Despite tightening profit margins, India auto has a rewarding journey ahead

While record monthly sales show India auto benefiting from an improving economy, increased competition is creating new pressures for automakers.

The Indian car market goes from strength to strength. Consumer demand grows despite rising prices. Society of Indian Automobile Manufacturers (SIAM) figures show that total domestic passenger car sales for April were 143,976, up on 103,227 year previous.

Maruti Suzuki leads the way

For the first time Maruti Suzuki sold over 100,000 vehicles (including vehicles for export) in May.

US majors also made ground but lag behind in unit sales. General Motors exceeded expectation with growth of over 60%, 8,225 units in real terms, and Ford posted May sales growth of 272%, or 8,080 vehicles.

Increased sector sales but falling profit

Increased competition is forcing automakers to launch newer versions of their vehicles or offer - at discount - more premium features to maintain sales growth. The number of cars launched over the last few years has intensified competition, reducing the average sales per model.

Manoj Mohja of Crisil Research says, "While total sales for cars has increased 14% annually in the past four years, the average unit sales per model has declined over 12% in the Indian market".

More auto investment to come

Despite pressures on profit margins, the sector is still expected to flourish. Estimates are that US$ 30 billion will be invested in India - the world's second fastest growing market - over the next four years. Good news considering government aims to increase the industry contribution to 10% of GDP, employing 25 million people by 2016 in the process.

International luxury marques seeing growth

The luxury end is also experiencing growth as international brands look to tap in to an unsaturated market. Mercedes Benz experienced 59% growth year-on-year, with sales of 381 units during May. Audi managed 65% growth during the same period with sales of 200 cars.

While unit sales are still small, luxury growth of 15% is expected this year and sales are expected to grow. Abdul Majeed, of PwC comments, "Although there are challenging factors like input costs pressures and hike in interest rates, the growth rates can be sustained."

June 8, 2010 Add a comment

Indian middle-class mythology

The Indian market offers opportunity but entrants need to understand its contradictions and its sheer complexity.

India's growing middle-class is one of the factors fuelling growth. This new - and young - consumer group is heralded in nearly every news article covering India Inc.

The middle-class myth

While it's true that there exists a sizable, increasingly wealthy "middle-class", don't fall in the trap of assuming this group is one consistent and easily recognisable consumer segment.

How big is the middle-class?

For a start how big is India's middle class? The seductive figure of 300 million people - or one-third of India's population - is frequently banded around. Vijay Mallya recently said:

"You rarely find a country with an acknowledged consumer class of more than 300 million people, and an economy growing at 9% per year. It would be quite idiotic to ignore the opportunity."

This figure is repeated ad nauseam, but respected India watchers like Deutsche Bank admit the real figure could be 10% of that.

Whatever the precise number, the real questions for entrants are: how many of India's middle class are consumers, and how many are in the market for foreign brands and services?

Why it doesn't matter

Whether the figure is 300 or 30 million (who knows for sure?), the fact is that the middle class label is too simplistic and over used. With the large variance in the figures that define middle class, the actual number becomes impossible to pinpoint.

Nancy Birdsall, president of Centre for Global Development recently created a stir by concluding that India has no middle class at all.

Birdsall defines the middle class of a developing nation as those who earn more than US$ 10 per day, excluding the top 5% earners of that nation. When this definition is applied to India, the numbers show that all people earning more than US$ 10 per day fall into the top 5%. These parameters eliminate the middle class completely. So then, what is correct?

The lesson for brand entrants

While the exact size of India's middle-class or consumer-class is near impossible to determine, there is clearly potential for entrants and the potential will only grow.

Companies looking at India need to be aware that India has markets within markets, and consumers aren't easily labeled. Consumer groups are fragmented and influenced by a host of things, including religion, geographic location, caste, education and the number of dependents within the family unit.

Foreign entrants need to look beyond the headlines and the big numbers, drill deep and invest time in understanding the market and subtleties of the Indian consumer.

June 6, 2010 1 comment

Indian mothers becoming "digi-moms"

Online advertisers have a new target audience; Indian mothers are turning to the internet in increased numbers.

Research by Microsoft Advertising and Starcom Mediavest shows that internet usage in India is broadening, and older age groups are getting connected.

Mothers get connected

The study - covering 3000 mothers across eight Asian counties - revealed that Indian mothers are amongst Asia's most tech-savvy. 87% of Indian mothers agreed that the internet is an important part of their lives.

According to the survey, 90% of Indian mothers go online to keep in touch with family and friends. Work and study also figures prominently, with 56% accessing the internet for these purposes.

50% said that had made online purchases in the last month alone.

Internet time is "me-time"

Interestingly, 75% claim that internet time is a "me-time" activity, meaning that they are receptive to relevant communications and messaging. Neville Taraporewalla of Microsoft commented that:

"They are well aware of brands online and are more than open to adopting messages relevant to them. By successfully engaging these 'digi moms' through the right medium at the right time, brands can create highly influential online brand ambassadors".

Taraporewalla's view is supported by the fact that over 90% of respondents agreed that good brands are worth talking about and that 72% believe they can persuade family and friends to buy the same products.

Social networking lags behind

Indian mothers haven't made the leap to social media. While 81% of mothers will read newspapers and magazines online, social networking remains unpopular.

Just 58% have created a social networking profile, this compares poorly with Singapore (82%), Hong Kong (77%) and China and Korea (62%).

June 3, 2010 Add a comment