteen times its current level.

• David E.Bloom, Professor, Harvard University says, “with right policies, India's demographics will give it an edge over china. More people working ,more people saving- that’s a fuel for an economy”.

THANK YOU