Factors that led to liberalization- a brief overview
In 1947, after Independence, India had the classic profile of being the underdeveloped country, comprising of small elites, large number of peasants, and a predominantly rural population, high poverty levels, high mortality rates and low life expectancy, poor nutrition and an economy dominated by agriculture and exports of primary products. Indian leaders embarked on a program based on Fabian socialism- a program of socialism from within- which tried to raise the living standards and development without western aid.
India played a leading role in the non-aligned movement but looked to Russia for aid and markets. Their policies included protection of local industry with tariffs on imported goods and the establishing of import substitution industries. The aim was to establish a mixed economy of private enterprise and government planning. Priority was given to heavy industrial production rather than consumer goods. The World Bank flooded India with loans in the 1950s in an attempt to change Indias policy from import substitution and government intervention in the economy, and to bring it into the orbit of the west. It formed a group which promised more increases in aid if India would move towards more free market export oriented policies.
The World Bank pressured the leadership to devalue the currency by 50% in 1966. At this time Indias major markets were the Eastern Bloc countries, especially the Soviet Union. Before 1965 growth had reached GNP of 4.2% but for the next decade war, droughts and external factors reduced this growth and the economy stagnated.
India maintained this policy of isolationism and economic protectionism behind trade barriers for over 2 decades and did not play a major role in the internationalization of the world economy that took place before the 1980s. Global trade was avoided and the entry of foreign companies was not encouraged. In 1973 Indira Gandhi placed restrictions on foreign investment, and in 1976 the Foreign Exchange Regulation Act (FERA) reduced participation of foreign enterprises in Indian subsidiaries to 40% and taxes were raised on the rich and luxury goods. The consumer price index went up 400% from 1960-1980 and two thirds of household income was being spent on food. Some multinationals like Coca Cola (1950-1978) and IBM (1951-1979) left India because of policies that restricted their activities. India suffered balance of payments problems due to the increase in oil prices after the late 1970s and borrowed from the IMF and other sources such as the World Bank & foreign governments.
After 1985, in order to revive the stagnant economy, some measures towards liberalization were introduced & there was a marginal growth in the economy. The Green Revolution created a food surplus though this did not always reach the poor. At this time, exports to the U.S. and the European community grew. In the early 1990s the Gulf War caused rising oil prices and had a major impact on the Indian economy, and reduced workers remittances from the Gulf which had played an important economic role. The collapse of the Russian economy in 1991 also meant the loss of markets for Indian goods and of subsidized imports, the most notable being energy. Other Eastern bloc markets also contracted at this time.
In the 1990s the liberalization of the economy continued, some of this externally imposed. In 1991 there was a balance of payments crisis and the IMF restructuring package enforced a stabilization program which devalued the rupee by 20%, endeavored to control inflation through fiscal austerity and opened up the economy to the market. Taxes were lowered, loans were more available and foreign investment was encouraged. Changes did not address rural poverty or the bureaucracy. Investment expanded from 1994-1995 but it was often undisciplined. Industry expanded as well though there were also many casualties. Manufactured goods became cheaper relative to farm goods and previously scarce consumer goods were more readily available. GNP growth per capita increased slightly in the 1990s from 5.8% 1980-1990, to 6% 1990-2000, and then declined to 5.2% in 2,000 (World Bank, 2002). Growth averaged 5.5% from1995-2002 (World Bank, 2004). Growth in 2,000 reached 6% according to the CIA (2002). Advances were in the service sector more than in the industrial sector of the economy.
Liberalization, was the opening up of markets in the Indian economy- from a closed or protected economy to an open economy. India encouraged free trade by opening its doors both inside & outside the country. In 1991, the Government of India liberalized the Indian economy on account of political and economic compulsion. Liberalization comprised of a series of policy measures and allied measures. The industrial policies took a major shift from a protected economy to an open economy. It also involved a revision of industrial Licensing Policy through which the economy did away with License Raj.
Thus since 1991, licenses were required only for certain strategic and defence items which were exclusively reserved for the government. This resulted in the creation of more companies, goods & services. And. In turn gave a boost to advertising.
FERA- Foreign Exchange Regulation Act Maximum restriction of foreign money coming into the country and Indian money that goes out. Regulation & policies are laid down by FERA. FEMA- Foreign Exchange Management Act (1993). FERA changed to FEMA in 1993 & looked into management facilitating act. FEMAs impact on Advertising- Due to FEMA, there were tie-ups, joint ventures, clubbing of companies.
The FEMA, facilitated joint ventures and collaboration in the advertising industry. At present, every agency has a tie-up with a foreign counter part. This increases their global reach and provides them with greater revenue. MRTP- Monopolies & Restrictive Trade Practices Act of 1969. Section 36 of the MRTP Act has special relevance to the advertising industry. It deals with deceptive advertising, misleading advertising which exploit the customers. The entrepreneurial freedom provided by liberalization released the blocked up growth impulse of Indian industry and business. Till now, entrepreneurs were spending more of their energies in securing industrial licenses. Now, with the licensing hurdle pushed out of their way, they could readily enter the industries of their choice and concentrate on managing the same. Allied Measures 1) Opening for foreign goods & services. 2) EXIM- Export & Import
The Govt. of India supports exports & imports to facilitate liberalization. The exporters are given financial subsidies to market their products. Similarly, import subsidies are also provided for export oriented industries. 3) Privatization of Public Sector- Since liberalization, many public sectors units have diverted their share holdings to include private participation (e.g. all banks privatized). More commercialization/ Competition = Advantage
4) Foreign direct investment Is being encouraged in the corporate sector. Such an investment increases the scale of operations and advertising potential. 5) Foreign institutional investment Refers to the practice of foreign mutual funds, insurance funds pension funds, investing money in India. Such an investment expands the financial strength of the economy and thus increases the scope for advertising. Hence it can be concluded that liberalisation has given a lot of strength and potential to the field of advertising. It has widened the advertising frontiers and elevated it to the global level. Liberalisation has in fact acted as a CATALYST to promote. (Catalyst = anything that speeds up the reaction)
Developments as a result of the new entrepreneurial freedom : The Sea change in the Industrial, Business & Marketing Environment Entrepreneurial freedom vitalises the industrial scene: i) Rush of entrepreneurs. ii) Spate of mergers/acquisitions/takeovers - corporate enhance size & synergy. iii) The diversification rush. FDI goes up & influences investment pattern in industries.
Ascendancy of multinationals in the Indian Markets: i) MNCs acquire majority equity in their Indian enterprises & Joint Ventures. ii) Many MNCs enter India anew. iii) MNCs become big players even in core industries. Banking sector comes under competitive Environment: i) Competitive existence foisted by deregulation. ii) Onslaught from new private sector banks with superior technology and aggressive marketing strategies. iii) Capital markets, Financial Institutions, Mutual Funds & NBFCs compete with banks. iv) Public sector banks came under severe pressure & are forced to operate as viable, commercial institutions. Insurance sector too experiences competition, with new private players Capital markets undergo radical change: i) FIIs enter Indian capital markets in a big way. ii) Foreign brokers closely follow the FIIs. iii) NBFCs register growth & form alliances with global finance companies. iv) Growth of private mutual funds. v) Indian firms raise capital globally & form alliances with global financial firms. vi) Indian capital markets get integrated with global capital markets.
Financial services emerge as a major business: i) Emergence of many new financial services and financial service companies. ii) Business firms spot financial services as a business & float finance service companies of their own. Private sector dominates the economy: i) Even in core/infrastructure areas, every sector opened up to private enterprises such as Oil, Energy, Mining, Telecom, Road construction, Civil aviation, Defence production, ports. ii) Import trading becomes a fresh business opportunity for the private sector.
A spate of corporate mergers/acquisitions/ takeovers & amalgamations expressed the new entrepreneurial freedom: 1. Merger of Doom Dooma, Tea Estates, KGF & Kissan into Brooke Bond. 2. Merger of QIL with Ponds: Quest International India Ltd.(oil) 3. Merger of Ponds with HLL. 4. Cement Consolidation by Lafarge, Ambuja & Grasim. 5. Telecom Essar & Hutchinson merge. 6. HDFC absorbs Times Bank.
7. ICICI Bank takes over Bank of Madura. 8. Tata Tea acquires Tetley. 9. Ranbaxy acquires Bayers. 10. Hindalco buys over Indal. 11. Indian Rayon acquires Madura Garments. 12. Tatas & Birlas merge. Ascendancy of Multinationals in the Indian markets: The removal of FERA restrictions & the liberalization of FDI enabled MNCs, who were already operating in India to raise their equity in their Indian enterprises to 51%. While the MNCs who were already in India have been consolidating their position. Other MNCs entered India anew & many of them were in alliance with an Indian partner.
Banking Sector comes into a Competitive Environment: Enormous changes in the banking sector. Public sector banks are under severe pressure. Competitive existence foisted by deregulation. Competition in deposits because of interest rates being deregulated by RBI- - loosens the control on interest rates on deposits. - permits banks to make differentiated offers on deposits. - reduces multiplicity of rates. - totally deregulates interest rates on deposits of over 2 years. - Deregulates interest rates on NBFC deposits. Banks suffer loss of business due to dis- intermediation. Public sector banks lose their re-eminence in merchant banking since the line is now opened to the private sector. The onslaught from NPSBs - RBI issues licenses to start NPSBs to ICICI,UTI,HDFC,IDBI, the Times Group, the IndusInd Group. - NPSBs create differentiation & the distinctive advantages and make the task difficult for the public sector banks and the old generation private sector banks. - NPSBs bring in new technology, new products, greater sophistication in banking, better customer orientation, cater to diverse needs of the clients, usher in an era of automation, adopts aggressive business role like the foreign banks.
Insurance Sector Too Experiences Competition: Insurance too has been thrown open to the private sector and the Insurance Regulation & Development Authority (IRDA) has been set up for regulating the business. This development has led to the re-entry of private insurance companies in India after 44 years. HDFC Standard Life Insurance became the first private sector life insurer and ICICI- Prudential, the second. Birla Sun Life Insurance, Max New York Life Insurance and SBI Life Insurance closely followed.
The world of today is changing fast. India is no exception. Especially after the opening up of the economy, the pace of change that India and its people are experiencing in their socio-cultural milieu is mind boggling. India, with its wide diversity, offers a fascinating scope to study the host of changes which developmental activities have brought about in its social & economical framework. The fact remains that the profile of the Indian market is vastly different from what it was earlier.
With the opening up of the Indian economy, marketers today are facing a barrage of new challenges and opportunities; the Indian market is emerging as a dynamic and competitive area where the only thing that is permanent is change. The Indian market is going through a period of upheavals. The winds of liberalization or the opening up of the market have brought about changes that would have been unimaginable a decade ago. As barriers come down, new players both from India as well as abroad are entering in different products. Presently there are many national as well as international manufacturers in consumer durable products. They are fighting an intense battle to get a foothold, while the existing players are putting in all their counter strategies in this battle for survival. The battle is on across all the products- be it consumer nondurable, consumer durable or the service industry though the degree or nature of battle may vary individually. Market Changes in Force 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 are as follows: - 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 (MNCs) 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 behavior. 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.
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. The scenario of the emerging Market: Liberalization, privatization, globalization in India i.e. geographic shrinking and urbanization. Quality is important in marketing. Technology- ATM centers, vending machines. After sales service( ASS): Example: Whirlpool educates the masses
Customer relationship management: Customer is to be kept in the core of the business. Example: Feedback form, Reward programs Buying pattern: Example: Malls, family experience (outings). Because of this buying pattern changes. Example: Crossword, Planet M, Barista, CCD etc. Affluence Information/ Education Leisure, Nuclear family Health, lifestyle, Convenience, Speed and time Hotel, Insurance Clothes, Fashion, Food Pubs, Coffee Fitness, Stress, Spa Puja Online
The following changes came in post- liberalization: Standard of living Preference & brand buying Lifestyle Retail culture Mall Culture Global goods and services Plastic money Credit culture Adventure buying E-commerce Designer wear Peer Group
Effects of Advertising: Maslows hierarchy of needs Advertising impacts attitudes, behavior and perception, needs, lifestyles, societal norms, learning etc. Needs- Needs and wants always keeps on increasing Learning- Some knowledge and information is what the person wants and can be used for making a decision. Information may be positive or negative. Reduces risk factor by gathering information. CUE- hint, free demonstration is on. Response- information is received. Reinforcement- satisfied by the information Classical condition- we want only one thing (involve ourselves in that category), things get acclimatized and we get habituated. Habit- what we adopt. Example: Surf, Colgate
Instrumental Condition- coming back to the person again and again. Example : Jeans- we you are happy with the product you reward by buying it again. Cognitive behavior- learn- brand ambassador, gather information and based on that information you take the decision. Stimulus Discrimination- Example: Vicks, Huggies etc. Product synonymous with that product category. Perception- the manner in which you perceive. 1. Placement 2. Positioning 3. Differentiation Societal Norms and Lifestyles: Jain
Advertising has been defined as any paid form for non-personal presentation and promotion of ideas, goods or services by an identified sponsor and more narrowly as any human communication intended to persuade or influence buyers in their purchase decisions so as to modify the attitudes &/or behavior of the receiver of the message. Advertising lies at the juncture where culture and the economy interact: its primary purpose is to sell products and services by stimulating purchasing behaviour and it does this by using strategies that rework culture, creating aspirations and new desires for products. The major environmental factors that impact advertising are: the economy, demography, culture, social class, the political and legal system, technology & the environment Advertising is itself a cultural product which increasingly affects social attitudes, defines social roles, and influences cultural values. Influenced by these factors advertising evolved and developed a particular profile in Indian society as a means of stimulating the consumption of products generated by new and expanding industries. In recent decades advertisers from the industrialized nations have increasingly targeted international markets, expanding the consumption of foreign products and bringing about widespread cultural change. Advertising in the Indian context ushered in several changes and new strategies used to target the Indian market. It also marked the entry of foreign businesses and advertising agencies into India. Benefits of Advertising: Advertising benefits several groups of people in society such as: Manufacturers Retailers Consumers Sales force Society & Economy Benefit to Manufacturers: 1. Stimulates Demand stimulates demand by pre- selling the product/service. 2. Stabilizing Demand - through special discount package offers during off season & offering other uses of the product during off season. 3. Increases the width of the market helps reach national
4. Economy advertising is the cheapest tool of mass communication so as to reach a number of consumers quickly. Advertising saves both time & money 5. Large scale economies Enables to increase the size of operations & thus benefiting manufacturers by giving them benefit of large scale economies. 6. Quick Sales turnover As the sales are quick, warehousing & storage costs are reduced. 7. Innovation and Research & Development Since advertising persuades the masses to try a product/service; it gives manufacturers the confidence to innovate & develop new products & services since advertising is an effective mass persuasion technique. 8. Builds Brand Loyalty & Brand Image Advertisings greatest advantage is its value addition that makes people loyal to the brand. By building a Brand Personality, advertising creates a brand image that cannot be developed by competitors & distinguishes the brand from the competition. 9. Builds Brand Equity A strong brand franchise is one of the most priceless assets in a companys balance sheet. Brand equity involves increasing the value of the brand throughout its life. This begins with positioning the brand and then carefully repositioning it over the years. Repositioning fine tunes a brand to the changing times & reduces consumer fatigue & boredom. 10. Encourages Competition Advertising makes room for more players to enter the market & breaks any monopoly of long standing brands and thus allows small manufacturers to enter the market. 11. Builds Corporate Image Institutional advertising promotes the image of the company as a marketer, employer & sound financial investment. 12. Improves Dealer support: Manufacturers have to pay lesser margins to middlemen for well advertised support. It helps to pull in the consumers to the retailers & hence retailers are willing to stock products. Also the various attractive trade offers benefit the retailers. Thus selling in & selling out both work well. 13. Crisis management Many companies face a crisis sometime or the other and if they have not built a desirable image, they collapse. Advertising helps companies to tide over the crisis, e.g. Cadburys & Coca Cola. 14. Defends a companys position Advertising continuously helps sustain your market share and defends it from the competition. Benefits to Retailers: 1. High Sales Turnover Retailers usually have limited shelf space. They prefer goods & services that are fast moving and do not occupy their shelf space for long periods. 2. Fixed Prices Advertised products have fixed prices and this improves the reputation & service of retailers to customers. 3. Self-service The spate of departmental stores, super markets that have come up have good display of advertised products on their shelf space which the customers recognize and connect with the products advertisement. Thus the retailers effort is minimized. 4. Builds reputation A retailer who stocks well- known and popular brands is considered more reputed than the one who does not do so. The retailer is projecting his/her image as a prestigious outlet. 5. POP & other display material Manufacturers give retailers attractive POP & display materials which improve the appearance of the store. Benefits to Consumers 1. As a source of information- informs about new products. Educates the consumers about the products/services & its uses. 2. Entertainment 3. Consumer choice 4. Ensures fixed price & consistent quality 5. Lowers product prices 6. Increases consumer satisfaction 7. Planning household budgets- discount offers information, trial through discount coupons keyed in to the advertisement 8. Increases aspiration levels- makes consumers desire new products
Benefits to Salespeople- Advertising informs consumers about products & services, making it easier for the sales force to get consumers to listen to them. Thus advertising pre- sells products & services. Credibility is established. Benefits to Society & Economy- Stimulates the growth in economy- Advertising stimulates demand, encourages research & development, fosters a competitive environment. All this leads to a vibrant economy. Standard of Living- Advertising increases aspiration levels which in turn improves the standard of living. It also encourages production, increases employment and therefore increases wages & salaries.
Reflects societal values- Advertising communicates about varied cultures, attitudes & values through the advertised messages. Provides employment- Advertising is a well developed profession that provides an opportunity to creative writers, artists, among others. Supports media- Advertising provides sustenance to media. Public Service advertising- PSAs create awareness in people regarding various social issues and improves our social life.
Advertising has its effect on the consumer demand, trade cycles, innovations, quality & Merchandise variety & media prices: Advertising & Consumer Demand: There are several success stories that prove the effectiveness of advertising in influencing consumer demand- one of the famous stories is of the success of the low-priced detergent Nirma which became popular due to its extensive advertising campaigns. Advertising can stimulate demand, it cannot create it. Advertising works if other socio- psychological factors are supportive and if there is a favorable trend for the generic product. Advertising & Trade Cycles: Trade cycles are defined as regular oscillations in the level of business activity over a period of years. Recession, depression, recovery, peak/boom are the stages in a typical business/trade cycle. The influence of advertising on the business cycle has been very debatable. Some critics argue that advertising is one of the reasons of a downturn in the business cycle as the money could be spent in more productive activity. But others argue that advertising influences consumers and increases their confidence. And, in a highly competitive market advertising helps to increase consumer demand by influencing consumers. Advertising & Innovations: Advertising pre- sells the product. Through advertising manufacturers reach a large segment of the market, capture consumers loyalty and gain returns. This encourages investment in research and development. Innovation is the key to success in todays competitive world. With advertising, product innovations can be commercially successful. Advertising, Product Quality & Variety: Advertising has an immense though indirect
impact on product quality and variety. To stimulate demand, advertising must communicate selling points of the product. It has to convince consumers that the advertised brand is better than others. The process of giving a distinctive image to the brand results in product improvement. Brand & product proliferation increases variety and range of products. And, it also offers consumers a choice to select brands that best meet their needs and offer greater satisfaction. Advertising also ensures consistency in the quality of branded products. Effect on the value of products. Effect on prices. Effect on competition. Effect on consumer demand. Effect on consumer choice. Effect on the business cycle.
To identify products and their source and to differentiate them from others. To communicate information of the product, its features and its location of sale. To induce consumers to try new products and to suggest reuse. To stimulate the distribution of a product. To increase product use. To build value, brand preference and loyalty. To lower the cost of sales.
Role of Advertising from the following points are discussed below: 1) Consumers point of view 2) Marketers point of view 3) Medias point of view 4) Social point of view Consumers perspective a) Advertising as a Communication medium and helps create awareness. b) Advertising acts as a guidance to tell consumers how to use the product. c) Advertising persuades consumers to buy the product.
d) Advertising motivates a consumer with its benefits. E.g. fairness, discounts etc. e) Advertising addresses the welfare of the consumer by talking of the overall prosperity. Some ads have all of the above points e.g. ICICI, Harpic, Vanish. Marketers Perspective a) Gain commercially by using free gift strategies etc. b) Overcome competition by acquiring new customers as well as retaining old customers. c) Brand Building to create preference for the brand. d) Institutional Building by indulging in corporate social responsibility such as P&Gs Re.1 for educating a child, Surf Excel scholarships etc.
Medias Perspective a) Sustenance- without ads ,there is no media. b) Creativity- enhances the creativity of each media. c) Revenue- provides money to the media. Social Perspective a) Lifestyle changes helps build attitude. b) Elevates the standard of living c) Consumer welfare (state of mind)- when you crave for something, yet cant buy it. d) Consumer choice e) Price reduction f) Employer- through media jobs, allied services, agencies.
Poverty: Poverty is both relative & absolute. Huge in size. Because of advertising, there is sale and because of sale there is production and to produce you need to employ. Illiteracy/Literacy: Ads motivate people to study. Employment: Jobs such as media jobs like photography, production etc. Child labor: A lot of countries support child labor while some do not. The other issues are earnings, savings, investments.
Non-inclusive growth: Rural areas are not growing. Agriculture growth rate is less than 4%. ICICI opened ATMs in rural areas. The current economic crisis faced in our country is one of non-inclusive growth. This refers to the growth and income disparity between urban and rural masses. The urban areas enjoy high incomes due to the boost in the service sector. In the 90s we were known as an agriculture economy country. Now India is known as Service economy. At present the overall economic growth is predicted at the rate of 9.5% and this likely to shoot up in the near future but the growth in the agricultural sector is less than 4%. Today service sector is known as the emerging market. Such in the economic growth process, a disparity results in non inclusive growth, wherein, the rural population is not included. The govt. has introduced many schemes such as rural employment guarantee schemes to ensure growth in rural India. Special effort is being undertaken by NGOs and private sector banks to promote awareness among the rural masses. Such measures would contribute towards the inclusion of the rural population in the economic growth process. BIMARU- Bihar, Madhya Pradesh, Rajasthan, Uttar Pradesh- Robbery, theft, pilfer- land has been taken away or stolen & people from those states move to other states.
Advertising & Media Prices: The price of media and its quality are largely influenced by advertising. We note the number of advertisers that dominate popular print, broadcast and other media.