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Customer sophistication – New challenges ahead - Views on News from Equitymaster
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  • Sep 20, 2000

    Customer sophistication – New challenges ahead

    The entry of multinationals has changed the facet of the industry due to which Indian consumers are becoming more and more sophisticated and demanding. By sophisticated we mean they demand better technology and better products.

    There are a few reasons for this notable change. The most important being, the entry of multinationals like Philips, Electrolux, Whirlpool, LG and Samsung in the Indian market. They exposed normal consumers to the higher-end products, which induced them to buy new products. The second reason is the rising per capita income of the country. The recent statistics indicate that the Gross Domestic Product (GDP) per head has gone up to US $ 370 (Rs 17,020). This is because more and more low middle class income groups are maturing to the higher level with the number of double income families going up significantly. Easy availability of finance has also been one of the important factors that have driven volumes in recent years. As the consumers buy more, the average replacement period of consumer durables is expected to drop significantly. Normally, the average holding period of a television is around 8 to 10 years. Assuming that this would drop to 7 years, there will atleast be a 10%-15% growth in sales volume.

    The impact of these factors is apparent from the growth in market size of various segments. The overall consumer durable segment growing at a rate of 18% on a compounded basis with the television segment (23%) outperforming the industry growth.

    Market size – Setting new highs…
    (Rs bn) FY95 FY96 FY97 FY98 FY99 CAGR (%)
    Air Conditioners 6.5 8.8 10.0 10.8 14.0 21.2%
    Refrigerators 12.8 14.5 16.8 18.0 20.7 12.7%
    Vacuum cleaners 0.7 0.8 1.0 1.0 1.2 11.9%
    Washing machines 6.4 9.1 8.8 10.9 12.3 17.8%
    Audio equipments 10.3 13.4 11.9 14.6 14.8 9.5%
    Television 28.7 36.8 43.1 55.2 65.4 22.9%
    Total 65.4 83.5 91.6 110.5 128.4 18.4%
    Source: CMIE

    To mark up with this tremendous growth, companies like BPL India, Philips, Samsung are spending crores of money in advertising and sponsoring events. To put things in perspective, the adspend during the first six months (January-June) of the current year has gone up by 13% compared to the corresponding period in the previous year. LG Electronics, for instance, has planned to increase adspend to Rs 400 m in the next six months for advertisement and sales promotion.

    Convergence is expected to be the future of the industry. This means a blend of Internet, telecommunication and television (it could be refrigerators, washing machines etc). We are already seeing companies launching web enabled television sets. Whirlpool has actually designed a refrigerator through which consumers can contact the online grocer and order milk. Therefore, companies who gain market share by undercutting prices are not likely to succeed in the longer term. In the end, better technology and marketing network would satisfy the demanding Indian consumers.



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