Chapter – Iii 3.1.1 Consumer Durable Industry
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CHAPTER – III 3.1.1 CONSUMER DURABLE INDUSTRY – AN OVERVIEW India in its 62 years of journey has seen manifold increase in the income of its denizens (Rs. 38,084 as on 2010) and this has led to paradigm shift in the purchasing behaviour of the people here. There is a discernible shift in the consumer’s preference in favour of higher end, technologically superior branded products, the demand being spurred by increasing consumer awareness and preference for new models. This shift is also because of the increase in manufacture of branded products and narrowing down of price between branded and non-branded goods. Competition has forced the companies to offer efficient after sales service and support and this, in turn, has swayed customer preference for branded products. Post liberalization there has been inundation of goods transcending the borders and the customer has a wider choice, breaking the shackles of the consumers regarding limitations of choices. Indian consumer durables market used to be dominated by a few domestic players like Godrej, Allwyn, Kelvinator, and Voltas. But post-liberalization many foreign companies have entered into India, dethroning the Indian players and dominating the market. The major categories in the market are CTVs, refrigerators, air-conditioners and washing machines. The rural market is growing faster than the urban markets, although the penetration level in rural area is much lower. The CTV segment is expected to be the largest contributing segment to the overall growth of the industry. The rising income levels, double-income families and increasing consumer awareness are the main growth drivers of this industry. In addition to them the young nature of population and easy finance options are also fuelling the market and its dynamics. Consumers today are more indulgent in market place than their predecessors. There 75 has been shift in the definition of needs and wants. For example a mobile phone is more of a need today then a want. Westernization has influenced the psyche of the Indian customers to a degree. This report is an attempt to reflect the changes in the consumer buying behaviour in the Indian Market especially in home appliances buying. Durable goods are those which don‘t wear out quickly, yielding utility over time rather than at once. The consumer durables industry can be broadly classified into two segments: Consumer Electronics and Consumer Appliances. Consumer Appliances can be further categorized into Brown Goods and White Goods. Consumer Electronics are Mobile Phones, Televisions, MP3 Players, DVD Players, VCD Players, etc., White goods are Refrigerators, Washing Machines, Air-conditioners, Speakers and Audio Equipments, etc., Kitchen Appliances or Brown Goods are Mixers, Grinders, Microwave Ovens, Iron Box, Electric Fans, Cooking Range, Chimneys , etc., The rural consumer durables markets’ annual growth rate is 30 per cent, according to a study by an industry body. The market will grow up to 45 per cent in rural and semi-urban India by 2011, due to improved income and better living standards among rural people. The total size of the consumer durables market stands at US$ 6.72 billion and will reach US$ 11.2 billion by 2015. Mobile phones, LED televisions and music systems, which include fancy items such as the iPod, are some major growth drivers. Lighting solutions company BPL Techno Vision has launched its rechargeable light emitting diode (LED) lantern 'BPL Chirag' for the domestic 76 rural market. The product has been launched in Uttar Pradesh in the first phase due to its large geography and rural household base. In terms of Purchasing Power Parity (PPP), India is the 4th largest economy in the world and is expected to overtake Japan in the near future to become the 3rd largest. Indian consumer goods market is expected to reach $400 billion by 2010. India has the youngest population amongst the major countries. There are a lot of young people in India in different income categories. Nearly two- thirds of its population is below the age of 35, and nearly 50 % is below 25. There are 56million people in middle class, who are earning US$ 4,400- US$ 21,800 a year. And there are 6million rich households in India. The upper-middle and high-income households in urban areas are expected to grow to 38.2 million in 2007 as against 14.6 million in 2000.Rural sector offers huge scope for consumer durables industry, as it accounts for 70% of the Indian population. Rural areas have the penetration level of only 2% and 0.5% for refrigerators and washing machines respectively. The urban market and the rural market are growing at the annual rates of 7%-10%and 25% respectively. The rural market is growing faster than the urban market. The urban market has now largely become a product replacement market. The bottom line is that Indian market is changing rapidly and is showing unprecedented business opportunity. The Indian consumer durables industry has witnessed a considerable change in the past couple of years. The market size (value) of the consumer durables industry has seen an exponential growth in the past few years. The $27.38 billion electronics and Home Appliances Industry in India could become a $ 40 billion Industry by 2012, growing at a CAGR of 15-20%, provided there is support from the government, said a joint study conducted by ASSOCHAM and Ernst & Young. The study titled 'Electronics and Appliances Manufacturing - 77 the India Opportunity" said the Industry has growth by 7.1% over the previous year in rupee terms. ‘’Considering that 2009 was an unusually good year for the industry, companies are hopeful that a better demand would continue to bolster durables sales in the new year too. 2009 was good for these companies because of low input costs, better inventory management, and the stimulus package, pay revision of central government employees and stable prices, which spurred growth. Samsung India also expects 100% growth in the LCD category said by Ravinder Zutshi, Deputy Managing Director, Samsung India. The company expects a 30% growth this year. Every category of durables is already growing in double-digits. Even still cameras as a category has grown''1. 3.1.2 STRENGTH OF THE INDIAN CONSUMER DURABLE SECTOR During FY08, volume share of the single largest consumer durable was colour TVs at 34%, followed by refrigerators and air conditioners at 19% and 15% respectively. Washing machines and other assorted consumer durables captured a share in the total volume by 6% and 26% respectively. 1. Rise in disposable income The demand for consumer electronics has been rising with the increase in disposable income coupled with more and more consumers falling under the double income families. The growing Indian middle class is an attraction for companies who are out there to woo them. 1 Namrata Singh & Amrita Nair-Ghaswalla,”Consumer durable makers pin hope on better 2010”, The Times of India, Mumbai, January 12, 2010. 78 2. Availability of newer variants of a product Consumers are spoilt for choice when it comes to choosing products. Newer variants of a product will help a company in getting the attention of consumers who look for innovation in products. 3. Product pricing The consumer durables industry is highly price sensitive, making price the determining factor in increasing volumes, at least for lower range consumers. For middle and upper range consumers, it is the brand name, technology and product features that are important. 4. Availability of financing schemes Availability of credit and the structure of the loan determine the affordability of the product. Sale of a particular product is determined by the cost of credit as much as the flexibility of the scheme. 5. Rise in the share of organized retail According to a working paper released by the Indian Council for Research on International Economic Relations (ICRIER), organized retail which constituted a mere 6 % of the retail sector in FY08. 6. Innovative advertising and brand promotion Sales promotion measures such as discounts, free gifts and exchange offers help a company in distinguishing itself from others. 7. Festive season sales Demand for colour TVs usually pick up during the festive seasons. As a result most companies come out with offers during this period to cash in on the festive mood. This period will continue to be the growth driver for consumer durable companies. 79 3.1.3 OBSTACLES OF INDIAN CONSUMER DURABLES SECTOR 1. Global companies The domestic consumer durables sector faces threat from newer companies, especially from global ones who have technologically advanced products to offer. 2. Competition Presence of a large number of players in the domestic consumer durables industry leads to competition and rivalry among companies. Threat from rivalry and competition poses a threat to domestic companies. 3. Potential markets remaining yet untapped A large segment of the domestic market, mostly the rural market is yet to be tapped. Tapping this yet untapped and unorganised market is a major challenge for the Indian consumer durables sector. 4. Substitute products/services The domestic consumer durables industry is plagued by threats from substitute products. Easy accessibility to theatres/multiplexes, especially in urban areas has turned off the viewer ship from TV to a large extent. With the advent of a horde of FM radio stations, radio sets have now substituted TVs. 5. Availability of choice The availability of a wide product line on account of most products being homogeneous, poses a threat for companies operating in the consumer durables sector. Customers have the choice of both domestically produced and imported goods, with similar features. 80 3.1.4 INDIA’S CONSUMER MARKET India is the world's 12th largest consumer market. By 2025, it is projected to be ahead of Germany, the fifth largest, according to a recent McKinsey survey.