This post is to signify the growing presence of Middle India and how Indian Retailers can cash in on this huge opportunity based on studies carried out as"The Bunty Syndrome," by advertising agency Euro RSCG India in October 2007, and "The Dhoni Effect: Rise of Small Town India," by Ernst & Young in March 2008.
C.K. Prahalad, professor of strategy at the University of Michigan's Stephen M. Ross School of Business, is looking for the fortune at the bottom of the pyramid.
In his book by that name, he says that huge markets exist among the poor in countries such as India, and that multinationals should tailor their plans and products to these consumers. At the other end of the spectrum, luxury goods manufacturers are pouring into India. The International Herald Tribune will hold its annual global conference on luxury in New Delhi in December. It joins a crowded calendar of luxury events.
Somewhere between these extremes is the real Indian market. It does not lie in the metros or the villages. "The Indian urban growth story until now has been driven largely by metros," says Ashok Rajgopal, a partner in the media and entertainment practice at Ernst & Young, a global assurance, tax, transaction and advisory-services firm. "This is now moving beyond metros into smaller towns."
Several recent studies bolster the case for the rise of Middle India. According to the 2008 edition of the RK Swamy BBDO Guide to Market Planning, 51 districts in India have at least one town with a population of more than 500,000. Together, they have twice the market potential of the four metros (Mumbai, Delhi, Chennai and Kolkata) combined.
According to a study this year by the Future Group, an Indian retailer, and the National Council of Applied Economic Research (NCAER), the ratio of spending to earning is higher in Tier II towns such as Nagpur, Jaipur, Surat and Coimbatore than it is in the metros. An earlier NCAER study, in 2004, had shown a higher percentage of the rich in Middle India than in some metros. For instance, the North Indian state of Haryana had a small-town crorepati density of 280. (Crorepati density is defined as the number of families who annually earn more than Rs1 crore -- about $250,000 -- per 1 million people.) The relative numbers for Kolkata, Hyderabad and Chennai were 180, 191 and 291, respectively. Anecdotal evidence suggests that the growth of the small-town rich continues.
Amid this data come two studies that attempt to look beyond the numbers: "The Bunty Syndrome," by advertising agency Euro RSCG India in October 2007, and "The Dhoni Effect: Rise of Small Town India," by Ernst & Young in March 2008.
The titles require some explanation. "Bunty and Babli are popular names for boys and girls in small-town India," says Suman Srivastava, CEO of Euro RSCG India. "Contrary to popular belief, it is not the urban Indian who drives trends, but the long-ignored Buntys and Bablis. They are on the move. There is a sense of urgency, excitement and confidence as they race ahead. Marketers and their agencies cannot afford to ignore them. They are the future market, not just of India, but the world." (The names Bunty and Babli draw their inspiration from the success of a 2005 Bollywood film titled Bunty Aur Babli. The movie follows the wild road trip of its two ambitious title characters, whose origins lie in small Indian towns.)
Coming of Age
"The Dhoni Effect" draws its name from India's cricket captain Mahendra Singh Dhoni. Cricket is a religion in India, and Dhoni, from the small town of Ranchi in Eastern India, is one of its flashier successes in recent times. His very name conjures up the coming of age of Middle India. "The Dhoni Effect identifies a phenomenon where rapidly growing small towns of India are taking center stage," says Rajgopal of Ernst & Young. "This research highlights the growing affluence levels, increased awareness due to media penetration, improved physical connectivity, and significant changes in consumption patterns with high aspiration levels of small-town India that are compelling marketers to take notice."
All this is giving rise to new markets and products. Spending power moved from downtown Mumbai's Marine Lines to the distant suburb of Malad many years ago. Now it is going further, to Madurai and Moradabad. And demands are different. One example: In the last few years, the male skin whitening category, which didn't even exist a decade ago, has grown 150% annually to $100 million. Most of this growth has come from Middle India.
While the studies have similar broad conclusions, their methodologies are different. Consider, first, the Dhoni Effect. "We are focusing on the Tier I, II and III towns, which are the key urban towns, and the rest of urban India besides the metros," Rajgopal explains. "These towns are very critical, as the next round of growth will come from them."
The study divided India into four sections: the top six metros (Mumbai, Delhi, Bangalore, Hyderabad, Chennai and Kolkata), the key urban towns (22 chosen cities), the rest of urban India (urban cities not part of the key urban towns), and rural India. Big advertisers, media planning experts and marketing consultancies provided qualitative inputs. Published data provided quantitative inputs.
The key findings:
* Increasing affluence has led to increased consumption growth in key urban towns and rural markets, which have been relatively untapped until now. A separate study of 100 cities' consumption spending by research agency Indicus Analytics shows that metros constitute about 30% of the total consumption market. This implies that the key urban towns, the rest of urban India and rural India together garner almost 70%. Given the larger consumer base of these markets, an increase in share of relevant consumers would imply larger numbers being added in these markets than in the metros. This is evident in product categories such as telecom, where subscriber growth in the four metros is a scorching 58% but in the rest of India it is even higher, at 93%.
* The relevant consumer base is large and growing, as are affluence levels. Towns such as Chandigarh, Ahmedabad, Jaipur, Lucknow, Indore and Pune have three-quarters or more of the affluence levels of Mumbai. On growth potential they do even better. That small-town urban India is attractive in terms of purchasing power, time spent on media, and product consumption comes across clearly.
* Physical reach has increased to less-developed sections of the key urban towns. Logistics has traditionally been the big challenge for marketing beyond metros, especially in Tier III and Tier IV towns and rural India. Recent investments and developments in infrastructure and connectivity have brought marketers into closer contact with key urban towns, the rest of urban India and rural areas. The movement of organized retail into smaller towns has made things easier and more cost-effective for marketers.
* Media reach has increased significantly. Rising disposable incomes, easier access to credit and improved retail reach have helped push television, satellite and radio in the key urban towns in absolute terms.
The study points out some problem areas. Limited measurement tools for judging media effectiveness beyond metros reduce marketers' inclination to invest in media in the key urban towns. Second, as key urban towns have traditionally been price-sensitive and volume-driven, marketers have relied on price promotions over advertising spending. And third, there is a skew toward decision-makers' markets, which leads to a disproportionate focus on metros by media planners and marketers.
The Dhoni Effect suggests that advertising money may not be going to the right places. "Clearly, a realignment of media spends toward small-town urban India is the need of the day," Rajgopal says. "Investment in these future growth areas would definitely reap benefits in the years to come."
Sanjeev Kotnala, associate vice president and national head of communication at DB Corp., publishers of Hindi daily newspaper Dainik Bhaskar, says the media must wake up to this new reality. It is a mistake to assume that Middle India is made up of the poorer cousins of the people in the metros, Kotnala says, because the people there think very differently.
If they were not different, Kotnala says, Dainik Bhaskar would have it easy. "We could edit the paper in one place and print all over," he says. Instead, the newspaper has more than 30 editions. Or take Dhoni. "We did a fast check over the phone to get the reaction of people to his name," Kotnala says. "In the metros, he is perceived as a star and an icon. In the small towns the associations are with 'captain,' 'rich' and 'long hair.'" (Dhoni was appointed Dainik Bhaskar's brand ambassador in June.)
India's Many Small Millions
Exploring the differences between Metro India and Middle India is what the second study -- the Bunty Syndrome -- is all about. This is part of an ongoing study on what the agency calls "prosumers." Prosumers are the 20% to 30% of all consumers who can be thought of as being opinion spreaders. (This is different from opinion leaders, a tiny minority.)
"India's rapid economic growth has set the tone for a fundamental change in the country's consumer set," says Srivastava. "The same energy that lifted hundreds of millions of people out of desperate poverty has created a 300 million-plus middle class, a middle class that's not prudent about spending any more. We've quickly moved from being a savings-oriented nation to a nation that's willing to indulge. Sample this: The share of wallet for personal grooming in urban India is a whopping 9%." Entertainment, Srivastava says, accounts for close to 5% of wallet share across all socio-economic categories.
But it is easy to go wrong in this market. "The Indian billion is made up of many small millions, and each million is a different million," Srivastava says. "Marketers must [acknowledge] these differences and myths lest they miss the great opportunity that is India."
What are some of these myths?
Myth: The Indian middle class lives in the metros.
Reality: Of the 80 million households that constitute the Indian middle class, only 25 million are in Tier I cities. Close to 55 million belong to the smaller towns. Mercedes sells more cars in small-town Ludhiana than it does in Mumbai.
Myth: India is a "price sensitive" market.
Reality: For products such as Vim Bar dishwashing detergent and Head & Shoulders shampoo, the Indian market easily absorbed price hikes of 13% and 18%, respectively, in 2007. Yet for years, candy manufacturers have been trying in vain to increase prices from 50p to Re 1. Value sensitivity, not price sensitivity, is the buzzword.
Myth: Imported is always premium.
Reality: Euro RSCG's brand momentum study in 2004 showed that eight of the top 10 brands in the country were of Indian origin. The days of "imported equals premium" are long past.
"The Indian middle class does not follow the norms that most mature markets do," Srivastava says. "The probable reason is that the core of the market has shifted from being middle aged and urban to young and Tier II. Many rules of the game are being challenged, the primary one being the quintessential 'trickle-down theory.' Attitudes and behavioral trends that got formed in the Tier I markets would trickle down into the small towns and rural markets. What sold in Tier I would also percolate down and sell in Tier II cities."
The Bunty Syndrome draws on quantitative studies performed by Euro RSCG in 2005 and 2007. It attempts to understand the attitude and behavior of youth in Tier I and II cities. "It studies their attitude toward and interaction with various categories, as well as creates a psychographic picture of their attitude toward life," Srivastava says. "Marketers need this lens to view the market, as it will allow them to communicate better with what we believe is the new future market for India."
What defines a Bunty consumer? Here are some characteristics:
* High confidence in their abilities, much higher than that of their counterparts in Tier I cities.
* Reemergence of Gandhian values. Social conscience is at an all-time high.
* Pride of being Indian. Youth in Tier II cities have always been proud of being Indian, and that belief has become even stronger.
* Walking on the wild side. The desire to experience the unknown -- a constant need for adventure -- is much more prevalent among youth in Tier II cities.
* Family as the cornerstone of existence. With rapid nuclearization of families and the advent of social networking, one might expect to see increased importance of friends over family. But the opposite is true. Even in the selection of role models, parents seem to trump the more prolific cricketers and Bollywood stars.
A Middle India All Its Own
The Dhonis, Buntys and Bablis -- and the efforts to track them -- have brought a newfound realization that there is indeed a growing Middle India, and one that is different. "I believe that the overall evidence does indicate the presence of a Middle India which has its own characteristics," says Sridhar Samu, assistant professor of marketing at the Hyderabad-based Indian School of Business (ISB). "It is not a smaller version of metro India. It is different in the values and the relationships between people."
"I believe that the difference in attitudes comes from the aspirations of the people living in these types of regions," Samu says. "People in Middle India are more willing to make the trade-off between the better quality of life available there versus the opportunities available in the metros. Of course, some of them are forced to live there because of their jobs, and these people may be waiting to get the opportunity to move to a metro. But large numbers of people living in Middle India live there by choice, and they seem to value the quality of life more than the conveniences in a metro."
Roopa Purushothaman, chief economist at Future Capital Holdings (and co-author of the 2003 BRIC -- Brazil, Russia, India and China -- report by Goldman Sachs) makes a further distinction. She cuts Middle India down the middle. "There are certain differences between the Tier II and Tier III cities," she says. "For instance, penetration of financial services is quite high in Tier II cities. In the smaller Tier III cities, however, penetration of financial services is not high at all. Here, it is penetration of consumer durables that is very high. The Tier III cities may be a good place to test-market or launch new higher-end products and consumer durables. Typically these places are not even on the radar screens of marketers because the population numbers are not high enough."
Is the growth of Middle India a sort of natural progression that has happened in other countries? Are there lessons Indian marketers can draw from elsewhere? Opinion is divided.
"This is quite like how other countries too have evolved," Purushothaman says. "In terms of income distribution, the middle class in the smaller cities looks like the middle class in the mega cities at the turn of the century. There is a growing aspirant class in these locations, and this is what is bringing about faster changes in the consumer pattern."
Others differ in the details. "This middle segment is similar to certain other developing countries in Africa, or Vietnam, Indonesia and Malaysia," says Harish Bijoor, CEO of Harish Bijoor Consults, a brand and business strategy consulting firm. Bijoor is also a visiting faculty member at ISB. "Over time, there is a creeping globalization that gobbles up the middle segment and everything becomes urban. Today, India is 26% urban and 74% rural. My prognosis is that by 2046, India will be 2% rural and 98% urban." Adds Samu, of ISB: "This pattern seems to follow to some extent what happened in the U.S., though not completely. In the U.S. market, people migrated to the suburbs in order to get away from the metros. In India, this does not seem to have happened; rather, the smaller cities became bigger and became Middle India."
Srivastava calls the Bunty Syndrome unique because of factors peculiar to India: the change from an agrarian to a service economy, the growth of backward castes, nuclearization of families, greater world travel, a media boom, and the speed of change being fastest in the smaller cities. "All emerging markets are facing some degree of remixing as global culture clashes with local cultures," Srivastava says. "The Bunty Syndrome is our own take on this remixing."
Bijoor's company did a typecasting exercise recently across nine countries to assess how many "types" of people exist in different cities. (Types were classified by their similar marketing behavior.) In New York, they found 14 different types of people. In Boston, they found 9 and in Tokyo 11. In Middle India, the diversity was awesome. In Bhopal, they found 213 types and in Vijayawada 171 types.
This may be one of the reasons why marketing in India is regarded as much more difficult than fighting for pieces of market share in the West. "Marketing companies have a big responsibility toward these people and need to tailor their products and services," says Samu of ISB. "Companies need to devise innovative strategies. Advertising could also be different and may need to use local references." While having a celebrity such as film star Shah Rukh Khan, for example, may attract people's attention, it is more than likely that they would treat such ads as merely entertainment. "Local ads may have more of an impact," Samu says, "especially given the language differences."
The Bunty Syndrome study provides examples of how companies are adapting to the needs and demands of Middle India. Consider how some of the Bunty traits defined earlier are being tapped:
* Confidence: Grasim, a brand of suits, through the message of "be self-made," has saluted the "We'll get there no matter what" spirit of the youth. The message is enhanced by the use of a celebrity (the actor Akshay Kumar) who has made a name for himself on his own in a field where relatives already in the profession are seen as a prerequisite for creating equity in the industry.
* Gandhian values: Idea, a mobile-services brand, has propagated caste equality, while Tata Tea has tried to appeal to the young in Tier II cities with a call to "wake up to the issues."
* Pride: Durables brand Voltas has challenged the monopoly of Korean brands in the air-conditioner space by projecting itself as "India's own AC."
* Family values: The concept of being able to give back to parents has been used to good effect by MasterCard and HDFC Bank.
One Marketer's Experience
Suparna Mitra, head of marketing for the watches division of Titan Industries, sheds light on her company's Middle India experience: "Titan has been aware of and has been addressing this market for some time now. It was one of the first companies to set up exclusive stores in these towns and has an early-mover advantage. For Titan, 50% of watch sales come from the top 10 towns [including metros] and the 11th to 100th towns account for another 35%.
"At this point there are some differences in the products being sold in the metros and in the smaller towns. For instance, the average price in the top 10 towns is 10% higher than the products sold in Middle India. There are also different levels of acceptability in terms of styles and modernity, etc. But, given the exposure, increasing disposal incomes, and similar levels of aspirations, it is just a matter of time before this changes.
"We are already seeing it happen. For instance, last year Titan had a high-priced collection called Raga Crystals as part of its sub-brand Raga, which is aimed at women. This collection, which was studded with Swarovski crystals, was priced at around $200 at the top end of the range. We estimated a certain amount of sales, most of it from the metros. But when we actually introduced the product, we found that it was selling right down to smaller towns.
"While the realities of the Middle India consumer may be different from the urban or metro consumer, his expectations and aspirations are the same," Mitra says. "A marketer has to aim at the aspirations and not at the realities."
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