Alter Product Segments to Cash on Changing Dynamics

India has over 2 million households annually earning $100,000 or more and these households are expected to grow at 13% growth rate over the next few years.

Moreover international travel along with media exposure has given Indians greater exposure to luxury. The emergence of dedicated malls such as DLF Emporio and Palladium which exclusively house luxury and super premium brands, are contributing to the growth of the segment. Prior to this hotels and airports were available real estate options.

Taking a cue from the changing market dynamics companies dealing in the consumer space are altering their product segments. For a company like Hindustan Unilever, the strategy to straddle the pyramid has ensured that it taps into each strata for society However, in recent years, HUL has been investing in equal measures in premium brands like Surf , Excel, Dove, Lipton and Pond’s like it does in kid segment brands like Rin, Lux, Sun silk and Red Label. Earlier marketing wars were fought in the BOP between brands like Nirma and surf. Today, all brands fight on an equal footing. A duel between brands in the premium end breaks out every other day when each company tries to flaunt its product as one with a better technology than the other. In marketing action is directed towards gaining a higher share of a growing premium market.

Take the case of Dove a shampoo brand which has managed to garner a share of 10% in the urban market in three years since its launch. The brand launched in India with the aim of premiumizing the highly penetrated shampoo market, has achieved 100% growth year on year since 2007. This was the only way (Premiumisation) the company could achieve a higher sales growth say industry analysts. The brand targets 25-45 olds in the SEC A category and is priced at a 10% premium to the closest beauty shampoo brand.

Lancome is at top end of the premium market (Rs 4000 plus) while Kiehl’s will be at the accessible need (Rs 1,200 plus).

In consumer durables too, it is premium end that is raking in the moolah it the LCD TV market doubling year on year durable makers expect the segment to grow to 2.8 – 3 million units this year compared to 1.4 million units a year ago. Samsung India expects to double its LCD TV volumes from 500,000 units in 200 to 1 million units of LED TV last year when it was introduced. This year when it was introduced, Samsung expects to sell 100,000 – 150,000 LED TVs.

The market size for LED TVs is expected to touch 2 lakh units this year, and for 3D TVs it would be around 30,000 units this year. We expect to have 60% of our sales in consumer electronics to come from premium products.

Growth in the sales of premium consumer electronic products is driven by the introduction of new technology which in turn is fuelling the demand to upgrade. Further rising awareness levels, growing disposable income and the affordability of high tech products are fueling the demand for premium products. Leading market research firm GfK says during January-August the industry growth in flat panels was over 70% while in split ACs it was around 63%.

Consumer durable majors are driving their premium category sales through new innovations across segments. Samsung is launching over 200 new products across product categories every year to motivate consumers’ upgrade.

What would eventually give Miele a wider reach in to the premium segment from luxury is the company’s proposed tie ups with project developers wherein the brand’s range would be used in built kitchens.

The main challenges facing the premium segment however are long gestation phase lack of quality and exclusive real estates, quality of manpower training, Import duty structure leading to impact on prices and thus margins and investment in CRM (Customer Relationship Management) tools for deeper understanding of the discerning customer. If companies get these factors right, they could strike gold in TOP. But, will this really change the shape of the pyramid in the near future? It is only a matter of time when the pyramid changes into a diamond.