URBAN CONSUMERS BECOME ‘VALUE VAULTERS’- MARKETERS LAUNCH A SLEW OF REVISED MARKETING STRATEGIES TO ‘UPGRADE’ CONSUMERS BUT WILL NEED TO BE WARY OF INFLATION

By: Roosevelt D’Souza, ED, RMS - Client Solutions, Nielsen

Promotions will continue to be key in driving trial and demand as inflation may play spoilsport in the short term

True ‘premiumisation’ is still some way away as the middle of the market is likely to get more crowded

Marketers should craft their strategies carefully since not all premium price points may succeed in an evolving, inflationary market environment

The Definition of a Premium market: A market is said to be moving towards a state of premium price points when products are able to migrate consumers to higher priced alternatives that they may not have earlier considered as part of their purchase basket. This trend must be sustainable, pertinent to a critical quantum of constant volume and devoid of ‘discounted’ prices for products being launched at a premium price point. Moreover, a premium category is characterized by its point of sale, its constant but focused share of the market, and its ability to be less price sensitive.

In the current state of the Indian market however, the constant slew of products at higher price points appears to be precipitated by buoyant consumer sentiment, economic momentum and an increased propensity to experiment with new alternatives in mainstream categories of private consumption (skin care, hair care, breakfast, snacks etc). It is natural for upbeat economic conditions to witness a surge of new launches, expansion in distribution and aggressive promotion that seek to capitalize on the greater latitude of consumer experimentation during optimistic phases – this was true during the initial phase of liberalization and the pre-dot com bubble period as well. However, marketers should be wary that this doesn’t signal a guarantee of success for new launches at a higher price since consumers will ‘trial’ these brands and seek to exit them until such time that they perceive ‘fair value’ for these products.

‘Value Vaulting’ occurs when consumers try new brands and products launched at a higher price due to an explosion of variety and incentives like aggressive promotional offers. However, what really needs to be observed is whether they include it in their purchase repertoire as repeat purchases once promotions recede. Moreover, the constant bugbear of inflation will weigh in on decisions regarding the repeat purchase of products within the premium-price range.

What this means in terms of market and category evolution is that the middle of the market is now becoming thicker and the gap between ‘popular/budget’ and ‘premium’ is getting hazier. When considering launching new products during such a phase, marketers would be well advised to calibrate their strategies carefully to improve their chances of success. With the festive season having gone by, greater visibility of these products and a stronger distribution push in the recent past, it is likely that these brands and products will have witnessed an upsurge from a low base. While formulating a ‘demand strategy’ based on latent and future consumer needs however, it is important to choose the right segment of consumers to approach and to differentiate the ‘Temporary Trialist’ versus the ‘Permanent Upgraders’.

While most brand’s position themselves as aspirational, the increased accessibility through lower unit packs, availability through distribution in mass market channels and visibility through more aggressive above the line and below the line promotions are currently driving a sustained phase of trial.

In the consumer products space, promotions are of three broad types:

1. Volume Promotion: additional quantity of the same product free

2. Value Promotion: price reduction on the purchase of one or a specified number of the same product

3. Kind Promotion: a free, add on product on the purchase of one or a specified number of the same product

But the most powerful lever will be consumer acceptance of these products within their purchase repertoire. One needs to observe whether these trends are sustainable especially in categories like skin care etc that are more ‘inconspicuous indulgence’ versus categories like hair color (non-black) that are visible and therefore ‘conspicuous beautification’. Items that are inconspicuous are more vulnerable to being traded off while making choices since the shopper usually seeks to have a constant budget in mind for the overall purchase basket rather than a budget for individual categories of purchase.

Going forward, personal grooming categories like Skin care, Hair care and perfumes/deodorants and personal hygiene will continue this momentum as will other sub-categories like premium detergents especially amongst the ‘Rich’ and ‘Upper middle class’ who will grow to represent nearly 7% of the population by 2020. A greater sense of ‘liberation’ and the freedom to dictate their own discretionary spending will also make young working adults key contributors to this trend.

The expansion of modern trade and aggressive distribution will also see a rise in launches within convenience categories like Ready-to Eat foods, Soups, Breakfast cereals, Fruit juices and Dairy derivatives like flavored yogurts etc. that will seek to ride the health and wellness wave.

While inflation may interrupt the permanent adoption of premium products within both food and nonfood categories in the short term, strong domestic demand sustained through aggressive promotions, rising incomes, the rise of the rural consumer, an expansion of the modern trade franchise, and a sense of positive economic trajectory will continue to fuel the growth of the FMCG sector in 2011 and beyond.

About Nielsen

Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence, mobile measurement, trade shows and related properties. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA and Diemen, the Netherlands. For more information,please visit www.nielsen.com.

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