Consumer durables flying off the shelf? Not exactly

NEW DELHI: Sitting in our living rooms, reading the papers that say the economy is galloping at 8.3% a year, seeing it shine, learning of Wal-Mart’s entry - one would think India is consuming voraciously. So it is, but perhaps not with the degree of hunger one would assume, especially when it comes to consumer durables.

Indeed, going by the IMRB Baseline Survey 2006, which covered 6,40,59,000 households across the country, the penetration of common durables is poor across the top 8 cities - Delhi, Mumbai, Pune, Kolkata, Ahemdabad, Chennai, Bangalore and Hyderabad. In absolute numbers, the story is worse in the small towns (of both 10-40 lakh and 5-10 lakh population).

Clearly, durables such as flat TVs, washing machines, air-conditioners, computers and microwaves have still to capture the imagination of the metro dwellers in a big way. Of the iPod, one had better not say.

The penetration of fully automatic washing machines (top loading) in the 8 metros is 3.5%, while that of semi-automatics is 10.1%. Air conditioners’ reach is 3.8% in the metros and 1.3% in semi-urban areas. Colour television is the only durable to have at least realised the potential of the markets in the metros as well as mini-metros. While all India urban reach is 62.3%, in the eight metros, it is 75.2% and in towns with 10-40 lakh towns 65.3%.

Figures for the other durables, however, are depressing.

Given this scenario, the task of the marketers seems not only hard but a challenging one, points out Puneet Avasthi VP-media & panel, IMRB International.

Sandeep Tiwari, head, marketing, LG Electronics India explains why India allures like a beautiful dream but can disappoint. There are close to 20 crore households that theoretically represent India’s true business potential. “Many multi-national companies get carried away with 20-crore household figure. But the reality is just over 5 crore households that can be tapped; the rest are either not electrified or not accessible on some count or the other. Which means 40% of the market is not addressable.” That takes away a fantastic opportunity from the hands of marketers.

Television has the highest penetration among consumer durables at 28% (IRS 2006), which itself is not very impressive. 

One reason for the poor penetration is the mismatch between the durables’ functionality and the consumers’ need. A case in point is the washing machines category. One may have assumed that fully automatic would find better acceptability, but semi-automatics have a larger share.

“Indians have a philosophy and a science to washing clothes,” says Pradeep Tognatta, director, sales, Samsung India. Kitchen clothes cannot be washed along with the other clothes.   

Therefore, the water is drained from the tank and refilled to wash bigger clothes. Colours run fast, so white clothes are washed separately. The best mechanical approximation to that approach is the semi-automatic, and hence people prefer semi-automatic. The problems are the same in the South. Technology is convenience and therefore cities such as Bangalore, go for the latest.

Like washing machines, air conditioners also come with their own problems, the major one being electricity consumption. “On an average, an air-conditioner runs for 8 hours, consumes electricity worth Rs 1,200-1,500,” says Tiwari of LG.

Refrigerators, too, are consumed differently and that largely determines why direct cool is more successful. When the electricity goes off, the thick ice plate that forms in the freezer compartment keeps the fridge cool. However, in a frost-free, there is no such formation. The freezer compartment is cut off from the main body, so when the electricity goes, cooling drops significantly. Secondly, since a large part of India’s population is vegetarian, it sees little use for a freezer, since it used for storing meat products.

Hence, the expansion requires a tightrope-balancing act with careful planning. And adaptation is the key.

Whirlpool had launched Genius, direct cool refrigerator, keeping in mind the space in rural homes. Genius is a single door refrigerator, 180 litre in capacity and comes with a utility drawer-cum-pedestal to help store vegetables that don’t need refrigeration. Whirlpool’s range of refrigerators maintains cooling retention of 1500 minutes during power cuts.

Samsung, on its part, has added features such as the cool pack and an inbuilt stabiliser to deal with the power fluctuation.

Besides trying to create a synergy between the product and the consumer’s needs through customisations, the marketers have an additional task of catering to the metros and the semi-urban areas as well.

Rural markets are a challenge, agrees Shantanu Das Gupta, VP-marketing, Whirlpool, India. The major challenge is poor development of infrastructure. “Availability of electricity continues to be a major issue as far as refrigerators are concerned. With respect to washing machines, this is compounded with the lack of piped water supply.” Whirlpool’s distribution currently includes coverage of towns with +1 lakh population.

For Samsung, the task is to develop the markets in metros and semi-urban areas simultaneously. “One cannot be ignored for the other,” says Das Gupta. The growth and volumes are going to come from the rural markets. The company is clear on this.

Last year, Samsung had started the Dream Home Roadshow to target Tier1, 2 and 3 cities. But the emphasis remains on technology, be it the semi-urban areas or the metros. “Flat TV is expected to grow to 57% and the market share of the curved tube is declining. We have to create new markets and technology is the way forward. People have to be made aware of the technology,” says Tognatta. Therefore, Samsung includes the base models as well as the fully automatic washing machines and frost-free refrigerators for its semi-urban consumers.

Till recently, rural areas were not the focus for Samsung. It is in the past 10 months that the company has set up 20 branches and 89 sales units to cater to the small towns. “We expect 30-35% of our sales to come from semi-urban areas. The target is to reach more than 200 towns by the end of the year,” avers Tognatta.

He calls this district marketing. “Our sales office plans and executes roadshows. You will be surprised how the Tier 1 cities are consuming durables. In Lucknow, Samsung sold 500 LCD units in three days at the Coolex exhibition. And this insight has prompted Samsung to change its media mix. There is an equal emphasis on below-the-line activities. Samsung will adapt its campaigns for regional markets as well.”

LG, on the other hand, is trying to cut its advertising spend on vernaculars. “Literacy levels are still low. The best route to sell in the upcountry markets is through the dealer. The dealer is the brand ambassador,” says Tiwari. LG does not advertise on the terrestrial channel.

Avasthi of IMRB says advertisers generally do not include the terrestrial channel in their media plans and the cable penetration drops as one goes farther into cities with less population. As a result, exposure is hampered. 

Though LG has 33 branch offices across India, and boasts of a wide distribution network, Tiwari says its priority is the metros. “By selling high-end products, we will expand our business and of course upgrade consumers. This will help us offset cost erosion.”

LG’s marketing budget for this year is Rs 200 crore, of which advertising would take Rs 100 crore. Traditional media will comprise 60% of the total spends. In future, however, LG would steadily decrease its dependence on mainline media and invest more on the shop floor and the point of purchase.

Like LG, Samsung is nurturing its markets in the metros, too. Samsung plans to have 150 brand shops by the end of this year. Improve the multi-brand dealers from 500 to another 300. Samsung expects to sell 8,000 units of side-by-side by refrigerators by the year-end. LG, on the other hand, is not too optimistic. “People are saying that side-by-side refrigerators will sell 10,000-15,000 units, but I suspect so. The segment is growing at a snail’s pace,” says Tognatta.

The way forward, says Tiwari of LG, is to cater to the Indian cultural experience.