I am just back from a three-day trip to India; I was in Kolkata to speak at the 2013 Brand Conclave. It was a terrific event. Here are a few things that surprised me:
– Low income consumers in India generally buy the most expensive cement. I had an interesting conversation with a marketing executive from one of the large players in that industry and he explained that people with low incomes seek out quality when it comes to cement. They avoid the lower priced products. When they are building a house, they want to do it right; it is an important investment. So they buy a brand they trust, which also happens to be one of the most expensive options.
This is a good reminder that brands matter to everyone and people with lower incomes sometimes buy premium brands.
– India’s retail system is incredibly fragmented. There is an astonishing number of small stores in Kolkata; on every block, it seemed, there were a dozen or more little stores, each one selling a few items. This is a massive barrier to entry for the manufacturers; it would be almost impossible for a new entrant to get distribution in so many little stores.
– Retail margins in India tend to be very small, perhaps 10%. This is much less than a typical retail margin in the U.S. or Europe. The system works, however, because inventory turns are so high; many companies call on retailers every day, replenishing stocks. If can turn over your inventory every few days, which many of the retailers apparently do, a 10% retail margin turns into real money.
– Mortgages start at over 10% in Kolkata. In the U.S., a similar load might be 4%. This is very strange. It also suggests that there is an enormous pressure to grow; it is hard to make the payments on a loan with 10% interest if the economy is weak.
– Many companies in India have a negative working capital. Retailers pay many companies immediately; when they take possession of the product they immediately pay cash. This is a terrific model for the manufacturer; you get cash immediately and pay your suppliers later. This means you have no working capital; you generate more cash as you grow. Just imagine how this works for a company like Mondelez which is stretching out some payables to 120 days.
– There is only limited health insurance in India but the system seems to work. Many patients pay at the time of care. This leads to more price shopping and negotiation. The hospital executives I spoke with didn’t find this a problem; they were proud of their efficiency and quality of care.
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I am back in the U.S. this week after my quick trip to India. It will be another busy week; in addition to my marketing strategy classes in Evanston, I’m teaching a session on developing great marketing plans in Kellogg’s Strategic Marketing Communications program and leading a seminar on new product strategy for a global healthcare company in New Jersey.
Saturday I’m moderating a panel at the Kellogg Healthcare Conference. You can read more about that event here: https://www.kellogg.northwestern.edu/conference/healthcare/
You have made some fascinating observations in your short trip Tim! Its amazing how you seem to have picked up the Indian market pulse in so little time! The Indian consumer market has many buckets and marketing/ advertising to the rural market is a different ball game altogether. Did you know painting advertisements on walls in rural areas is still one of the most effective ways of mass communication? Every village has a village head (Sarpanch) and if you can convince him about your product, 90% of your work is done – He becomes your brand ambassador! Also, the tiny general stores that you saw, are a common phenomenon across India, however the consumers in major cities are now increasingly shifting to large grocery/ retail outlets.
Reblogged this on ACT INDIA.
Tim-a relevant observation on what matters to Indians who are increasingly and eagerly seeking quality. Evidenced by the death of the Fiat and Ambassador cars that were on India’s roads for decades. And a message to corporations who seek to make inroads into India : “Accept India for what it is and not for what you wish it to be.” I wonder how many new global players are entering India to stay the long haul.? How many of them will ever become a Unilever-India- in terms of distrubution , SKU’s and price points?
Tim, I agree with your observation related to cement. I feel that the underlying reason is that people with low income generally build the house themselves and hence are particular about the brand. In other cases, it is mostly left to the builders.
Tim, I visited India three years ago and was amazed to see adverts for cement. I became slightly obsessed by the phenomena. I agree with your comment that it illustrates the role of brands to all market segments but I also feel it shows that it is possible for manufacturers to break out of the commodity cycle…a valuable lesson