Two income groups account for only 3 per cent of the population, the report estimates that by 2020 their numbers will double to 7 per cent of the total population. The rich will grow to approximately 30 million in 2020, which is more than the total population of Sweden, Norway and Finland put together. Similarly, the upper middle segment will be a population of about 70 million in 2020, which is more than the population of the UK.
Over the next ten years, these groups will constitute large enough numbers to merit a dedicated strategy by FMCG companies. Companies focused on selling primarily to the mid segments. Often, there is no clear segmentation being offered. Players will do well to clearly separate their offerings for the upper and mid segments. The two should be treated as separate businesses with a dedicated team and strategy for each.
Categories are evolving at a brisk pace in the market for the middle and lower-income segments. With their rising economic status, these consumers are shifting from need- to want-based products. For instance, consumers have moved from toothpowders to toothpastes and are now also demanding mouthwash within the same category. Consumers have started demanding customised products, specifically tailored to their individual tastes and needs. The complexities within the categories are increasing significantly. Earlier a shampoo used to have two variants — normal and anti-dandruff. Now, you have anti-dandruff shampoos for short hair, oily hair, curly hair, and so on.
The trend towards mass-customisation of products will intensify with FMCG players profiling the buyer by age, region, personal attributes, ethnic background and professional choices. Micro-segmentation will amplify the need for highly customised market research so as to capture the specific needs of the consumer segment targeted, before the actual product design phase gets underway.
The beauty products market will grow by 20 per cent per annum as a result of the changing socio-economic status of consumers, especially women. Middle-class women are now more conscious of their appearance and are willing to spend more on enhancing it. Products such as color cosmetics (growing by 46 per cent) and sun care products (growing at 13 per cent) have latched on to this trend rapidly.
Booz defines the bottom-of-the-pyramid or BoP consumers as those who earn less than Rs 2 lakh per annum per household. The group constitutes about 900 to 950 million people. While the middle class segment is largely urban, already well-served and competitive, the BoP markets are largely rural, poorly-served and uncompetitive. A lot of the basic needs of BoP consumers are yet unmet: Financial services, mobile phones & communication, housing, water, electricity and basic healthcare. And so there is untapped opportunity.
The aspiration was always there, and increasingly money is coming in. The segment is being targeted primarily with lower-priced products, say, a Rs 2 Parle-G. But increasingly it will need products that deliver more value — say, a Rs 5 product that serves as dinner and also delivers nutrition (vitamins, proteins etc). Companies like PepsiCo and Tata are working on such products.
The rural BoP population is estimated to be about 78 per cent of the total BoP population. The segment is becoming an important source of consumption by moving beyond the ‘survival’ mode. As a result of rising incomes, the growth of FMCG market in rural areas at 18 per cent a year has exceeded that of the urban markets at 12 per cent. While the rural market comprises only 34 per cent of the total FMCG market, given the current growth rates, its contribution is expected to increase to 45-50 per cent by 2020. It will require tailored products at highly affordable prices with the potential of large volume supplies.
Products such as fruit juices and sanitary pads which had no demand in the rural markets earlier have suddenly started establishing their presence. While most FMCG players have succeeded in establishing sufficient access to their products in rural areas, the next wave of growth is expected to come from increasing category penetration, development of customised products and up-trading rural consumers towards higher-priced and better products.
Another big trend that has been the highlight of the study is the emerging idea of many Indians. The report says that despite the complexities of language, culture and distances, the Indian market has largely been seen as a homogenous market. There’s one product for the entire country — the same Maggi noodles for Karnataka and West Bengal, or the same Diet Coke for Punjab and Assam. Besides, these products have the same advertisements that run across the country.
Increasingly, FMCG players are realising that India is not a homogenous market and consumer preferences vary significantly. By 2020, Maharashtra’s GDP will exceed that of Greece, Belgium, and Switzerland, and Uttar Pradesh’s economic size will exceed that of Singapore and Denmark. So, having a dedicated firm for Maharashtra or Gujarat can prove to be a realistic and profitable proposition.
Companies are coming up with regional products. Hindustan Unilever has teas which are very different in one state versus the other. Pepsi has a different product in Andhra Pradesh which is not sold anywhere else. Differentiation used to happen at the country level; now you will see at the state level.
FMCG players need to grow ‘regional’ in their thinking and move towards an increasingly decentralised operating model in India. As consumer preferences differ across regions and states, companies may follow a regional strategy in terms of product ingredients, positioning, marketing campaign, and channels. Overall, decentralisation or regionalisation will become an increasingly important theme for FMCG players.
Excerpts from The Economic Times of India