Indias Rs 15,000-crore white goods market would have been Aladdins dream. Changing lifestyles and new technology are powering the growth of the replacement market for consumer durables. The segment, which barely existed a decade ago, is now growing at a rapid annual clip of 23 per cent.
To get an idea of just how big this market has become consider this. Conservative estimates peg the replacement growth in cars at 30 per cent. Replacements account for 50 per cent of total refrigerator sales. Forty per cent of colour television sales come from this the market. And the segment contributes to 15 per cent of washing machine sales.
The product segment that has seen replacement sales grow rapidly is the 2.28 million units, Rs 2,500 crore refrigerator market. According to data provided by research agency Francis Kanoi Marketing Services repeat purchases for refrigerators became significant about eight years ago.
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A decade ago, the refrigerator market grew at 21.3 per cent. Of this, 92 per cent was first-time purchase and the contribution from repeat purchases was only eight per cent. By 1992, refrigerators recorded negative growth rate of 3.6 per cent. But importantly, first time purchases were down to 86 per cent of the market with replacements accounting for 14 per cent. By 1996, repeat purchases accounted for a fourth of sales.
Within the refrigerator market, the traditional 165 litre fridge still accounts for two-thirds of the replacement market. But this reflects a change in buying patterns. Five years ago, the 165 litre replacements accounted for 80 per cent of the market.
The replacement market in refrigerators is on two levels -- informal and formal. The first segment is characterised by promotional schemes, the exchange offers that are becoming increasingly popular today. Here, the replacement is directly linked to the quality of the scheme. Three years ago, such replacements formed only 10 per cent of the market. Today, marketers claim that it constitutes between 22 to 25 per cent of the market.
Formal replacements are an outcome of a changing market environment, says N Gupta, director - marketing and sales at Videocon. Replacements in this segment are largely driven by obsolescence of product, design or features, he adds. With almost all manufacturers flaunting state-of-the-art technology, features have become the only selling point in refrigerators.
All this has affected the replacement cycle of a refrigerator. For instance, the life span of a refrigerator in India was always about 15 years. Now, frequent product improvement has reduced replacement cycles to 10 years. An expanded range of offerings -- from the single door 100 litres to the six-door 750 litres -- has also fuelled this trend.
Of the 8.20 lakh units that Godrej-GE sold last year, 1.5 lakh refrigerators were picked up by the replacement market. Three years ago, replacements were half that sum. Godrej-GE expects replacement purchases to touch three lakh in five years. The more sophisticated the model, the easier the replacement. It is always for the premium market, says T K Banerjee, vice-president sales at Godrej-GE Appliances.
Adds Suresh Bajpai, a Mumbai-based durable dealer, Replacements are up not because consumers want a good set in exchange for a bad one, but a much better one. So as part of the portfolio, in the last three years, durable manufacturers have introduced a line up of high-end refrigerators boasting of even six doors and include such sophisticated features as ice dispensers.
Until a year-and-a-half ago, Godrej refrigerators were priced upto Rs 20,000. The GE range was launched mainly for the top end. This line of refrigerators is priced at Rs 67,000 and Rs 48,000 for 515 and 410 litres respectively.
Videocons Gupta believes that replacements are also fuelled by the need for convenience. As families grow larger, people are looking for a better configuration of sizes, he adds.
At times, a replacement purchase could also stem from the compulsions of a nuclear family. For instance, the first time buyer could be someone who is now in a nuclear family, but was exposed to the gadget when he was in a joint family. In a way, replacement buyers constitute the top end of the market where features and not price form the main purchase motivation.
The current growth rates are expected to accelerate even more in the future. This is because the estimated population of old refrigerators is huge. According to industry estimates, more than three million refrigerators are more than 12 years old. And replacements account for not even 10 per cent of the old models. Thats because, only one fourth of the purchases were made more than a decade ago. The rest were bought in the last 10 years.
If replacements are a way of life in refrigerators, washing machine volumes picked up only in the nineties. And with most of the purchases made as early as five years ago, the penetration is a mere three per cent compared to 20 per cent in refrigerators. Like refrigerators, however, the replacement market has developed as manufacturers introduce newer and better models.
Until two years ago, the 9.5 lakh unit washing machine market was dominated by the semi-automatic units. They accounted for 90 per cent of sales. As a result, that generation of users started upgrading themselves to fully automatic machines. Even so, washing machine replacements have decreased from 30 per cent two years ago to 15 per cent today. Unlike a refrigerator or a television, washing machines are no longer top priority items in a bad economy, a dealer explains.
Technology is once again the driving force behind replacements in colour televisions. For one, the 25 lakh unit market which is growing at 20 per cent annually has been one of the biggest beneficiaries of liberalisation. In 1989, colour TV replacement purchases accounted for 10 per cent. In 1996, replacements increased to 33 per cent.
S K Palekar, vice-president - marketing sales, services at Mirc Electronics, manufacturers of Onida, says that 90 per cent of colour TV sales are from consumers converting from black and white to colour. They are under general peer pressure to upgrade, he adds.
Some of these numbers are also due to attrition. The average shelf life of a general picture tube is 10,000 hours or roughly 10 years. That was when the average television-viewing per household was about three hours. Today, with more channels and increased programming, television viewing has gone up to five hours a day. As a result, the life span of a picture tube is down to five years.
Then again, the extent of cable penetration has gone up. From just one channel offering six hours of programming in 1982, there are over 50 channels beaming nearly 1,000 hours of programming today. And while colour televisions in the early nineties displayed 41 channels, foreign brands like Sony, Panasonic and Samsungs hyper-band offer 104 channels today. Not surprisingly 60 lakh colour TVs were sold in the last three years alone.
In fact, replacements have been the cornerstone of Baron Internationals marketing of Akai TV sets. Displaying the price warrior tag, Akai has been aggressively chasing the replacement market. These tactics and competitive pressures have impacted colour TV prices considerably. Three years ago, the average cost of a 20 inch set was between Rs 16,000 to Rs 18,000. Today, it ranges between Rs 12,000 to Rs 13,000.
At the Rs 540-crore Mirc Electronics, colour TVs account for Rs 410 crore. Of this, sales of Rs 160 crore sales come from the replacement market. Palekar is confident that it will grow substantially. The potential is mainly in the rural market which is growing faster than the industry, he says.
Of the current colour TV population of 20 million sets constituting 172 million households, all India penetration is a paltry 11.6 per cent. Of this, the rural market accounts for just 2.5 per cent. And with companies enticing consumers with exchange offers, it is only a matter of time before replacement offers are specially designed to suit rural pockets.
Unexpectedly, the trend is slowly catching on in other sectors as well. Today, some garment manufacturers are also offering exchange schemes to push sales. The future clearly lies in this market. Or as Godrej-GEs Banerjee succinctly puts it, The replacement market is huge and it will flourish.Replacements account for 50 per cent of total refrigerator sales. Forty per cent of colour television sales come from this market.