Nov 1, 1999

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The Indian consumer emerges king as companies, spurred fierce competition, churn out an alluring range of products that are top of the line, come at bargain prices and are backed by prompt service.

By V Shankar Aiyar

It is the closest Indians have come to a real revolution. And in a sense Madhukar Kamat's story says it all. Back in the '80s, Kamat's boss sanctioned him a car. "I was told I could buy any car, any colour. Which meant an Ambassador or a Premier Padmini." Last month, in his new avatar as the CEO of Bates Clarion, it was Kamat's turn to make one of his juniors a similar offer. "In the amount that was agreed upon, there were seven choices -- -- from a souped up Tata Sierra to a Honda City." And that in just one segment. The upwardly mobile consumer today has a choice of 10 brands that sell worldwide and 50 different models ranging from the Rs 1.95 lakh Maruti 800 to the Rs 27 lakh E-class Mercedes Benz.

TV-star and ghazal singer Talat Aziz puts it succinctly: "You can wish and get more for less." Two years ago, Aziz, a cyber buff, had bought himself a Compaq 486 multimedia system for Rs 72,000. Last month he looked up a dozen brands and bought himself a new system that includes a P-III chip, a Samsung 17 inch colour monitor and a modem so fast it leaves skid marks. "I have got three times the processing power, a larger screen and faster access for just Rs 50,000," says Aziz. "The consumer is the emperor of choice," adds Kamat. Not surprisingly, Hindustan Lever Ltd (HLL) Chairman Keki Dadiseth takes time off from a busy schedule and spends one day every month with his sales staff in the field in whichever part of the country he is to figure out if the consumer likes the look and smell of HLL's products. Dadiseth's -- -- and HLL's -- -- mission: to understand the needs and aspirations of the consumers, 50 per cent of whom are under 20 years of age.

So what's prompting companies to woo the Indian consumer so assiduously? Thank liberalisation for that. Economic reforms that began in 1991 have been the consumer's powerful ally. They have seen the consumer truly emerge as king. An ORG-MARG analysis done in August throws up interesting findings on the impact of liberalisation for the Indian consumer:

• Indian firms have benefited due to both tie-ups and availability of know-how and critical inputs for upgrading products and production processes.
• Liberalisation has brought in new product concepts as well as product sub-groups -- -- from breakfast cereals to diapers to cellular phones to suntan lotions.
• The consumer has much easier and faster access to products launched. There is also a greater availability in terms of width and depth of distribution.
• The entry of more players and products and the economies of scale of the majors have brought prices down.

At the heart of this tumult are no motivational gurus or proselytising management consultants. What is driving companies is some robust competition. "The impact of liberalisation has followed the base principle of price reduction with greater competition in greater categories," says Sujit Das Munshi, general manager, ORG-MARG. The ORG-MARG study analysed 24 categories of both fast moving consumer goods (FMCG) and durables. In 11 of these, prices have come down (that is, the price at the time points after removing the effect of inflation). In 10 of 24 categories, the number of products has grown by over 10 per cent every year. In fact, the drop in prices of manufactured goods is acknowledged as one of the reasons for the record low inflation witnessed over the last few months.

Simply put, liberalisation has triggered a revolution. New players are beginning to bob up at a furious pace. This translates into new capacities, new technologies and new marketing mantras. Says Bajaj Auto Chairman Rahul Bajaj: "There is simply no debate. The consumer has benefited with the economy moving from a planned and protected environment to an open economy." Nothing exemplifies this more than the consumer-durables segment, which has seen the advent of perhaps every top multinational brand from Sony to the Korean multinational LG and consequent price benefits.

Videocon Chairman Venugopal Dhoot, acknowledges the sea change: "The key word is access. When the foreign majors came in, domestic players were forced to drastically alter the way they did and could do business." Add to this the government's rationalisation of customs and excise duties which has brought down the cost of inputs and the price of the end-product. Says

Rajeev Chandrashekar, chairman, BPL Telecom: "Once foreign brands came in, the strategy of the domestic players changed. Competition rather than the cost plus model drove pricing."

In a sense the process followed the Quadra-A model -- availability, afford-ability, awareness and acceptance -- quite effectively. While the government worked on affordability and availability, liberalisation came home to the consumer through a happy coincidence: the satellite and cable TV revolution that swept the country. In no time the number of television homes grew to an amazing 55 million, a figure that's growing at the rate of 25 per cent annually. Of these, 20 million households are connected to satellite networks. In other words, over 250 million upwardly mobile viewers whose average television viewing time has gone up from two hours a day to nearly four hours could now be bombarded with information and wooed.

Unlike in the past, this carpet bombing of information is not just aimed at benchmarks of affordability or availability but at drawing out the latent or suppressed desire for new technology and quality. Mumbai-based dealer Nihal Shah of Sumaria Electronics reveals, "Consumers come armed with information these days. They ask less about price and more about technologies like fuzzy logic." This kind of feedback is most valued and sought after by companies. Says Shah: "Companies are willing to put products on the shelves within weeks of the consumers asking for it." Compare this to the past when waiting periods were the norm. Management guru Mrityunjay Athreya describes the change as a "paradigm shift" -- from licence -permit raj to real entrepreneurship, from shortage to surplus, from rationing to competition. Most importantly from being a helpless customer to becoming the king. Says Jagdeep Kapoor, managing director, Samsika Marketing Consultants: "The Indian customer is becoming a world-class customer." Adds Kamat of Bates Clarion: "Today the consumer has the remote control. He'll zap those not in tune with the times off the screen."

The consumer can do all this, thanks to another happy coincidence: 11 good monsoons in a row. This has led to a growth in national income which translated means higher disposable incomes and a growing consumer base. Since the agricultural procurement price has gone up the demand has risen in rural areas too. The rush of multinationals to tap rural markets is an indication of the future trend. In a recent presentation to foreign investors, Videocon projected the growth in annual incremental disposable income at 6 per cent of GDP or $25 billion (Rs 1,07,500 crore). Of this the share of the top 25 per cent income earners will be $12 billion of which $3.5 billion will be spent on consumer durables. In other words the base of the consumer pyramid is expanding.

Quite simply an expanding consumer base leads to volumes that bring down prices. Explains Mumbai-based marketing consultant Rama Bijapurkar: "Growth has been both organic -- where the consumer base has grown with the national income -- -- and inorganic or engineered by competition." Engineered growth is primarily the kind that comes out of pure marketing efforts of, say, Kabir Mulchandani (of Baron International) which saw margins being slashed to bringa 14 inch colour TV set to sub-Rs 6,000 levels from Rs 12,000-plus; or the penetration exercises of HLL which used its marketing muscle to take FMCGs to the rural market.

Add to this product engineering. When Unilever chief Niall Fitzgerald visited Mumbai he spent less time in the boardroom and more in the tenements of Dharavi. He studied in great detail how the people there lived, what they ate, and so on. Feedback in such strong doses is showing. HLL, for example, now makes one blend of its popular A-1 tea for consumers in the north and another for those in the south.

Organic or engineered, such growth couldn't have come without service. Improved quality consciousness is what sets this new breed of corporates apart. Manufacturers like GE have invested in call centres to address customer issues. Others like LG and BPL have invested in software that networks dealers and the company for real-time information. Shah reveals that most dealers now invest in quality staff. "Dealerships are not just dukans anymore," he says. Nor are they mere garages.

Take the manner in which carmakers have revolutionised after sales service. For instance, Hyundai Santro owners need to visit the showroom just once -- -- to sign the cheque and take delivery. Thereafter the carmaker comes home for every service. Or take the case of two-wheeler giant Bajaj Auto. Realising the need for better service, it has upped the number of authorised service stations from 200 to over 1,000 in the past six years. What's more, in association with Zed TV, the company has organised a training programme for mechanics. Every week, Bajaj Auto invites local mechanics to its service centres where they -- helped by a service engineer -- -- watch a 26-episode programme on servicing Bajaj motorcycles and scooters. The cost: Rs 50 lakh. The benefit: expansion of Bajaj's service network.

All this is making companies operating in traditional ways feel a bit queasy. "This is just the beginning," warns Anand Mahindra, managing director, Mahindra and Mahindra. "Technology has been commoditised so brands will have to be built around service."

And companies are beginning to toe that line. Mahindra for onetakes his own warning seriously. Every month he spends a week on the road in different corners of the country -- -- from Bhagalpur in Bihar to Godhra in Gujarat. In September, Mahindra was in Cuttack. There were just two service stations outside the city for M&M's multi-utility vehicles and tractors within a coupleof hours of each other. These service stations were open only during the day. Mahindra has now got both to stagger their timings to give customers a 24-hour service within a manageable distance.

Companies are also using the Internet to sell, and more importantly, to service clients. Virtually every company interested in maintaining its market share and bottom line is offering web-based service. Last month Stanford-returned Amit Dixit in association with M&M set up automartindia.com. Serving 40 cities, it is dubbed as "the largest parking lot for used cars". Dixit calls it his effort to remove pain from the market place.

Removal of pain is also visible in consumer financing. Witness the alluring options. Last week, BPL unveiled what is perhaps the most comprehensive consumer finance scheme specifically aimed at the rising number of nuclear families that form a large chunk of the growing consumer durables market. For Rs 1,856 per month over 36 months a couple could acquire a 21 inch BPL TV, a 200 litre fridge, a semi-automatic washing machine, a CD system plus a BPL cordless phone free. Or for Rs 5,434 per month (over 36 months) get a flat-vision TV, a DVD player, a 480 litre frost-free fridge, a neuro-fuzzy washing machine -- and a BPL microwave and CD system free. Thanks to a tie-up with ICICI and Bajaj Consumer Finance.

These two outfits are but two of the players in a huge and growing field. Today over 20 finance firms are lending more than Rs 8,000 crore to help make consumers' dreams come true. Add to this the muscle of big banks like State Bank of India, ANZ Grindlays and Citibank who implore consumers to take their money. Sounds good but it's a sputtering start -- Indians still save and buy and are wary of shopping on future income. Consequently, only 15 per cent of durables and electronic goods are sold through financing.

But what's credit without plastic power? Vivek Kudva, manager, card products division at HongKong Bank believes that the credit card has ceased to be a mere status symbol. It has switched from being merely an instrument that enabled impulsive spending to a credit instrument that is valid anywhere in the world. In fact the credit cards business is among the fastest growing segments. Consider this: in 1994 there were less than a million cardholders spending around Rs 750 crore. According to Pushpendra Mehta of the Baroda-based Credit Card and Management Consultancy, now there are over 3.5 million card holders whose billing last year was in excess of Rs 9,000 crore. What's more, the number of cardholders and their spending is rising at an annual rate of 20 to 25 per cent.

Yet, the crowning of the consumer is far from complete and liberalisation is far from all-encompassing. "Liberalisation works when the government minimises its own stake and involvement. Apply this litmus test wherever the government is present," says Chandrashekar. In other words, the absence of competition and the presence of the government as a monopoly player are areas where the consumer is yet to be crowned king. "Wherever government has a presence you will find industry associated directly or downstream, either dead, dying or uncompetitive," says Chandrashekar.

What's significant though is that the consumers have tasted blood. They want more and they are getting it too. The recent fare war between Indian Airlines and Jet Airways is just one instance. Witness the tariff war between VSNL (India's near-monopolistic and first Internet service provider) and Satyam or Mantra Online. Or that between private basic telephone service providers and MTNL and DOT -- be it in Mumbai or Madhya Pradesh. It works the other way too: the long queues that welcomed MTNL's advent in cellular service is perhaps proof.

Interestingly, through all these years of market ferment the Indian consumer hasn't changed much. He is quintessentially Indian in his frugality and in his quest for value for money. As Bijapurkar says: "The consumer has always been the same; only nobody listened to him earlier." But with the consumer now sitting on the vantage point, they can't afford not to listen to him.

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