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Consumers move up the value chain

13-September-2004
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Consumers move up the value chain

The urban consumer, it seems, is moving up the value chain at a rapid pace as far as consumer durables are concerned. There is a preference shift in most categories, be it colour televisions, refrigerators, air conditioners or washing machines, towards upper-end products, often even for first-time purchases.

According to market research company TNS India associate vice-president Deepak Singh, ‘‘Upper-end technology products have been showing a much better growth than the lower end or old technology products. Growth rates vary from 10 per cent to 35 per cent across categories, with the best growth coming in Flat CTVs.’’

Price cuts triggered by stiff competition, accompanied by easy finance options, are what is making these patterns emerge, feel most industry players.

Electrolux CEO & MD Rajeev Karwal feels,‘‘Price has been a significant factor in pushing sales at the upper end. Consumers appear to be graduating to the upper segments more rapidly than before—and in some cases, even for first-time buys.’’

While the Conventional:Flat TV ratio is 80:20 at present it is expected to shift to 70:30 by the year-end. Within the current 20 per cent share too, Flats are seeing hundred per cent growth.

Says LG marketing head Salil Kapoor, ‘‘This shift is definitely an emerging trend, largely due to higher disposable incomes, easy finance and increased aspirations. Flat televisions in fact, accounted for 55 per cent of our total CTV sales during Onam.’’

In the case of ACs, split ACs, which traditionally had a predominantly institutional market, have made an entry into the home segment this year and are beginning to record good sales as against window ACs.

‘‘Earlier splits formed just 15 per cent of the market. Now it is expected to close the year with at least 30 per cent share of the AC market,’’ says Mr Karwal. Splits accounted for 70 per cent of Electrolux’s AC sales during Onam.

Price has been a significant factor here. A 21-inch Flat TV could cost anywhere between Rs 10,500 and Rs 11,000, compared to a conventional CTV at Rs 8,500. According to industry estimates, price erosion in split ACs has been close to 30 per cent. In the Frost-free refrigerator segment, where the 220 to 270 litres constitutes almost 60 per cent of the total Frost-free market, prices have come down by almost 20-25 per cent. Similarly, microwave ovens have seen a 20 per cent price-off.

According to Mr Singh, ‘‘While these categories have become more affordable, price cuts have not happened to the same extent in lower-end products, thus effectively reducing the price differential between the two segments across categories. That, accompanied by easy finance and more disposable incomes, has been fuelling growth of upper end segments. This has also resulted in consumers graduating at a greater speed.’’

Says Mr Karwal, ‘‘In H1, Frost-free refrigerators have grown by 13 per cent, against an overall category growth of merely .7 per cent. The direct cool segment, which forms the mainstay of the category, has actually declined by 1.3 per cent during the same period.’’ The 220-270 litres segment has seen good growth of around 45 per cent in H1, putting pressure on the category between 185 and below 220 (FF) litres. The below-180 litres category has grown by a mere 1.7 per cent.

Size versus price is also making many sub-segments within a category superfluous. Thus, the 6 kg and above segment in washing machines is seeing most of the action. In H1, according to ORG data, it has grown by 26.3 per cent, while washing machines as a category saw only 3.2 per cent growth and semi-automatics have actually declined by 1.4 per cent. This is largely due to inappropriate sizes like the 4 kg machine. Fully automatic washing machines have also recorded a 27.7 per cent volume growth.

Companies are also quick to exploit the opportunity.‘‘There has been a major thrust by players to introduce innovative exchange schemes and combi-offers, which has helped increase the segment sales dramatically,’’ says Mr Singh.

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