Next battle for consumer market will be fought on technology turf

The consumer market has seen a healthy growth propelled by a compounded annual growth rate of 14% in private consumption over the past many years.

There has been a significant shift in consumer spending towards discretionary products, with durables being the one
of the fastest growing categories.

The Indian consumer base is supported by a vast rural market that accounts for 70% of the country’s population, a rise in rural income and the changing consumption basket.

As consumer product companies compete among themselves to get a larger share of the consumer pie, technology and innovation will play a key role in their future growth.

Conventional strategies of physical distribution and communication though will no longer guarantee the pace of growth or success seen in the past.

Companies will try to find easier and cost-effective ways to reach out to a larger base of consumers.

In future, consumer products players are also likely to invest in technologies that bolster their business processes.

Technology has already played a pivotal role in the marketplace over the years, changing the face of other Indian industries such as banking. Leading players such as SBI and ICICI Bank have collaborated with telecom players to offer remote banking services.

This has led to a phenomenal rise in the number of mobile payment users, from 400 in August 2010 to 11 million in May 2011. In the coming years, technology is expected to play a pivotal role across four strategic dimensions of consumer products business:

Multichannel retailing: Online retail in India is expected to penetrate categories beyond apparel and electronics, as companies attempt to sell essentials such as grocery and personal-care products online.

The online retail market has significant potential and is estimated to reach Rs7,000 crore by 2015.

Further, India’s 80 million internet user base is expected to reach 240 million by 2015, while the mobile subscriber base of 800 million is expected to touch 1.2 billion by 2014.

As information and online payment becomes more prevalent, companies will be able to reach out to more and more consumers directly saving time and cost.

REI Agro, which operates grocery retail chain 6Ten, plans to launch My Grahak, an online platform. Future Group has started selling personal care products through its online channel Futurebazaar.com.

Digital marketing: Leading companies will invest more in this technology in future to interact directly with tech-savvy consumers.
Online advertising by FMCG companies increased by 57% annually between 2006 and 2009, and is expected to grow by 30% annually.

With the strong potential of smart phones and 3G-enabled rich content transmission, mobile commerce is poised for increased growth.

Companies are expected to increasingly explore the power of social networking as consumers increasingly use peer recommendation to select a brand.

FMCG majors such as Hindustan Unilever are banking on social networking sites such as Facebook for its Axe brand in a bid to connect with their target audience directly.

HUL’s Axe fan page had 1.6 million members within a year of being launched.

The increasing reach of internet in India will allow innovative companies to talk to a wide set of consumers in a manner not imagined by others before.

Ask Dr Bob Wagstaff, the 75-year-old inventor of the Orabrush. After being rejected by the top oral care companies and retailers, he set about starting an ad campaign on YouTube with a handful of students and a non-existent budget.

With more than 38 million views of its YouTube channel, the ad spots of Orabrush have reached the No. 2 ranking for the number of subscribers of a sponsored YouTube channel.

From sales of about 100 units with the first advertisement, the company has now sold more than 1 million units across more than 100 countries in the last year.

Product innovation: Leading players will focus on acquiring technological know-how to cater to the growing demand for premium products in India.

Emami acquired the exclusive rights of ‘Multi Plant Stem Cell’ technology to manufacture and sell products under the Pure Skin brand in India, targeting revenues of `40-50 crore in the first year itself.

More and more food companies are working on new products on a platform of health to gain consumes.

The companies that will win will be the ones with better technology to move these products from the lab to the table.

Back-end processes: Technologies that aid in managing inventory, capturing sales data, forecasting demand and generating automatic replenishment to reduce time-to-market are likely to gain prominence.

Inventory tracking technology such as RFID, which achieved success in developed countries, is expected to see adoption in India. Metro Cash & Carry already has plans to expand its Tag It Easy! RFID programme in India.

Meanwhile, Quick Response codes are expected to achieve widespread use in the country with the growing adoption of smartphones.

With sustainability becoming integral to corporate strategies, the adoption of cost-effective green technologies that reduce energy consumption, emission levels, and wastage is also expected to increase.

The next wave of battle for the consumer market will be fought on technology rather than anything else.

— The writer is partner & national leader, retail & consumer products, Ernst & Young