Arvind Singhal: Boom in premium products

MARKETMIND

In the recent months, there are unmistakable signs that the benefits of a sustained (relatively) high economic growth for the last 12 years or so are now beginning to create a new class of wealthy Indians. These Indians are not the traditional rich that comprised of scions of erstwhile royalty, old business families, landowners, select early independence era top civil servants, and then some who generated wealth through a variety of nefarious activities.

These new wealthy Indians comprise of those who are earning their riches through a wide range of economic activities including entrepreneurial ventures spanning a vast spectrum (information technology and related services, BPO/knowledge industries, a gamut of services comprising of retail, travel and leisure, food, entertainment, music and other arts, sports, healthcare, etc to name but a few) as well as working in senior positions with the increasing legion of highly successful companies "" both of Indian as well as multinational.

It is still very difficult to put a number on the size of this wealthy segment (that could be perhaps better defined as households earning Rs 10 lakh or more per annum).

Information available through respectable economic think tanks such as NCAER appears to be understating the size of this segment (NCAER estimates, extrapolated from 2001-02 base, indicate about 5,50,000 such households across India).

However, using various surrogates such as the volume of sale of relatively high end cars (C segment and above), premium watches, premium housing, leisure travel and a few others, my own estimate would be that by the end of 2004, there could already be 1 million such households in India accounting for perhaps as much as 7-8 per cent of the GDP.

More interestingly, the growth rate in the number of such households could be as much as 15 per cent per year. The high growth rate is on account of various factors, the most important one being a very rapid emergence of two-income (or sometimes, even 3-4 income) households.

India is yet to see a significant "empty nester" syndrome so visible in the West, with young first time earners more than likely to continue to stay with their parents for many years into their income-earning careers.

In such households, the disposable discretionary spending levels are disproportionately high since despite more than one pay cheque, there is only one house-rent to be paid and only one kitchen to be run.

More interestingly, in many of these households, the chief wage earner(s) are likely to be in the their late 20s or early 30s and hence have the confidence to spend more indulgently.

It is, therefore, no surprise that many marketers are pleasantly surprised to see a much higher than expected demand for their higher end products.

The examples include companies operating in diverse sectors that is, consumer durables, automobiles, housing, watches, "lifestyle" pubs and speciality restaurants, eyewear, etc. Somewhat surprisingly, this trend is yet not visible in the traditional consumer spending items such as clothing but I would explain this more by way of lack of innovation from most of the leading Indian clothing companies till very recently.

Only in the recent months, some of them such as Madura Garments and Arvind Brands have started showing increased aggression in product innovation and marketing but they could be late since it very likely that many international clothing brands will make their debut in India in the next 18 months, starting with the launch of Tommy Hilfiger in the coming week (being launched through Arvind Brands), and then a host of others likely to follow taking away a big share of the premium clothing market.

Creating and maintaining premium products/brands is a different skill set than marketing products in an economy where till recently, demand often exceeded supply, and where international competition to domestic consumer product companies was all but non-existent.

Some of the key elements of the skill-set required from the marketing companies targeting the premium segment include a creative internal environment that fosters innovation, higher budgets for R&D, differentiated packaging, superior retailing ambience, and very high quality customer service.

One of the best recent examples of an Indian company making a serious (and very good) effort to tap into the emerging premium goods markets is one of India's most profitable textile companies: Himatsingka Seide. The company has just launched its very high quality, very innovative home textile products in the domestic market through a chain of retail stores named Atmosphere.

In the years to come, I am sure many more will be inspired to do the same across many other product and service categories!