BROAD PROFILE OF THE INDIAN CONSUMER

DEMOGRAPHICS

Size of the Population The population of India in 2009 was 1198.003 million and is
estimated to be 1214.464 million in 2010 according to the Population Division of the
Department of Economic and Social Affairs of the United Nations Secretariat, World
Population Prospects: The 2008 Revision and World Urbanization Prospects: The 2009
Revision. In 2008, approximately 338 million people lived in urban areas while 811 million
people lived in the rural areas according to the UN Statistics Division.

Literacy and Education

The nation’s adult literacy rate has not seen much of a rise since 2001 putting it
approximately at 66% between 2003-2008; the Data referring to the most recent year
available during the period specified.

DIVERSITY IN INDIA

Indian consumers are not a homogeneous lot. They are marked by great diversity. It is this
diversity that strikes us first when we look at Indian consumers that is diversity in religion,
language, culture, tradition, social customs, and dress and food habits.

Religious diversity

The one billion people of India belong to seven different religious groups—Hindus,
Muslims, Christians, Sikhs, Buddhists, Jains and Zoroastrians. In addition, there are other
persuasions and there are sects, sub-sects, castes and sub-castes. Each religion has its own
hierarchic structure, concretized through centuries of practices. Each caste has its own
customs established over generations. In birth and death, in marriage and family life, the
individual is entangled in the chores of his religion or caste. What is welcome for one religion
is taboo for the other; and something totally banned in one religion is an accepted practice in
another.
Linguistic diversity

The same diversity is seen in the matter of language. Sixteen languages have been specified
in the Constitution of India as national languages. In addition, there are hundreds of dialects.
In several places, many amalgams of languages have been formed as a result of shifting
populations. If a marketing man has to approach the entire national market of India, this
linguistic diversity is a big challenge.

Diversity in dress and food habits

As far as dress is concerned, India holds out the picture of widely varying styles. Almost
every state, or religious community, has its own traditional styles of dress. The same is the
case with ornaments and Jewellery. As regard food, rice is the staple food in the South and
wheat in the North. Of course, in several of the southern states people now consume wheat
products as co-food items. Likewise, certain southern dishes have become popular in the
north. Still the basic difference in food habits remains. There are certain communities, which
are strict vegetarians. For meat eaters, there are several restrictions; for the Hindu, beef is
taboo, for the Muslim, pork is taboo, for the Christian, both are delicious. Some use coconut
oil as the cooking medium, some use groundnut oil, and some others, mustard or gingelly oil.

The conclusion if a marketer wants to market his products in India he has to consider all the
above diversified aspects before planning the marketing strategy. Accordingly the
advertisements, sales promotion activities, distribution channels and retailing plans must be
drawn in order to successfully sell the goods whether for B2B or consumer goods through
malls and retailers.

GEOGRAPHIC SPREAD

Distribution of population in urban and rural India is unequal and has differences. India is
primarily an agrarian society, where majority of the population are dependent on agriculture
and allied activities in rural areas. In the urban areas of the country, people are not dependent
on agriculture. Normally an urban area is one in which 75 percent of the population lives by
non-agricultural occupations but in the beginning of 20th century this was not the case in
India. In 1901, only 1 out of every 9 Indians lived in towns or cities. Today, after so many
decades the situation has experienced remarkable changes. Today every fourth Indian is a
city-dweller. In 1901, the sum total of people living in urban areas was around 26 million. By
1991, the number of people living in urban areas had escalated up to 218 million. This figure
far surmounts the total population of Russia, Canada and Australia taken together. More
alarming is the fact that two third of India`s total urban population lives in A-1 cities that
have a populace of several lakh people. This ever-increasing population exerts terrific
pressure on the existing brittle civic, social and sanitary services.

At present in India, the ten leading populated urban districts include Kolkata, Chennai,
Mumbai, Hyderabad, Delhi, Chandigarh, Pune, Bengaluru, Ahmedabad and Kanpur. These
ten city districts alone account for more than 5 percent of the total population of the country.
The average density of these districts is around 6888 persons per sq km. Among the large
states like Maharashtra, Gujarat and Tamil Nadu are considered as the most urbanised states.
More than 35 percent of the total population of these states lives in cities. Another fact of
enormous significance is the fast development of major cities. Each of such cities has more
than one million people. In 1981 there were 12 such cities. However, their number had risen
to 23.

More than 80% of the population of upper strata consumers is living in the top 7 cities. Those
top 7 cities are Mumbai, Kolkata, Delhi, Chennai, Ahmedabad, Bangalore, and Hyderabad.
With increase in economic prosperity, this population (upper strata consumers) is growing at
10 percent annually.

Over a period of 90 years, the rural population has barely increased. During the same time,
urban population had amplified by more than eight times. Today`s urban population in India
is even greater, compared to the total rural population of India, as it was in 1901. When
population in India was expanding very swiftly, the percentage of young population
accounted for as much as near about 44 percent of the whole population. However, it had
declined over the years. The old population over the last decade has enlarged from around 6.2
percent to 6.76 percent. This is a hint that due to propagation of education and magnified and
bettered health services, the normal longevity has been increasing steadfastly. The average
life expectancy has now nearly doubled since 1951 for both males and females.

Education, health and medical care of the young and the old make an imperative demand on
the resources of the economically dynamic population. Further more, both the groups are
dependent on the population of the middle-age group. The dependency ratio is measured by
dividing the dependent population by the active population and multiplying it by 100.
Another important aspect regarding the distribution of population is that traditional rural-
urban migration prominently exists in India.

THE CONSUMER BASKET

Consumption

In ‘Key indicators for Asia and the Pacific 2010' report — ADB's flagship annual statistical
publication says the ranks of India's middle class, defined as those consuming between $2
and $20 a day (based on survey data in 2005 purchasing power parity), grew by around 205
million between 1990 and 2008, second only to China.

The surge in numbers, it argued, has seen additional annual spending of $256 million and
spawned low-cost, locally produced products and services such as Tata Motor's $2,200 Nano
car, the Godrej Group's $70 battery-operated refrigerator and cheap mobile phone rates.

The emergence of a substantial middle class in India has created new avenues for
employment and entrepreneurship, and a louder voice for improved public infrastructure and
services.

Alongside, however, over 75 per cent of the country's middle class remains in the $2-4 daily
consumption bracket — the lower end of a range of $2 to $20 — leaving this segment at risk
of falling back into poverty in the event of a major economic shock like the global financial
crisis. Infrastructure constraints, like unreliable power supplies, may also hamper
consumption of durable goods.

The Indian retail food industry has revolutionized shopping experience of Indian customers.
Growing at the rate of 30%, the Indian food retail is going to be and no doubt is the major
driving force for the retail industry. Food accounts for the largest share of consumer
spending. Food and food products account for about 50% of the value of final private
consumption. This share is significantly higher compared to developed economies, where
food and food products account for about 20% of consumer spending. The percentage of
income spent in households will drive growth in the food market. Indian consumers are
happy with store goods than branded goods and are very conservative on packaged goods.
There are 10 million street vendors in India, of which 6 million only sell food. Currently, the
retail food sector is US$ 70 billion and is expected to rise to US$ 150 billion by 2025. Food
has the largest consumption in the Indian economy and will remain the single largest
category."

Private consumption (at constant prices) has increased by an average 5.8% during 1995-2000,
compared with 4% in 1990-1995 and 4.6% in 1985-90. Within product classes too, the
changes are interesting: compared with 1993-94 (mid point of the first half of the decade),
expenditure shares in 1998-99 show significant changes.

Shares of essential goods have come down: food essentials from 50.4% to 45.68%, clothing
from 5.4% to 4.9%, and footwear from 0.7% to 0.63%. On the other hand, shares of lifestyle
products and services have risen: transport and communication from 11.26% to 14.51%,
medical care and health services from 3.38% to 4.25%, and home goods from 3.05% to
3.25%.

Modern state of the food retailing is not a demand led but the supply led one. Major spending
on food and increasing usage of out of home food consumption represent a significant
opportunity for food retailers and food service companies. Speaking in Food Forum India
2008, on the government's role in the food retailing development, Dave said, "The retail
stores need to empower its stakeholders and deliver what the consumer wants. The vision for
2020 should be appropriate extension network, implementation of appropriate practice at
farmers' level and infrastructure in the country."

The Drive for Retail:

The reason for the boom in retail is the gradual increase in disposable incomes of the middle
and upper class household. he Indian consumer has a great amount of disposable income
which has increased demand level of the country. This demand is accompanied by the desire
to get the best quality. In India over 65% of the population is below 35 years of age and 54%
are below 25 years. They have enough to pay for all their dream desires. Moreover there is a
switch from joint family to nuclear family is making its presence felt. Driven by changing
lifestyles, strong income growth and favourable demographic patterns, Indian retail is
expanding at a rapid pace.
Mall space, from a meagre one million square feet in 2002, is expected to touch an estimated
60 million square feet by end-2008, says Jones Lang LaSalle’s third annual Retailer
Sentiment Survey-Asia.

The Indian consumer wants the best. This has increased demand for exclusive brands . Now
Nike has over 100 outlets and Reebok has over 400 outlets. Thus the increase consumption
pattern is having a direct bearing on the growth of retail sector. The consumption in 2005-06
was Rs. 2124000 Crore (Approximately 480 billion.)

CHANGES IN THE INDIAN MARKET

A careful analysis of the Indian market reveals the dramatic changes that occurred since
1990s resulting in manifold increase in the purchase of consumer durable products. The
various changes that transformed the Indian market for consumer goods in the last one decade
(1991- 2001) are presented below:

A shift from sellers market to buyers’ market- characterized by intense competition,

variety, and consumer insistence for value for money leading to the redefinition of necessities
and luxuries;

Sheltered market to competitive market – the entry of Multinational Corporations

(MNC’s) with global network, acknowledged superior technology, product quality and
money power to backup their marketing efforts offered a severe jolt to the Indian companies;

Changing consumption pattern – Indian markets have transformed both in terms of

sophistication and variety, resulting in a substantial change in the disposition of the customers
towards quality, price, delivery and service leading to new processes;

Expanding service sector – which at present accounts for about 52 per cent of gross
domestic product. They are production, business, government and other service sectors like
education, healthcare, hotels, insurance, banking, consulting company, travel and tourism,
emerged as important areas where significant action is taking place;
Emergence of distinct market segments – urban, rural, youth, children, working women
etc;

Changes in the media scene - from single channel to cable network with multiple
channels, larger coverage, multimedia mix, greater spending and emphasis on market
research and media planning, have become the order of the day;

Changes in the distribution channels – Innovative distribution channels like

convenience shops, departmental stores, discount stores, super markets, mail-order retailing,
video shopping, internet shopping and multilevel marketing, have begun to change the face of
distribution format;

E - Business and Commerce – in addition to e-mail, e-entertainment and e-database, a

wider range of services using networking- e-shopping, e-commerce, web-enabled operations
and data ware-housing are now available and quite interestingly are gaining acceptance. As a
result of all these changes, the role and functions of marketing have undergone a
metamorphic change in recent years. Many new concepts and patterns of thought have
emerged. That apart, changes have also taken place in the consumer buying habits and
spending behaviour.
Consumers have become more knowledgeable, more adventurous and more demanding,
compelling, in a way, redefinition of marketing strategies and orientations of companies.
Since present day consumers are more concerned for value, brand image and performance
than ever before, consumer satisfaction is viewed as an integral part of total quality package
in terms of form utility, place utility, time utility and possession utility. In the light of the
shift enumerated thus for, it is evident that sound understanding of the consumer profile is an
urgent need for the marketers. The traditional attitude of many business firms to sell what is
easy for them to produce rather than to produce what the consumers want has to be changed.
The marketers should take fresh initiatives focussed on effective market analysis and
research. Gone are the days where price alone used to play a significant role. Of late, product
differentiation, customization, pre-sale and after sales service, quality, delivery schedules and
other factors also play an important role besides price. Effective marketing not only creates
new and bigger markets, but also enables the firms to reduce cost, to enhance the demand and
eventually to achieve economies of scale. It is, therefore, essential that marketers keep a
constant watch on the marketing horizon to spot the new challenges thrown up by the
staggering pace of technological developments and various changes in the marketing
environment and to convert them into highly profitable marketing opportunities.
 SOCIO-ECONOMIC CLASSIFICATION OF INDIAN CONSUMER

Indian households are segmented according to the occupation and education levels of the
chief earner of the household (the person who contributes most to the household expenses).
This is called as Socio-Economic Classification (SEC), which is mainly used by market
planners to target market before launching their new products. SEC is made to understand the
purchase behaviour and the consumption pattern of the households.

Socio-Economic Classification

Occupation Education
Illiterate Less 5-9 School Some Graduate Post-
than 4 yrs of certificate college graduate
yrs in school
school
Skilled E2 E1 D C C B2 B2
Unskilled E2 E2 E1 D D D D
Shop owner D D C B2 B2 A2 A2
Petty trader E2 D D C C B2 B2
Employer of-
Above 10 B1 B1 A2 A2 A1 A1 A1
persons
Below 10 C B2 B2 B1 A2 A1 A1
persons
None D C B2 B1 A2 A1 A1
Clerk D D D C B2 B1 B1
Supervisor D D C C B2 B1 A2
Professional D D D B2 B1 A2 A1
Senior B1 B1 B1 B1 A2 A1 A1
executive
Junior C C C B2 B1 A2 A2
executive

The rapid rise in income has been the catalyst for the increase in the demand of consumer
durables and expendables. This powers the usage of various kinds of durables across the
different income classes.

Indian households can be segmented according to income, occupation and education levels of
the chief wage earners of the house. This is called as Socio-Economic Classification (SEC),
which is mainly used by market planners to target market before launching their new
products. SEC is made to understand the purchase behaviour and the consumption pattern of
the households.

The urban area is segregated into: A1, A2, B1, B2, C, D, E1, E2.

The A1 class comprises of people such as, employer of more than 10 people, with
educational qualifications like passed out of some college followed by graduation and/or post
graduation. Or they could be senior executives or professionals who are graduates and/or post
graduates. As they comprise of the high class, their consumption pattern focuses on luxury
goods rather than utilities. Their choice of goods has more to do with the brand value of the
goods they purchase. The goods purchased contribute significantly to the image that they
portray to the society. Hence they are the target groups for high end durables and
expendables. They are the rich class with an earning capacity of Rs.215000 and more.

The A2 class consists of shop owners who have a graduate/postgraduate background. They
could also be employers of less than 10 people having a college degree, or employ more than
10 people who have 5 to 9 years of schooling or a college degree. This class of people also
has senior executives and junior executives with graduate/postgraduate degrees. A2 is also a
part of the high class, with slight consumption pattern variation compared to A1.

The B1 class has employers of more than 10 employees with a background of either illiterate
or less than 4 years of school. They could also be senior executives with minimal education
(illiterate to college degree). Also a part of the high class they differ from the A class on the
grounds of their earning capacity, they earn about Rs.45000 to 215000. They are referred to
as the consuming class.

The B2 class has shop owners with a school certificate and/or a college degree. They are also
employers of less than 10 people who have less than 4 years to 5 to 9 years of schooling. Or
perhaps professionals and junior executives with a school certificate and/or college degree.
This sums up the high class which constitutes over a quarter of urban population.

Section C also referred to as the middle class has people like skilled labourers or petty traders
with a school/graduate degree. They also have clerks, supervisors, with school certificates
and junior executives with educational qualifications ranging from illiterate to 5 to 9 years of
schooling. Their consumption pattern focuses on value for money. The functional aspect of a
product gains precedence over the psychological aspect. Middle class refers to a set of choosy
buyers who conduct immense research for even buying durables. They believe in the word of
mouth of their peers and may also buy certain goods to enhance their social standing. The
increased expenditure of this class has led to it becoming the core area of consumer interest
and research. Forming 21% of the urban population, the middle class is a meaty chunk in the
consumer pie, referred to as the aspirants and climbers class with an annual income of Rs.
16000 to 45,000.

Sec C constitutes households whose Chief Wage Earners are employed as :

Skilled workers 33%

Petty traders 12%
Clerk/Supervisor 37%
Shop owners 18%

Section D & E refers to shop owners with 5 to 9 years of schooling, clerks, supervisors,
professionals with educational qualifications ranging from illiterate to 5 to 9 years of school.
They are a part of the low class. The consumption pattern is more need driven with less focus
on brands. This group has a low spending capacity and accordingly are the destitute class
with less than Rs. 16,000 annual income.

More than 80% of the population of upper strata consumers is living in the top 7 cities. Those
top 7 cities are Mumbai, Kolkata, Delhi, Chennai, Ahmedabad, Bangalore, and Hyderabad.
With increase in economic prosperity, this population (upper strata consumers) is growing at
10 percent annually.

The rural area is segregated in to: R1, R2, R3, R4.

 Education of chief
Type of House
wage earner
Pucca Semi-pucca Kuchcha
Professional
R1 R2 R3
degree
Graduation/ PG R1 R2 R3
College R1 R2 R3
SSC/HSC R2 R3 R3
Class 4-Class 9 R3 R3 R4
Up to class 4 R3 R3 R4
Self-learning R3 R4 R4
Illiterate R4 R4 R4

IRS CLASSIFICATION OF CONSUMERS BASED ON CONSUMPTION

BEHAVIOUR
The IRS classification of consumers is based on proven consumption behaviour not income.
The basis of classification is absolutely clear (see 'The Great Indian Pyramid), though
unfortunately, the labels make up for the clarity in their sanskritised opacity! The basis is a
construct called HPI (Household Potential - or affluence - Index), which calculates for each
household a score based on the consumption or non-consumption of a basket of 50 FMCG
and durable products. A higher score is awarded for a less penetrated one (e.g. air conditioner
or ketchup) and a lower score to a widely penetrated one (e.g. colour TV or toothpaste).
Households with similar HPI scores have been grouped together to create eight consumer
classes. Each has been further described in terms of specifics of ownership.

CHARACTERISTICS OF THE INDIAN CONSUMER

Aspiration for a better life
As millions of economically deprived households move into the lower strata of the middle
class segment, they will begin to be able to afford and demand products and services beyond
food and clothing. Increasing penetration of media and infrastructure facilities will expose the
rural India to urbanized lifestyle and fuel the latent desire for improved living standards.
Together the ‘aspirants’ from rural and urban areas will push up demand for goods and
services at the lower end of the spectrum.

Value and innovation

The new Indian consumer will be as discerning when buying a product as his previous avatar.
In fact, due to a rise in income, increased awareness about products and proliferation of
choices, he will become pickier with his purchases. Product, positioning and packaging
innovation will be the key for companies to attract this new consumer. For example, as
consumers become increasingly health conscious they will choose a food product that not
only tastes great but is also fortified with health benefits. Similarly, global products
especially in case of food will have to be adapted to suit the local taste as the Indian
consumer while becoming global will continue to be attached to his roots. It is no wonder,
that international fast food chains have had to Indianize their pizzas and burgers to attract
consumers here.

Companies will have to drive innovation differently for different regions and consumer
classes. The sachet or pouch innovation for example, has given a head start to FMCG
companies for penetrating the rural India. The rural India too like the urban area is beginning
to demonstrate a demand for packed goods but their purchasing power limits their capacity to
buy. When products like edible oil and shampoos were made available in small pouches, they
were well received by rural India.

The brand conscious consumer

The Indian consumer market, which is primarily dominated by young generation, is
becoming increasingly sophisticated and brand conscious. A typical upper middle class
young consumer is beginning to look beyond the utility aspect of a product to seek
intangibles like brand and lifestyle statement associated with the product. This modern
consumer wants his purchases to reflect his lifestyle or at least the one he aspires for. As a
result of this brand consciousness, the food and beverage segment of the FMCG sector is
already witnessing a significant shift in demand from loose to branded products.The Indian
affluent class has always had a penchant for premium branded goods and this
fetish will continue.

Food, Beverages and more

As several first time consumers enter the market, demand for food and beverages will
continue to increase. The MGI study estimates that growth in consumption will accelerate to
4.5% annually by 2025, from 3% witnessed over the past 20 years. Rise in income and
increasing social and economic awareness will fuel expenditure on health, education,
communication, transport and entertainment. Thus, electronic goods, personal care, health
care, automobiles sectors are expected to receive a significant boost in the coming years.

Organized retail
Indian consumer purchasing is largely through the unorganized sector or through the kirana
stores. Organized retail constitutes a small percentage of the Indian retail market. However,
with urbanization and increasing value-consciousness among consumers, the organized retail
format is beginning to take root. The organized retail format promises consumers better
quality and better shelf-life for products due to their excellent storage facilities and anti-
tampering checks. An important factor attracting consumers towards formal retailing
mechanisms such as hypermarts and departmental stores is the shopping experience. These
shopping outlets allow consumers to explore their choices and touch and feel products in the
comfort of a glitzy and energetic environment, something a kirana or mom and pop stores
have never been able to offer.

Consumerism is becoming a way of life in India

An analysis of Indians’ savings goals underscores the increase in materialism. Although long-
term plans remain a high priority, life’s pleasures in the here and now have gained
importance over the past decade. Indians’ desire to set money aside for electronics and
durables has grown so dramatically that it has nearly caught up with their desire to save for
their children’s education.
Travel and entertainment have also gained ground. Interestingly, this trend does not apply
only to the young– it holds true for people aged 15 to 55. And it is not merely a large-city
phenomenon; people in smaller towns espouse these values as well.

Foreign is passé; Indian is paramount.

Indians long believed in the overwhelming supremacy of all things foreign. Antiquated
products and technologies, well past their “sell by” date in more developed nations, were
once lapped up by Indian consumers. Now, though, with Indians succeeding on the global
economic stage, “Made in India” is no longer an apology. While Indians’ confidence in
foreign companies has remained essentially static, their faith in domestic companies has
grown. In 1996, only 34% of those surveyed expressed confidence in Indian companies; in
2006, 56% did. Indians realize that not all foreign goods are perfectly suited to their tastes
and needs. They have become discerning consumers who want products
that are made in India and for Indians.
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