200 Mark Project TY BMS 6th Semester Kunal Khanna

Factors Affecting The Indian Consumer Buying Pattern

Introduction to consumers Definition:

An individual who buys  products or  services for personal use and not for manufacture for  manufacture or  resale. resale. A consumer is someone who can make the decision whether or not to  purchase an item at the store, store, and someone who can be influenced influenced by marketing and advertisements. Any time someone goes to a store and purchases a toy, shirt, beverage, or anything else, they are making that decision as a consumer.

Who is a Consumer? •

A person who has indicated his or her willingness to obtain goods and/or services from a supplier with the intention of paying for them.

•

Someone who has purchased goods and/or services for personal consumption.

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Factors Affecting The Indian Consumer Buying Pattern

Introduction to consumers Definition:

An individual who buys  products or  services for personal use and not for manufacture for  manufacture or  resale. resale. A consumer is someone who can make the decision whether or not to  purchase an item at the store, store, and someone who can be influenced influenced by marketing and advertisements. Any time someone goes to a store and purchases a toy, shirt, beverage, or anything else, they are making that decision as a consumer.

Who is a Consumer? •

A person who has indicated his or her willingness to obtain goods and/or services from a supplier with the intention of paying for them.

•

Someone who has purchased goods and/or services for personal consumption.

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Factors Affecting The Indian Consumer Buying Pattern

What Do Customers Want, Anyway? To be taken seriously

10. Knowledgeable help

2. Comp Compet eten ent, t, effi effici cien entt ser servi vice ce

11. 11. Fri Frien endl dlin ines esss

3. Anticipation of of my needs

12. To be be kept informed

4. Explanations in my terms

13. Follow-through

5. Basic courtesies

14. Honesty

6. To be info inform rmed ed of the the opt optio ions ns

15. 15. Fee Feedb dbac ack  k 

7. Not to be passed around

16. Professional service

8. To be be li listen tened to to (a (and hea heard) rd)

17. 17. Em Empat pathy

9. Dedicated attention

18. Respect

The Six Basic Needs of Customers : 1. Friendliness: Friendliness is the most basic of all customers needs, usually associated with being greeted graciously and with warmth. We all want to be acknowledged acknowledged and welcomed welcomed  by someone who sincerely is glad to see us. A customer shouldn’t feel they are an intrusion on the service provider’s work day!

2. Understanding and empathy: Customers need to feel that the service person understands and appreciates their  circumstances and feelings without criticism or judgment. Customers have simple expectations that we who serve them can put ourselves in their shoes, understanding what it is they came to us for in the first place.

3. Fairness: We all need to feel we are being treated fairly. Customers get very annoyed and defensive when they feel they are subject to any class distinctions. No one wants to be

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Factors Affecting The Indian Consumer Buying Pattern treated as if they fall into a certain category, left wondering if “the grass is greener on the other side” and if they only received second best.

4. Control: Control represents the customers’ need to feel they have an impact on the way things turn out. Our ability to meet this need for them comes from our own willingness to say “yes” much more than we say “no.” Customers don’t care about policies and rules; they want to deal with us in all our reasonableness.

5. Options and alternatives:

Customers need to feel that other avenues are available to getting what they want accomplished. They realize that they may be charting virgin territory, and they depend on us to be “in the know” and provide them with the “inside scoop.” They get pretty upset when they feel they have spun their wheels getting something done, and we knew all along a better way, but never made the suggestion. 6. Information

“Tell me, show me – everything!” Customers need to be educated and informed about our products and services, and they don’t want us leaving anything out! They don’t want to waste precious time doing homework on their own – they look to us to be their walking, talking, information central. Understanding customer needs and wants is not always simple. Some customers have needs of which they are not fully conscious, or they cannot articulate these needs, or they use words that require some interpretation. Consider the customer who says he wants an "inexpensive car. The marketer must probe further.

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Factors Affecting The Indian Consumer Buying Pattern

The 5 Types of Customers: In the retail industry, it seems as though we are constantly faced with the issue of trying to find new customers. Most of us are obsessed with making sure our advertising, displays, and  pricing all “scream out” to attract new customers. This focus on pursuing new customers is certainly prudent and necessary, but, at the same time, it can wind up hurting us. Therefore, our focus really should be on the 20 percent of our clients who currently are our best customers. In retail, this idea of focusing on the best current customers should be seen as an on-going opportunity. To better understand the rationale behind this theory and to face the challenge of   building customer loyalty, we need to break down shoppers into five main types:

•

Loyal Customers: They represent no more than 20 percent of our customer base, but

make up more than 50 percent of our sales. •

Discount Customers: They shop our stores frequently, but make their decisions based

on the size of our markdowns. •

Impulse Customers: They do not have buying a particular item at the top of their “To

Do” list, but come into the store on a whim. They will purchase what seems good at the time. •

 Need-Based Customers: They have a specific intention to buy a particular type of 

item. •

Wandering Customers: They have no specific need or desire in mind when they come

into the store. Rather, they want a sense of experience and/or community. If we are serious about growing our business, we need to focus our effort on the loyal customers, and merchandise our store to leverage the impulse shoppers. The other three types of customers do represent a segment of our business, but they can also cause us to misdirect our resources if we put too much emphasis on them. Let me further explain the five types of customers and elaborate on what we should be doing with them.

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Factors Affecting The Indian Consumer Buying Pattern Loyal Customers:

  Naturally, we need to be communicating with these customers on a regular basis by telephone, mail, email, etc. These people are the ones who can and should influence our   buying and merchandising decisions. Nothing will make a Loyal Customer feel better than soliciting their input and showing them how much you value it. In my mind, you can never  do enough for them. Many times, the more you do for them, the more they will recommend you to others. Discount Customers:

This category helps ensure your inventory is turning over and, as a result, it is a key contributor to cash flow. This same group, however, can often wind up costing you money  because they are more inclined to return product.

Impulse Customers:

Clearly, this is the segment of our clientele that we all like to serve. There is nothing more exciting than assisting an Impulse shopper and having them respond favorably to our  recommendations. We want to target our displays towards this group because they will  provide us with a significant amount of customer insight and knowledge.

Need-Based Customers:

People in this category are driven by a specific need. When they enter the store, they will look to see if they can have that need filled quickly. If not, they will leave right away. They  buy for a variety of reasons such as a specific occasion, a specific need, or an absolute price  point. As difficult as it can be to satisfy these people, they can also become Loyal Customers

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Factors Affecting The Indian Consumer Buying Pattern if they are well taken care of. Salespeople may not find them to be a lot of fun to serve, but, in the end, they can often represent your greatest source of long-term growth. It is important to remember that Need-Based Customers can easily be lost to Internet sales or  a different retailer. To overcome this threat, positive personal interaction is required, usually from one of your top salespeople. If they are treated to a level of service not available from the Web or another retail location, there is a very strong chance of making them Loyal Customers. For this reason, Need-Based Customers offer the greatest long-term potential, surpassing even the Impulse segment. Wandering Customers:

For many stores, this is the largest segment in terms of traffic, while, at the same time, they make up the smallest percentage of sales. There is not a whole lot you can do about this group because the number of Wanderers you have is driven more by your store location than anything else. Keep in mind, however, that although they may not represent a large percentage of your  immediate sales, they are a real voice for you in the community. Many Wanderers shop merely for the interaction and experience it provides them. Shopping is no different to them than it is for another person to go to the gym on a regular basis. Since they are merely looking for interaction, they are also very likely to communicate to others the experience they had in the store. Therefore, although Wandering Customers cannot be ignored, the time spent with them needs to be minimized. Using this understanding to help turn Discount, Impulse, Need-Based, and even Wandering Customers into Loyal ones will help grow our business. At the same time, ensuring that our  Loyal Customers have a positive experience each time they enter our store will only serve to increase our bottom-line profits.

Customer personality types: The Know it Alls 7

Factors Affecting The Indian Consumer Buying Pattern These folks tend to be experts in just about everything. Sometimes, they can come off as arrogant and often opinionated. When they are wrong about a subject, they usually put the  blame someplace else. The Passives

Passives usually try to avoid conflict at all costs. When presented with conflict, they usually tend to be non-committal and agreeable. These folks usually do not offer opinions or let you know how they feel about a given subject. The Dictators

These folks often have strong personalities and can come across as bullies. In addition, they can sometimes unintentionally be insulting. Brutally critical, they can be very difficult to work with. The Yes People

Yes people tend to agree with any commitment and will promise to meet unreachable deadlines. You can tell you are dealing with a Yes person because they often apologize for a  problem – many times ones that they did not create. The No People

 No people are negative and downright pessimistic. They tend to look at what is not working instead of what is. Resistant to change, these folks can throw a wet blanket over an entire  process. The Complainers

Just like the name implies, the complainers find something to complain about with almost every situation. While they are often correct in their complaint, they find it difficult to offer   praise or see the good in a situation. Knowing what kind of personality you are dealing with can go a long way with developing ways to handle the situation.

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Factors Affecting The Indian Consumer Buying Pattern

Conclusion

The failure or success in any business is dependable upon the behaviour of the end-user or  consumer who finally uses the product or any services. This is again vital not only to the  producer of the final goods but also the intermediaries who play a major role in carrying the  product from initial level to the final level i.e. from the manufacturer to the consumer. Of  course the final player in the channel is important to a consumer but the business of all the intermediaries gets affected. The understanding of consumer behaviour helps in identifying the weak points and also reflects the positive aspect of any business.

It is the behaviour of the consumer which impacts their decision to purchase or not purchase the product. Depending on their decision and their usage, an organization decides which  products to manufacture and to continue. The positioning of the product is dependant on the consumption of the product and this behaviour of consumers may be related to any kind of   products or services. The consumer behaviour also reflects the trends in the national growth and economy.

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Factors Affecting The Indian Consumer Buying Pattern

CHAPTER 2.

UNDERSTANDING CONSUMER  BEHAVIOUR 

Understanding consumer behaviour  Consumer behaviour involves the psychological processes that consumers go through in

recognizing needs, finding ways to solve these needs, making purchase decisions (e.g., 10

Factors Affecting The Indian Consumer Buying Pattern whether or not to purchase a product and, if so, which brand and where), interpret information, make plans, and implement these plans (e.g., by engaging in comparison shopping or actually purchasing a product).

Often, we take cultural  influences for granted, but they are significant. An American will usually not bargain with a store owner. This, however, is a common practice in much of the World.  Physical  factors also influence our behaviour. We are more likely to buy a soft drink when

we are thirsty, for example, and food manufacturers have found that it is more effective to advertise their products on the radio in the late afternoon when people are getting hungry. A person’s  self-image will also tend to influence what he or she will buy—an upwardly mobile manager may buy a flashy car to project an image of success.  Social  factors also influence what the consumers buy—often, consumers seek to imitate

others whom they admire, and may buy the same brands. The social environment can include both the mainstream culture (e.g., Americans are more likely to have corn flakes or  11

Factors Affecting The Indian Consumer Buying Pattern ham and eggs for breakfast than to have rice, which is preferred in many Asian countries) and a subculture (e.g., rap music often appeals to a segment within the population that seeks to distinguish itself from the mainstream population). Thus, sneaker manufacturers are eager to have their products worn by admired athletes. Finally, consumer behaviour is influenced by learning  —you try a hamburger and learn that it satisfies your hunger and tastes good, and the

next time you are hungry, you may consider another hamburger.

Consumer Choice and Decision Making: Problem Recognition: One model of consumer decision making involves several steps. The first one is problem recognition —you realize that something is not as it should be. Perhaps, for example, your 

car is getting more difficult to start and is not accelerating well.

The second step is

information search  —what are some alternative ways of solving the problem? You might

 buy a new car, buy a used car, take your car in for repair, ride the bus, ride a taxi, or ride a skateboard to work. The third step involves evaluation of alternatives. A skateboard is inexpensive, but may be ill-suited for long distances and for rainy days. Finally, we have the  purchase stage, and sometimes a post-purchase stage (e.g., you return a product to the store

 because you did not find it satisfactory). In reality, people may go back and forth between the stages. For example, a person may resume alternative identification during while evaluating already known alternatives. Consumer involvement  will tend to vary dramatically depending on the type of product. In

general, consumer involvement will be higher for products that are very expensive (e.g., a home, a car) or are highly significant in the consumer’s life in some other way (e.g., a word  processing program or acne medication). It is important to consider the consumer’s motivation for buying products. To achieve this goal, we can use the Means-End chain, wherein we consider a logical progression of  consequences of product use that eventually lead to desired end benefit. Thus, for example, a consumer may see that a car has a large engine, leading to fast acceleration, leading to a feeling of performance, leading to a feeling of power, which ultimately improves the consumer’s self-esteem. A handgun may aim bullets with precision, which enables the user  to kill an intruder, which means that the intruder will not be able to harm the consumer’s family, which achieves the desired end-state of security. In advertising, it is important to

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Factors Affecting The Indian Consumer Buying Pattern  portray the desired end-states. Focusing on the large motor will do less good than portraying a successful person driving the car.

Information search and decision making: Consumers engage in both internal  and external  information search.  Internal  search involves the consumer identifying alternatives from his or her memory. For certain low involvement products, it is very important that marketing programs achieve “top of mind” awareness. For example, few people will search the Yellow Pages for fast food restaurants; thus, the consumer must be able to retrieve one’s restaurant from memory before it will be considered. For high involvement products, consumers are more likely to use an external  search. Before buying a car, for example, the consumer may ask friends’ opinions, read reviews in Consumer Reports , consult several web sites, and visit several dealerships. Thus, firms that make products that are selected predominantly through external search must invest in having information available to the consumer in need—e.g., through brochures, web sites, or news coverage.

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Factors Affecting The Indian Consumer Buying Pattern

A compensatory decision involves the consumer “trading off” good and bad attributes of a   product. For example, a car may have a low price and good gas mileage but slow acceleration. If the price is sufficiently inexpensive and gas efficient, the consumer may then select it over a car with better acceleration that costs more and uses more gas. Occasionally, a decision will involve a non-compensatory strategy. For example, a parent may reject all soft drinks that contain artificial sweeteners. Here, other good features such as taste and low calories cannot overcome this one “non-negotiable” attribute. The amount of effort a consumer puts into searching depends on a number of factors such as the market  (how many competitors are there, and how great are differences between brands expected to be?),  product characteristics (how important is this product? How complex is the product? How obvious are indications of quality?), consumer characteristics (how interested is a consumer, generally, in analyzing product characteristics and making the best  possible deal?), and situational characteristics.

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Factors Affecting The Indian Consumer Buying Pattern

Family Decision Making : Individual members of families often serve different roles in decisions that ultimately draw on shared family resources. Some individuals are information gatherers/holders, who seek  out information about products of relevance. These individuals often have a great deal of    power because they may selectively pass on information that favours their chosen alternatives.  Influencers do not ultimately have the power decide between alternatives, but they may make their wishes known by asking for specific products or causing embarrassing situations if their demands are not met. The decision maker(s) have the power to determine issues such as: •

Whether to buy;

•

Which product to buy (pick-up or passenger car?);

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Which brand to buy;

•

Where to buy it; and

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When to buy.

 Note, however, that the role of the decision maker is separate from that of the purchaser . From the point of view of the marketer, this introduces some problems since the purchaser  can be targeted by point-of-purchase (POP) marketing efforts that cannot be aimed at the decision maker. Also note that the distinction between the purchaser and decision maker may  be somewhat blurred: •

The decision maker may specify what kind of product to buy, but not which brand;

•

The purchaser may have to make a substitution if the desired brand is not in stock;

•

The purchaser may disregard instructions (by error or deliberately).

It should be noted that family decisions are often subject to a great deal of conflict. The reality is that few families are wealthy enough to avoid a strong tension between demands on the family’s resources. Conflicting pressures are especially likely in families with children and/or when only one spouse works outside the home. Note that many decisions inherently come down to values, and that there is frequently no "objective" way to arbitrate differences.

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Factors Affecting The Indian Consumer Buying Pattern One spouse may believe that it is important to save for the children’s future; the other may value spending now (on private schools and computer equipment) to help prepare the children for the future. Who is right? There is no clear answer here. The situation becomes even more complex when more parties—such as children or other relatives—are involved. Some family members may resort to various strategies to get their way. One is bargaining  —  one member will give up something in return for someone else. For example, the wife says that her husband can take an expensive course in gourmet cooking if she can buy a new  pickup truck. Alternatively, a child may promise to walk it every day if he or she can have a hippopotamus. Another strategy is reasoning   — trying to get the other person(s) to accept one’s view through logical argumentation. Note that even when this is done with a sincere intent, its potential is limited by legitimate differences in values illustrated above. Also note that individuals may simply try to "wear down" the other party by endless talking in the guise of reasoning. Various manipulative strategies may also be used. One is impression management , where one tries to make one’s side look good (e.g., argue that a new TV will help the children see educational TV when it is really mostly wanted to see sports programming, or argue that all "decent families make a contribution to the church").  Authority involves asserting one’s "right" to make a decision (as the "man of the house," the mother of the children, or the one who makes the most money).  Emotion involves making an emotional display to get one’s way (e.g., a man cries if his wife will not let him buy a new rap album).

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Factors Affecting The Indian Consumer Buying Pattern

The important motives, influencing the ultimate buying behaviour: 1. Fear

: To overcome theft, you may purchase a burglar alarm(out of  fear)

2. Desire for money

: Purchasing when the price falls down.

3. Vanity

: Getting costly items to be admired by others

4. Pride

: Possessing luxurious items for high position in the society

5. Love and affection : When you purchase toys, dresses for your sister, it is out of  affection 6. Sex and romance

: Spending much on dresses, ornaments etc.

7. Fashion

: Imitation motives: Old people dress like young ones.

8. Possession

: This refers to collection of stamps, coins etc.

9. Health and Physical : Purchasing health foods, vitamins etc. Well being 10. Comfort and convenience

: Purchasing equipments like refrigerator, pressure cookers, mixy etc.

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Factors Affecting The Indian Consumer Buying Pattern

Economic factors affect buyer’s behaviour:

1. Disposal personal income :

The economists made attempts to establish a relationship between income and spending. Disposal personal income represents potential purchasing power that a buyer has. The change in income has a direct relation on buying habits. 2. Size of family income :

The size of family and size of family income affect the spending and saving patterns. Generally large family spend more and short family spend less, in comparison. 3. Income expectations :

The expected income to receive in future has a direct relation with the buying behaviour. The expectation of higher or lower income has a direct effect on spending plans. 4. Propensity to consume and to save :

This goes to the habit of spending or saving with the disposal income of buyers. If the buyers give importance to present needs, then they dispose of their income. And buyers spend less if  they give importance to future needs.

5. Liquidity of Fund :

The present buying plans are influenced greatly by liquidity of assets i.e., cash and assets readily convertible into cash, ex bonds, bank balances etc., 6. Consumer Credit :

Buy now and pay later” plays its role effectively in the rapid growth of markets for car, scooter, radio, furniture and the like.

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Factors Affecting The Indian Consumer Buying Pattern

Economic model suggests behavioural hypothesis : •

Lower the price of the product, higher the sales.

•

Lower the price of substitute products, lower the sales of this product

•

Higher the real income, higher the sales of the product.

•

Higher the promotional expenses, higher the sales.

Internal influences of buyers: •

•

•

•

 psychographics (lifestyle), personality, motivation, knowledge, attitudes,  beliefs, and

•

feelings.

•

demographics,

External influences of the buyer: •

culture,

•

sub-culture,

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Locality,

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royalty,

•

ethnicity,

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family,

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social class,

•

reference groups,

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lifestyle, and

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market mix factors.

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Factors Affecting The Indian Consumer Buying Pattern

Understanding Consumer Behaviour in Markets:

 Now, let us understand how the behaviour of consumer affects a marketer or what are the  benefits of understanding consumer behaviour. • It helps the marketer to take vital decisions with respect to designing of future marketing

strategies. What kind of promotional offers or marketing campaigns need to be undertaken. • Whether the marketer should stick to the same product, extend the product portfolio, or 

 probably launch a new product. If consumers prefer a particular brand and make the purchase and the consumption of the same their regular habit, it is time that the marketer should think  of improving upon a brand or come out with a different product. Many times, the need calls for a niche marketing. • It also helps an organization to reinstate the corporate policies or take action to reframe the

corporate mission statement. • The consumer behaviour also has effects on the entire social network which again helps an

organization to target a specific audience or set of customers. • The behaviour of consumers gives the nation a different face, either good or bad. • Also helps in scheduling of events, for example, any product launch or any advertising

campaign. • The consumer behaviour also is related to cultural attributes. If a product suits a particular  cross-section of culture, the marketer can think of extending his products to international arena and across different cultures. Above all, the study of consumer behaviour helps a marketer to identify or define the basic P’s of marketing and the marketing mix.

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Factors Affecting The Indian Consumer Buying Pattern

CHAPTER 3.

PROFILE OF INDIAN CONSUMERS

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Factors Affecting The Indian Consumer Buying Pattern

Profile of Indian consumers The recent years have witnessed rapid transformation and vigorous profits in Indian retail stores across various categories. This can be contemplated as a result of the changing attitude of Indian consumers and their overwhelming acceptance to modern retail formats. Asian markets witness a shift in trend from traditional retailing to organized retailing driven by the liberalizations on Foreign Direct Investments. For example, in China there was a drastic structural development after FDI was permitted in retailing. India has entered a stage of   positive economic development which requires liberalization of the retail market to gain a significant enhancement. The Indian consumption patterns are slowly converging with global norms. The Indian consumer is now spending more on consumer durables, apparel, entertainment, vacations and lifestyle related activities. Entertainment, clothing and restaurant dining are categories that have been witnessing a maximum rise in consumer spending since 2002. India is on the radar screen in the retail world and global retailers and at their wings seeking entry into the Indian retail market. The market is growing at a steady rate of 11-12 percent and accounts for around 10 percent of the country's GDP. The inherent attractiveness of this segment lures retail giants and investments are likely to sky rocket with an estimate of Rs 2025 billion in the next 2-3 years, and over Rs 200 billion by end of 2014. Indian retail market is considered to be the second largest in the world in terms of growth potential. Consumer Profile: One of the key reasons for the increased consumption is the impressive

growth of the middle class. Around 70 per cent of the total households in India reside in the rural areas. The total number of rural household is expected to rise from 135 million in 200102 to 153 million in 2009-10. This presents the largest potential market in the world. According to the study conducted by NCEAR, the number of `lower middle income' group in rural areas is almost double as compared to the urban areas, having a large consuming class with 41% of the Indian middle class and 58% of the total disposable income. The Indian rural market has been growing at 3-4% per annum, adding more than 1 million

new consumers every year and now accounts for close to 50% of the volume consumption of  22

Factors Affecting The Indian Consumer Buying Pattern fast-moving consumer goods (FMCG) in India. The market size of the fast moving consumer  goods sector is projected to be more than double to US$ 23.25 billion by 2010 from the  present US$ 11.16 billion. As a result, it is becoming an important market place for fast moving consumer goods as well as consumer durables. There were nearly 70 mn households (33% of the total) with an income of more than US$3,000 in 2006. These "well-off" households already own relatively expensive consumer  durables, such as air conditioners and refrigerators. •

600 mn+ effective buyers by 2010

•

550 mn+ under the age of 20 by 2015

•

70 mn+ earn Rs. 8,00,000+ ($18,000) a year – number to rise to 140 mn by 2011

Consumer Behaviour: Availability of lifestyle spending options is increasing for Indian

consumers and that inducing higher spends on "status acquisition". Traditionally, Indian consumer is cautious about debts. In recent past, this attitude has changed radically and in recent year's credit is no more a feared entity. Indian consumer buying behaviour to a large extent has a western influence. Foreign brands have gained wide consumer acceptance in India and they are much more open for  experimentation. Beauty parlours in cities, eateries, designer wear, watches, hi-tech products are a few instances which reflect these changes. Purchasing priorities in India also influence the level of sales of individual products. Penetration data bear this out: televisions in use in 2006 were estimated at 95 per 1,000  populations, far higher than the level for white goods. This reflects the growing demand for  entertainment in India. Consumer Spending: The rate of growth of spending on discretionary items (unlike basic

necessities like food) has been growing at an average of 9 per cent per year over the past five years. A nation of savers, India, has now altered into a nation of spenders. KSA Technopak's Consumer Outlook report estimates that an average Indian spends 40% of  his monthly salary on food and grocery and 8% on personal care products. 23

Factors Affecting The Indian Consumer Buying Pattern Indian consumer spending basket: •

Consumer durables – 53%

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Books & Music – 32%

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Movies & Theatre – 38%

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Vacation – 32%

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Home Textiles – 29%

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Mobile phones – 96%

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Payment Household help – 48%

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Computer / peripherals – 10%

Urban-Rural divide in Spending (%):

Category Entertainment Consumer Services Durables Misc. Consumer goods Clothing and Footwear F oo d

Rural 33 44 50 57 61 64

Urban 67 56 50 43 39 36

Consumption Trends

Food Essentials Essenti Essential al Servic Services es (water, (water, power, power, rent, rent, and fuels)

45.68% 10.1%

Clothing

4.9%

Footwear

0.63%

Medicare

4.25%

Transport & Communication

14.51%

Recreation, Education, and Culture

Less than 4%

Home Goods

3.25%

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Factors Affecting The Indian Consumer Buying Pattern

A Note on Consumer Spending Patterns in India:

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Factors Affecting The Indian Consumer Buying Pattern

•

Consumer spending can be categorized into reg regula ular

spen spends ds

Regula Regularr

and

spend spending ing

lifest estyle

incl includ udes es

spe spends. nds.

the the

basi basicc

necessities of life, while lifestyle spending includes spending on a computer, internet, car, cell phone, etc. Analysis of consumer  spending in the past 10 years reveals that the average consumer has been spending on an increasing number of different goods

•

There are a number of factors affecting the consumer spending pattern in India; these include growing income levels resulting in more disposab disposable le income income with with individu individuals als,, changing changing attitu attitudes des towards towards consump consumption tion,, chan change gess in pric prices es,, intr introd oduc ucti tion on of new new   pro produ duct cts, s, avai availa labi bili lity ty of cred credit it such such as loans, loans, mort mortgag gages es and and credi creditt cards cards,, rising rising aspi aspira rati tion on

leve levels ls,,

incr increa ease sed d

lite litera racy cy,,

growi growing ng brand brand consc conscio iousn usness ess and rapid rapid urbanization. Spendin Spending g habits habits are differen differentt for people people belongin belonging g to differen differentt sections sections of society society.. For  instance, people belonging to the middle class consider basic necessities and education and spending toward the future of their children as their top priorities, followed by lifestyle goods. The rich class spends more on luxury goods and international brands. The super rich class spends on ultra luxury goods. It is observed that as disposable income income increases, people  p pref refer er more more of brande branded d goo goods, ds, shift shift to proces processe sed d foods, foods, and the the expen expendit diture ure on food, food,   beverag beverages, es, tobacco tobacco,, and transpo transport rt and communi communicati cation on also increase increases. s. A compari comparison son of  consumer spending habits in 2002 with those in 2007 revealed that expenditure on food, clot clothi hing ng and and pers person onal al care care has has rema remain ined ed more more or less less cons consta tant nt,, but but expe expend ndit itur uree on entertainment has increased.

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Factors Affecting The Indian Consumer Buying Pattern

Shopping habits of Indians are changing due to their growing disposable income, relative increase in the younger population, and the change in attitudes towards shopping. The emphasis has changed from price consideration to design, quality and trendiness. The desire to look and feel good is also guiding factor for customers while making their purchase decisions. Growing disposable income is also propelling demand for consumer durables and eating in restaurants among Indians. Age is also a major factor that affects the spending decisions of an individual. For instance, people in 20-24 years age group spend more on electronic / home appliances and movies, while people in the 45-48 years age group spend more on vacations.

Consumer behavior in India:

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Factors Affecting The Indian Consumer Buying Pattern This study on Indian consumer behaviour is aimed at helping businessmen to get a better  understanding of the Indian market place thus enabling them to embark on selected strategies to effectively reach the Indian consumers. India is a big country with 28 states, over one billion people and 120 dialects/languages. From the market perspective, people of India comprise different segments of consumers,  based on class, status, and income. An important and recent development in India’s consumerism is the emergence of the rural market for several basic consumer goods. Three-fourths of India’s population lives in rural areas, and contribute one-third of the national income. This rural population is spread all over  India, in close to 0.6 million villages. India is a lucrative market even though the per capita income in India is low and it remains a huge market, even for costly products. Among the total 164.8 million households in India, 80.7 million households comes under low income group ( US$ 2465).

Characteristics Of The Indian Consumer Behaviour 

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Factors Affecting The Indian Consumer Buying Pattern

The Indian consumers are noted for the high degree of value orientation. Such orientation to value has labelled Indians as one of the most discerning consumers in the world. Even, luxury brands have to design a unique pricing strategy in order to get a foothold in the Indian market. Indian consumers have a high degree of family orientation. This orientation in fact, extends to the extended family and friends as well. Brands with identities that support family values tend to be popular and accepted easily in the Indian market. Indian consumers are also associated with values of nurturing, care and affection. These values are far more dominant that values of ambition and achievement. Product which communicate feelings and emotions gel with the Indian consumers. Apart from psychology and economics, the role of history and tradition in shaping the Indian consumer behaviour is quite unique.

Perhaps, only in India, one sees

traditional products along side modern products. For example, hair oils and tooth  powder existing with shampoos and toothpaste.

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Different Segments Of Indian Consumers

1

The Socialites

Socialites belong to the upper class. They prefer to shop in specialty stores, go to clubs on weekends, and spend a good amount on luxury goods. They are always looking for something different. They are the darlings of exclusive establishments. They go for high value, exclusive products. Socialites are also very brand conscious and would go only for the best known in the market.

2

The Conservatives 29

Factors Affecting The Indian Consumer Buying Pattern

The Conservatives belong to the middle class. The conservative segment is the reflection of the true Indian culture. They are traditional in their outlook, cautious in their approach towards purchases, spend more time with family than in partying and focus more on savings than spending. Slow in decision making, they seek a lot of information before making any purchase. They look  for durability and functionality but at the same time are also image conscious.

They prefer high value consumer products, but often have to settle for the more affordable one. These habits in turn affect their purchasing habits where they are trying to go for the middle and upper middle level priced products.

3

The Working Women

The working woman segment is the one, which has seen a tremendous growth in the late nineties. This segment has opened the floodgates for the Indian retailers. The working woman today has grown out of her long-standing image of being the homemaker. Today, she is rubbing shoulders with men, proving herself to be equally good, if not better. Working women have their own mind in decision to purchase the products that appeal to them.

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India’s Rich

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Factors Affecting The Indian Consumer Buying Pattern India’s rich can be categorized into five major categories as follows:

1

The Rich The rich have income greater than US$11,000/- per annum. Total household having such incomes are 1,058,961.

These people are upwardly mobile.

Some of them in this category are Double Income No Kids (DINK) households. They spend more on leisure and entertainment-activities than on future looking investments. Across the category, backgrounds are distinctly middle class. They aspire, therefore, to attain the super-rich status.

2

The Super Rich

The Super Rich have income greater than US$22,000/- per annum. Total number of households is 320,900. There are less DINK families here than in the rich category. The Super Rich are mainly professionals and devoted to consumerism. They buy many durables and are status conscious.

3

The Ultra Rich

The Ultra Rich have income greater than US$44,000/- per annum. The number  of households in this category is 98,289. There is no typical profile of the ultra-rich.

There are some DINK households of middle-level executives.

Some single earning households are of first generation entrepreneurs. Some rich farmers, who have been rich for a long time, belong to this category.

4

The Sheer Rich

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Factors Affecting The Indian Consumer Buying Pattern The Sheer Rich is made up by households having income exceeding US$110,000/- per annum. Such households are 20,863. They do not have a homogenous profile. There are joint families as well as nuclear families in this category. They consume services greatly. They own multiple cars and houses. They aspire to social status and power.

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The Obscenely Rich The Obscenely Rich is made up of households having income exceeding US$222,000/- per annum. There are hardly 6,515 such households in India. They are first-generation entrepreneurs who have some of them are techies. A variety of people belong to this category. They are just equivalent to the rich in the developed countries. They crave for exclusivity in what they buy. Most  premium brands are relevant to them.

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Rural Consumer  

About three quarters of the Indian population are in the rural areas and with the growing middle class, especially in the Indian cities, the spill over effect of the growing urban middle class is also felt in the rural areas. The Indian rural market has been growing at 3-4% per annum, adding more than 1 million new consumers every year and now accounts for close to 50% of the volume consumption of fast-moving consumer goods (FMCG) in India. The market size of  the fast moving consumer goods sector is projected to more than double to US$ 23.25  billion by 2010 from the present US$ 11.16 billion. As a result, it is becoming an important market place for fast moving consumer goods as well as consumer  durables.

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Increasing Awareness Of Indian Consumers

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Factors Affecting The Indian Consumer Buying Pattern Over the years, as a result of the increasing literacy in the country, exposure to the west, satellite television, foreign magazines and newspapers, there is a significant increase of consumer awareness among the Indians. Today more and more consumers are selective on the quality of the products/services. This awareness has made the Indian consumers seek more and more reliable sources for purchases such as organized retail chains that have a corporate background and where the accountability is more pronounced. The consumer also seeks to purchase from a place where his/her feedback is more valued. Indian consumers are now more aware and discerning, and are knowledgeable about technology, products and the market and are beginning to demand

benefits beyond

 just availability of a range of products that came from ‘trusted’ manufacturers. The Indian consumers are price sensitive and prefer to buy value for money products.

Changing Trends In Indian Consumer Behaviour 

1

Bulk Purchasing

Urbanisation is taking place in India at a dramatic pace and is influencing the life style and buying behaviour of the consumers. The working urbanites are depending more on fast and ready-to-serve food, they take less pain in traditional method of cooking and cleaning. Bulk purchases from hyper stores seems to be the trend these days with  purchasing becoming more of a once-a-week affair, rather than frequent visits to the neighbourhood market/store/vendor.

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Factors Affecting The Indian Consumer Buying Pattern The popular growing shopping trend among urbanities is purchasing from super markets to hyper stores.

2

Trendy Lifestyles

The current urban middle and upper class Indian consumer buying behaviour  to a large extent has western influence. There is an increase in positive attitude towards western trends. The Indian consumer has become much more openminded and experimental in his/her perspective. There is now an exponential growth of western trend reaching the Indian consumer by way of the media and Indians working abroad.

Foreign brands have gained wide consumer acceptance in India, they include items such as; •

Beverages

•

Packed food

•

Ready to eat food

•

Pre-cooked food

•

Canned food

•

Personal care products

•

Audio/video products

•

Garment and apparel

•

Footwear 

•

Sportswear 

•

Toys

•

Gift items

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Factors Affecting The Indian Consumer Buying Pattern Foreign brands vie increasingly with domestic brands for the growing market in India. Foreign made furniture is well accepted by the Indian consumers. Malaysian, Chinese, Italian furniture are growing in popularity in India.

Indian consumers have also developed lifestyles which have emerged from changing attitudes and mind sets; exposure to western influences and a need for self-gratification.

Beauty parlours in cities, eateries, designer wear,

watches, hi-tech products are a few instances which reflect these changes.

3

Buyers’ Market In The Making

The sellers’ market is slowly moving towards becoming the buyers’ market. Since, India’s economic liberalization policies were initiated in 1991, many new product offerings have entered the Indian market and product variety has also increased manifold. Import licensing restrictions are being eliminated and tariffs significantly reduced and this has led to large range of consumer goods made available in India. Indian consumers have always preferred foreign goods and with the liberalization, they now have a choice of foreign products vis-à-vis the local  products. Consumer Spending Behaviour 

The Indian consumer spending has increased from US$ 133.60 in 1992-93 to US$ 350.74 in 2002-03, a compound annual growth of 10.13 per cent at current prices.

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Factors Affecting The Indian Consumer Buying Pattern The way Indian consumers are spending their money on various items has changed in recent years. The share being spent on the basis (food and beverages) has fallen from 54.07 per cent in 1992-93 to 44.8 per cent in 2002-03. Other items have increased in importance, for example, medical and healthcare spending has increased from 3.5 per  cent to 8.5 per cent of total expenditure over the same period, a compound growth rate of 19.71 per cent. Similarly spending on transport and communication has grown at 13.2 per cent. While the Compound Annual Growth Rate (CAGR) in total consumer spending has  been around 12 per cent a year over the past decade, there have been sharp ups and downs. Consumer expenditure has been in tandem with the annual GDP growth. For rural India, per capita 30 days' consumer expenditure of US$ 12.34 was split up into US$ 6.78, on an average, for food, and US$ 5.56 for non-food. Food expenditure included US$ 2.25 for cereals and cereal substitutes, and US$ 2.37 for milk, milk    products, vegetables, edible oil and US$ 2.16 on others. Non-food expenditure included US$ 1.11 for fuel and light, and another US$1.00 for clothing, footwear and US$3.45 on other non-food expenditure. For the urban sector, average Monthly Per Capita Consumer Expenditure (MPCE) of  US$ 23.53 was split up into US$ 10.00 for food and US$ 13.53 for non-food. Of food expenditure, US$ 2.37 went towards cereals and cereal substitutes while US$ 3.67 was spent on milk, milk products, vegetables and edible oil and US$3.96 on other  food items. US$ 2.11 was spent per person per month on fuel and light, and US$ 1.65 on clothing and footwear and US$9.77 on other non-food items. Urban expenditure levels per capita exceeded rural levels for all the product groups, except on cereals and cereal substitutes. The average monthly per capita expenditures on cereals and cereal substitutes for rural and urban areas are very close to each other. The gap between rural and urban averages of MPCE was of the order of US$ 11.16. The item-groups viz. milk and milk products, beverages etc, fuel and light, education, miscellaneous consumer goods & services, conveyance and rent contributed to the gap significantly.

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Factors Affecting The Indian Consumer Buying Pattern  Non-food expenditure per person in the urban sector was more than double of that for  the rural sector, where it was about US$ 5.55. In India, the higher income group (>US$2,465) spends more amount of their income on luxury goods and trendy products than fact moving consumer products. The middle income group (US$1,162 – US$1,190) spends more on consumer  expendables than the rich.

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Conclusion

Top class, middle class and lower class are income related classifications of the population and each of this class has its own consumption pattern. For the Indian market, exporters/manufacturers should see the substantial middle class and   base the market demand/projections on this roughly estimated at 250 million people with substantial disposable income.

Urban and rural life of India: Up until recently, large part of the marketing that was done in this country was done, targeting the urban population of the country. Now the marketing potential of the rural part of the country is rapidly growing. Let us get an understanding of the urban and rural break- up of the country. 26% of the population lives in the cities or in urban India. The remaining 74% lives in the villages or in rural India. The population of the country is spread over the villages but is very concentrated in the cities. India has six of the largest cities in the world. These are - Kolkata, Mumbai, Delhi, Madras, Bangalore and Hyderabad.Besides these cities, there are six other  cities that are growing at a very rapid rate and have a huge concentration of the population. These are - Ahmedabad, Kanpur, Pune, Nagpur, Lucknow and Jaipur. In addition to these cities, there are around 4000 towns that have concentrations of the population.

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Factors Affecting The Indian Consumer Buying Pattern In the cities, there are a lot of jobs available now-a-days due to call centres and BPO's. This has given many more people purchasing power. Items that were luxury items a few years ago are seen in every house in the cities.

Indian middle class “male” consumer The middle class of India is for whom most of the advertising is targeted. Even in the lower  middle class, consumer products like biscuits, talcum powder, hair oil, hair cream, toilet soaps, leather foot ware, casual foot ware, wrist watches, quartz watches etc. are purchased. To get a much better understanding of the middle class “male” head of the family, consider  the following characteristics: Security Seeking:

The middle class generally consists of security seeking people. Even though they are receptive to new ideas, they do not very readily dash into new ventures. The middle class man does not only want economic security, but he also wants emotional security. He will not do something that is likely to upset his emotional ties. He wants social security. He wants to be part of society. He does not want to be a rebel or an outcast. Being part of  society he enjoys a degree of protection. He is likely to welcome new innovations is they satisfy his sense of security. If he feels that a particular idea will help him improve his economic position or social relationships he will accept it. Anything that is likely to upset this  balance is going to be discarded by him.\ Credit purchases:

The middle class Indian normally lives in a fixed income. He has to manage his finance in a rigid budget. He wife selects reasonably good furnishings and uses modern cooking gadgets. He usually has a two-wheeler of this own. He aspires for the well-to-do lifestyle he sees on TV. So his purchases are generally materialistic in nature. Because of this he likes to make large purchases and pay for though the different credit facilities that are made available to him  by the banks and other financial institutions.

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Factors Affecting The Indian Consumer Buying Pattern   Now days practically everything is made available to him on installment payments. The availability of credit facility acts as a temptation to buy. His desire for bringing home more and more material comforts is realized by the availability of credit facilities. The State Bank Of India campaign of a few years ago, "Be a big shoppers! Make a big buy! Take home a car, a VCR or a sewing machine today! You can do it now with the big buy scheme..." appealed to many Indians. The system of "credit cards" is also growing in the country at a very fast rate. It is expected that in the near future, Indians will be the biggest users of credit cards second only to America. Prestige Conscious:

The middle class Indians have many of their possessions, largely because they are "status conscious" or "prestige conscious". The middle class man’s finances may be tight and he may even struggle to meet ends. Still, he looks for more than average comforts, and plans for more material possessions. These possessions act as status symbols. By appealing to this prestige a marketer may motivate the middle class man. Strong Family Ties....Home loving:

The middle class man is a home loving man. He assigns a lot of importance to the well being of his family. He spends a good portion of his income on the education of his children. His children get priority in his budget. He without much resistance will adjust to the changing fashions of his college going children even though these changes may be costly for him. The concept of "small family more comforts" has gone well with him. The "family tie" binds him so strongly that anything that appeals to this "human bond" will find his ready acceptance. His son's education or his daughter’s marriage are life- long dreams for him. Anything that appeals to these dreams will catch his immediate attention. However, the middle class man is greatly influenced by his wife especially on his buying decisions. Tooth-paste, hair oil, magazines or tape recorders, the purchasing decision is consented by her. There are certain buying decisions that are made by his wife solely so the middle class housewife is another important person to study from the marketing point of  view. 39

Factors Affecting The Indian Consumer Buying Pattern

The Indian middle class “house wife” as a consumer: The percentage of working women in India is growing at a steady pace. This is mainly   because of the development in communication systems and growth of educational opportunities given to women. Because of this growth of working women, the women now-adays also have an increased purchasing power. Due to this, industries that are directly related to women like cosmetics etc. have seen a major boost. Also, toiletries, food and beverages etc. have seen a growth. The middle class house wife is generally educated and is the purchasing agent for some of the  products the family buys. She is also the "gatekeeper" for many products like new cooking medium, fast food etc. that cannot enter the house without her clearance. She also decides  purchases meant for children. To get a much better understanding of the Indian house wife, consider the following characteristics of her buying decisions:

Cautious, but not averse to change:

The middle class house wife is generally educated, earns her own money or has to use money given to her on a fixed budget. This makes the middle class house wife a discriminating and cautious buyer. However, she is not averse to new ideas and things. She is willing to try new things but she will not adopt any product instantly. She will make a sample purchase, check  with people who use the product, listen for guidance and then finally she may go in for   purchasing the product. Quality as well as cost cautious:

The middle class house wife is a quality as well as cost cautious buyer. She will try to  purchase products that will last her for a long time. She will try to get "millage" out of every rupee she spends. She is less likely to purchase “use and throw” type of products. Besides  being quality conscious, she also is cost conscious. Before buying a particular product she will first check the price with other sellers and will then go in for the lowest price. 40

Factors Affecting The Indian Consumer Buying Pattern Because of being quality and cost conscious, extra features like re-usable containers will influence her buying decision. Bonus prizes, coupons, rebates etc. will definitely attract her  attention. Instead of advertising she relies on word-of-mouth communication. She is interested in knowing what her neighbour or colleges are using. Even after she purchases a product she seeks reassurance about making the right purchase decision.

Leisure seeking:

As time passes the house wife is getting used to more and more leisure though the use of  modern gadgets like washing machines and other such house hold items. She will be interested in new innovations that reduce her work time even more. She may not be able to afford all the modern gadgets that are available in the market but they still hold her interest  because they are a potential for saving time and avoiding drudgery. Sense of grooming:

Sense of beauty is a strong motive force behind several of her purchases. Soap or shampoo, vanishing cream or cleansing milk, perfumes or hair oil - selecting her brand is greatly influenced by her sense of grooming. She is generally fashion loving however she is not fashion crazy. A strong sense of traditionalism runs thought her personality. Products or ideas that uproot her basic personality or values will not find acceptance with her.

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Factors Affecting The Indian Consumer Buying Pattern

Understanding the “middle class” urban teenager as consumer: They are more adventurous than their elders and they care less for tradition and religion. The often are after a "New Look" and they seek novelties. They are quick to adopt new fashions that emerge. They are generally more receptive to change. They believe more in spending money in the  pursuit of pleasure than saving for the future. It is not easy to dupe them but it is quite easy to motivate them. Teenagers are becoming quite a distinct market segment. They not only have products and services that been designed to cater their needs but also they are an influence on the decisions taken by adults. Some estimates show that around Rs.500 crore a year is the amount of money given to children as pocket money.

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Factors Affecting The Indian Consumer Buying Pattern

CHAPTER 4.

CONSUMERS SPENDING HABITS

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Factors Affecting The Indian Consumer Buying Pattern

Consumers spending habits Changing Spending Habits of Indians: Spending habits have undergone dramatic changes in recent years in India. A new report finds that people are spending a great deal on clothes and communications. India is showing a preference for ready-made apparel with a massive 75% hike in such   purchases while the neighbourhood darzi may soon be an extinct species as tailoring expenses have gone down by 26% in the rural sector and 33% in the urban sector.

Another major change in consumer behaviour was found in the way India connects. Telephone expenditure, per person per month, increased by a whopping 515% since 19992000 in rural areas and by 230% in urban areas. The deep inroads made by the mobile revolution was visible in the proportion of households incurring expenditure on telephone going up from 5% to 32% in rural areas and from 25% to 63% in urban areas. Expenditure on education has gone up from 45% to 57% in urban India and from 29% to 44% in rural India while expenses on healthcare have also gone up substantially. All of these are a clear indicator of change culture and values in modern India. Embrace of  modernity and globalization of India does not come without its perils. Consumeristic ideology and ramphant materialism does not satisfy deepest human aspirations. More stuff  and toys only adds to new and complicated problems in the society. It merely replaces one set of problems with new ones.

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Factors Affecting The Indian Consumer Buying Pattern

A Look at the Spending Habits of College Students: While some students struggle to make ends meet, the stereotypical college experience of  eating Ramen Noodles, wearing clothes from Goodwill, and drinking cheap beer is quickly disappearing. Much of this can be explained by the changing demographics of today’s students. Less than half (43%) of college students are 18-21. The typical college student is in their mid-twenties, either lives at home or on campus, and has a job. Students no longer  expect to complete college in 4 consecutive years, and many fluctuate between full-time and  part-time study over a period of 5 to 7 years. The older the student, the more money he or she generally has. The typical college student gets an average of $757 a month from jobs, parents or other  sources. Most money comes from work. 75% of students maintain jobs while attending school, earning $645 per month on average. 20% have secured an on-campus job and 42% are spending school breaks working. Parents contribute too, contributing an average of $154 to a student’s monthly income. A student spends more than $13,000 per year on average, 19% of which is discretionary. That adds up to a substantial $211 per month of discretionary spending. Credit cards are monetary sources for some students. Most students – 70% of males and 75% of females – have between 1-3 credit cards. While establishing credit in college can be to your advantage, using credit cards for basic living expenses can create financial problems. Use credit cards sparingly. Overall, data reveals college students to be savvy, capable and influential consumers,  balancing the rising cost of tuition with a hardy work ethic, spending a fair portion of their  considerable discretionary income on high-end technology, and holding considerable sway over the purchasing decisions of their peers. College students spend most of their  discretionary income on food. Students spend more than $11 billion a year on snacks and  beverages. Even students who live in the dorms and have meal plans spend a lot of money eating out. You can spend hundreds of dollars on coffee each semester. Utilizing your meal  plan and cooking your own meals can save a great deal of money. A large expense for many college students is electronics, gadgets, and technology. Students rely on technology to access information, communicate with friends, and keep themselves 45

Factors Affecting The Indian Consumer Buying Pattern entertained. These expenses are seen as necessities. The majority of college students (90%) own a computer, and two-thirds (65%) of those students have a broadband connection. 62% of college students own a stereo, a cell phone (77%), a printer (77%), and a television (84%). A large portion of income goes to cell phone service, which 85 percent of students have. The majority of students with cell phone service pay for extras such as text messaging (62%) and internet access through their mobile phone (41%). Entertainment is another large expense for college students. They spend nearly $3 billion annually on movies, DVDs, music, and video games. They spend $474 million on music sales, $658 million on theatre tickets, and $341 million on games each year. At home and in the dorms, they’re watching movies, spending $600 million to buy and $326 million to rent DVDs. If you think a big entertainment expense for college students is going out to bars and  partying with friends, you’re right. It is estimated that the average student spends at least $50  per month on beer alone. Each year, American college students spend $5.5 billion on alcohol. While smoking is not a form of entertainment to most, it is a costly habit. A pack-a-day habit can cost you several hundred dollars a semester. Personal care is another big expense for college students, with $4 billion spent each year for    personal care products alone. Students also spend a lot of money clothing themselves.  Nationally, students spend more than $5 billion a year on clothes and shoes. By the time they reach college, full-time students represent over sixty billion dollars in   buying power. This amount usually increases once the student graduates and becomes employed. Marketers who can successfully reach these young adults with a quality product,  positive message, and clear value, may enjoy decades of loyal purchasing and millions of  dollars worth of free, word-of-mouth marketing. Hooking someone while still in college is one way to do this.

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Factors Affecting The Indian Consumer Buying Pattern

CHAPTER 5.

CONSUMER BEHAVIOUR IN RECESSION

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Factors Affecting The Indian Consumer Buying Pattern

Consumer behaviour in recession. 10 key pointers of consumer behaviour in a recession revealed: Many believe recession will be “short lived and economic prosperity will return” Some consumers groups may as a consequence of falling interest rates be better off during the recession and will benefit from businesses slashing retail prices. These are two key findings of  “Media in a Recession,” a report by Arena BLM, the Havas-owned media  planning and buying group. Despite the credit crunch, consumers with reasonable security of employment who don’t need to move house will have more disposable income than they had several months ago, thanks to recent interest rate falls, even if high street lenders are slow to pass on the savings. The report finds that while consumers are completely aware of the economic situation and are less prone to making rash decisions or impulse purchases, they believe the recession will be short lived and economic prosperity will return. Already it is clear that certain brands are benefitting from the change in consumer habits.

Like for like sales for Domino’s Pizza increased by 17.8%, DVD sales are up 6.5% year on year for the third quarter of 2008. Outside these sectors the high street – virtual and real – is filling up with bargains and consumers will take the opportunity to spend on cheaper high ticket items. The new Westfield Shopping Centre in West London attracted half a million shoppers in its opening weekend. Consumers believe that media is increasingly important in a recession; delivering cheap entertainment, reassurance and escapism. Brands that offer escape and indulgence in conjunction with value will be winners in a recession. Early winners are also feel-good

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Factors Affecting The Indian Consumer Buying Pattern movies such as Mamma Mia, High School Musical 3, and Quantum of Solace selling out at the box office.

The report found that consumers are avoiding high ticket or debt funded purchases that they consider non-essential. Car and property sales have collapsed.

Consumers are searching harder for value and are utilising internet tools such as price comparison websites and search engines. Broadband connections are still growing despite the downturn and two thirds of homes now have high-speed web access. Consumers are more likely in a recession to switch brands, ditching lifetime favourites in  pursuit of value, trust and reliability. Consumers will interrogate brands and their communication harder. Facile or unbelievable claims will be rejected. Consumers will support the brands they think are helping them. Consumers still want low-cost indulgence and are prepared to make sacrifices to be able to afford high-ticket non-essential products and services.

10 Key Pointers..... 1. Consumers will still make high-value purchases, but will require greater reassurance. They

are less likely to debt fund significant purchases. 2. The current expectation is that both interest rates and inflation will stay low, perversely

 putting consumers who remain in employment in a better economic position. The main issues will be confidence and reassurance. 3. Consumers will be massively price sensitive. They will price compare and use digital

channels to facilitate this. Given every retailer is offering some form of promotion, consumers know they can access value. 4. But they also want entertainment and escapism. Brands that help them achieve great value

and enjoyment are most likely to succeed.

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Factors Affecting The Indian Consumer Buying Pattern 5. There is significant evidence that advertising through a recession drives sales, preference

and both long- and short-term success. 6. Media rates will fall more steeply than the downturn in the economy. The real reduction is

rates will be greater than headline inflation figures. Advertisers who approach media owners with strong, long-term business cases that demonstrate support will generate substantial improvements. 7. Digital will drive huge benefits and drive purchasing behaviour and will be low risk way of 

communicating with consumers. Digital response will improve if campaigns run in conjunction with targeted offline media exposure. 8. Creative production costs should drop and media owners will invest in production to help

access new budgets. 9. Flexibility will massively improve value creation, both in terms of negotiation and clients

who are prepared to test and learn. 10. Brief agencies in a different way. Briefs are frequently executional, with the channel

already defined. We suggest sharing the business problem and getting the agency to challenge conventions; if you believe you need to be on TV and your budget is drastically reduced, challenge your agency to find to come up with an approach that will allow it, in the current market it may well be possible. Recessions can bring upon radical and disruptive changes in consumer behaviour. The OTO Research report confirms that during this recession 80% of consumers are going to change their spending habits. 89% of consumers are going to systematically check online what and where the best products are, and what their value for money is. Consumers are getting savvy in the way they optimize their spending. During a recession, the role of your brand is to build trust and justify the value for money.

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Factors Affecting The Indian Consumer Buying Pattern

CHAPTER 6. CASE STUDY

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Factors Affecting The Indian Consumer Buying Pattern

1. The Beer industry in India in context of Consumer Buying Behaviour 

The Indian beer market was estimated to be 6.7 million hectoliters (hl) in 2002-03. Beer  consumption has been growing rapidly at a CAGR (Compound Annual Growth Rate) of 7 per  cent over the last 9 years, while growth in 2002-03 was 11 per cent. Indian growth rates compare favourably with the global beer industry, which grew by about 2.6 per cent in 2001-02 Apart from providing strong growth, India also provides attractive  profit margins due to the consolidated nature of the industry – a comparison between China and India, for example, reveals that the Chinese beer market is marked by intense competition, with several players being marginalized. In China there are about 400 brewers, of which the top 10 account for only 45 per cent of the market. This has resulted in low profit margins for the Chinese beer players. In contrast, the top two beer players in India account for about 75 per cent of beer sales in India and the industry stands a chance to see more consolidation in the near future. The effect of this consolidation can be seen in the fact that  beer prices in India rarely go down with the competitive pressures of new product or brand launches. In the past, whenever beer prices have gone down, it has been due to either the lowering of duties by the government or the deregulation of distribution (leading to lower  52

Factors Affecting The Indian Consumer Buying Pattern margins for the distribution channel partners). In neither scenario have the margins or  revenues of beer manufacturers been affected. Per capita consumption in India is hovering around a measly 0.5 litres per annum. These figures pale into insignificance if one compares them with those of Czech Republic that has the highest per capita consumption of 156.9 litres per annum. Per capita consumption is directly related to the taxation, according to an industry observer. For instance, in Maharashtra there is a direct 100% excise duty on Beer. An equivalent 650 ml bottle is available for approximately Rs 8 in China. Which is why the per capita consumption in China is a high 16 litres per annum. The Indian beer market has been growing rapidly over the last 10 years, due to the positive impact of demographic trends and expected changes, like: Rising income levels: India is home to nearly one-sixth of the global population and is one of  the most attractive consumer markets in the world today. Various research studies have shown that a rise in the income levels has a direct positive effect on beer consumption. The   National Council for Applied Economic Research (NCAER) projects India's 'very rich', 'consuming' and 'climbers' classes to grow at a CAGR of 15 per cent, 10 per cent and 2 per  cent respectively. With this growth in income levels, Indian beer consumption is expected to continue growing, at the very minimum, at the growth rates witnessed in the last decade. Changing age profile: As a consequence of the high birth rates prevalent until the 1990s, a large proportion of the Indian population is in the age group of 20-34 years. This age group is the most appropriate target for beer marketers. This population trend will give a further boost to the growth of beer consumption in India. Many global players are planning to enter the Indian beer sector and they realise that a  partnership with a local player is important to establish a successful presence in India in a short time frame. Changing lifestyles: A deep-seated traditional social aversion to alcohol consumption has  been a traditional feature of the Indian society. However, as urban consumers become more exposed to western lifestyles, through overseas travel and the media, their attitude towards alcohol is relaxing. Social habits are undergoing a transformation as mixed drinks are 53

Factors Affecting The Indian Consumer Buying Pattern   becoming more popular. The greatest evidence of this trend is the increase in beer  consumption among women. More and more women are consuming beer – the penetration in metropolitan areas is almost twice as high as the penetration in other large cities – implying that the greater tolerance towards alcohol consumption in metropolitan areas facilitates the consumption of beer. With increasing urbanisation, this acceptance is only going to rise. Reduction in beer prices: The Indian consumer typically values an alcoholic beverage on the  basis of its 'kick' factor versus its price. The following two factors therefore, affect the market for beer. Firstly, as most states do not have a differential tax structure based on the alcohol content, strong beer... As far as the Light beer segment goes, there is no existing competition in the market. However, a number of well-established brands, especially lagers, have a significant market  presence. Chiefly – Kingfisher - India's celebrated malty draught lager since 1857; voted 'The World's Best Lager' in Stockholm and Chicago. In India the future of beer industry is very much optimistic because: 1. India has predominantly a warm/hot climate 2. The beer-drinkers in the country are much younger than the average beer-drinker 

elsewhere in the world. This makes them more likely to carry the brand with them for a lifetime. 3. Increasing exposure to beer and wine drinking, mainly due to media and consumer 

mobility. All these factors combined make the scenario very promising for beer industry and are 'in sync' with their strategy for India. UB (United Breweries Ltd.) is the market leader in the Indian beer market with a 40%

market share. Its flagship Kingfisher brand alone commands 25% market share. The company has however been focussing on strong beer, which has driven growth. The company introduced its strong beer, Kingfisher Strong  during the year 2000 in the selected market of  Maharashtra and Karnataka. The move came as a reactive move following increasing shift of  consumers towards strong beer, a trend started by Shaw Wallace. While the overall market 54

Factors Affecting The Indian Consumer Buying Pattern grew marginally by 2%, the strong beer market grew at 8-10% during the year at the expense of lager beer. The market is now skewed towards strong beer with more than 60% of the market being strong beer market. Beer mix today is approximately 60 percent lager beer and 40 percent strong beer. This ratio was very different 4 years ago. Over the last four years strong beer has been the fastest growing segment. This was completely usurped by Shaw Wallace. As of today while Shaw Wallace has approximately 28 to 30 percent of the strong beer market, UB already has achieved 14 to 15 percent of that strong beer market and is growing very fast. It launched   Kingfisher Strong  only in May of 2001. And once it is able to take   Kingfisher Strong 

national, it will try to match Shaw Wallace's market share over the next few years.

Apart from Kingfisher , and Foster's Beer , the other brands in the Indian market are Carling   Black Label, Carlsberg, Dansberg, Golden Eagle, Guru, Maharaja Premium Lager, Haake  Beck, Haywards 2000 Beer, Haywards 5000, Haywards skol, Flying Horse Royal Lager, Taj Mahal, Heinekin, Hi-Five, Ice, Kingfisher Diet, Kingfisher Strong, Kirin, KnockOut, Legend,   London Diet, London Draft, London Pilsner, Royal Challenge, San Miguel Lager, Sand   Piper, Strohs and Zingaro.

The major brands which belong to large groups in the industry (apart from UB) are – Shaw Wallace -  Royal Challenge Premium Lager, Haywards 2000 Premium Lager, Haywards 5000 Super Strong, Hi-Five and Lal Toofan.

South African Breweries India Ltd. -  Knock-Out, Continental  and Three Lions, a new brand that was launched in the autumn of 2001 by SAB in Uttar Pradesh, Chandigarh and Himachal Pradesh. Other possible competition –Radico Khaitan and beer international Interbrew have formed a  joint venture to distribute Interbrew's Beck's brand of beer in India. The premium lager beer  segment in India will be targeted. Radico has also announced the launch of its international division. The beer-drinkers in the country are much younger than the average beer-drinker elsewhere in the world. This makes them more likely to carry the brand with them for a lifetime. Also,

55

Factors Affecting The Indian Consumer Buying Pattern as the target audience becomes younger, a light beer is expected to attract first-time drinkers, since it is much milder than any of the other beers in the country. A lot of new variants promise to gain prominence, but mainly in niche urban segments. The sophisticated consumer who drinks beer for the experience and not to get drunk will lap up ice beer or light beer. In urban centres, apart from first time users companies are also targeting women, who as 'the times they are a changing,' are entering the market for beer. Essentially, women shy away from beer consumption because it is associated with calories, and has traditionally been a buddy drink, associated with pot-bellied men sitting at bars and shooting darts.

Liters Per Person – Beer in comparison with other Liquids

Categories 2000 2001 2002 2003 2004 2005 Beer 0.5 0.5 0.6 0.6 0.7 0.7 Bottled 0.1 0.1 0.1 0.2 0.3 0.5 Water  CSDs Coffee

1.0 2.0

1.2 1.2

1.2 1.3

1.5 1.3

1.6 1.3

1.8 1.2 56

Factors Affecting The Indian Consumer Buying Pattern

Distilled

0.3

0.3

0.4

0.5

0.6

0.6

Spirits Fruit

0.1

0.1

0.1

0.2

0.2

0.2

41.7 50.9 0.0 96.1 630.6 726.7

40.2 49.2 0.0 93.1 633.6 726.7

40.7 52.5 0.0 97.4 629.3 726.7

40.1 48.2 0.0 93.0 633.7 726.7

40.5 44.2 0.0 89.7 637.0 726.7

Beverages Milk 41.2 Tea 49.7 Wine 0.0 Subtotal 94.8 All Others* 631.9 TOTAL 726.7

Who decides:

Self

Spouse Joint

Buying a house

25%

5.8%

Child's marriage

7.7% 5.9%

21.8% 18.7% 11.5% 4%

Own marriage

20.4% 2.5%

6.2% 22.4% 29.7% 0.9%

Child's education

15.1% 6.6%

34%

Taking a loan

31.4% 5%

24.3% 18.1% 9.2% 0.6%

Fixing monthly budget

24.2% 10.3% 33.3% 18.5% 11.2% 0.6%

Buying entertainment durables, like TVs [ Get Quote ]

21.4% 8.2%

Family Elders Children

20.8% 30.1% 14%

0.4%

12.5% 5.6% 4.6%

33.4% 26.7% 7.4% 1.6%

Buying durables like washing machines

19.3% 10.7% 33.3% 26.2% 8.2% 1%

Deciding on holiday destinations

20.6% 6.1%

28.4% 31.8% 4.5% 5.6%

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Factors Affecting The Indian Consumer Buying Pattern

The study showed the emergence of certain definite trends in the area of just who decides what. For example, the person in question seemed to play a major role in deciding the monthly budget or whether to take a loan, but when it came to deciding whom he should marry, it was still the older people in the family who played a key role. Both, the husband and the wife jointly decided on issues like the marriage of progeny. In a majority of cases, the whole family got together to decide what kind of house to buy where to go for a holiday. Alcohol consumption habits indicated that 25 per cent drank alcohol, of which 72 per cent were beer drinkers. Most executives drank at bars and pubs, while self-employed  professionals drank at friends' homes. Businessmen preferred parties to have a drink or two at.

CHAPTER 7 FINDINGS 58

Factors Affecting The Indian Consumer Buying Pattern

Survey by Shoppers Stop: A survey conducted by the marketing team of Shoppers Stop Ltd. Reveals the  psychography of the modern shopper. Accordingly the survey classifies customers in to the four segments namely •

Convenience Shoppers

•

Value Shoppers

•

Image Shoppers

•

Experience Shoppers

Convenience shoppers for instance, are people who consume relatively less amount of time while shopping. Also they look out for the width and depth of the range they purchase and conduct their annual shopping at one shot. Value Shoppers always hunt for value for money; Prefer quality reassurance and benchmark  offerings among other related attributes. Image Shoppers are fashion- conscious and look out for the latest trends and labels. On the other hand , Experience Shoppers are attentive and prefer personalized services look  out for the right ambience, prefer giving personal advice on clothing at the time of purchase , and prefer not to buy at one sold.

According to Ernst & Young report , 'The Great Indian Retail Story', the emergence of a

larger middle and upper middle classes and the substantial increase in their disposable income has changed the nature of shopping in India from need based to lifestyle dictated. The self-employed segment has replaced the employed salaried segment as the mainstream market, thus resulting in an increasing consumption of productivity goods, especially mobile   phones and 2 - 4 wheeler vehicles. There is also an easier acceptance of luxury and an increased willingness to experiment with the mainstream fashion, resulting in an increased willingness towards disposability and casting out from apparels to cars to mobile phones to consumer durables. 59

Factors Affecting The Indian Consumer Buying Pattern

CHAPTER 8 Suggestions -

Marketing Strategies

1

Online Marketing

A study by the Confederation of Indian Industry (CII) and the International Trade Centre predicts that e-commerce activity in India will rise from US$ 0.10 million in 2002-03 to US$ 5.8 billion in 2007-08, of which the business to business segment will account for US$ 5.41 billion. Currently, the products Indian consumers are buying through online are greeting cards, clothes, CDs/VCDs/DVDs, cassettes, books, magazines, medicine and educational material. The popular online shops in India include:

2

•

www.ebay.in

•

www.shopping.rediff.com

•

www.reliablegreetings.com

•

www.shopping.expomarkets.com

Celebrity Influence

This is an important tool which is able to influence Indian consumer buying   behaviour. In India, celebrities are being increasingly used in marketing communication by marketers to lend personality to their products. With the visual media becoming more popular the use of celebrities in the TV media 60

Factors Affecting The Indian Consumer Buying Pattern has increased. Celebrities create headlines. Their activities and movements are  being closely watched and imitated. What they endorse sell like hot cakes. It is not surprising therefore that using celebrities in advertisements has become common practice. In India especially, it is not difficult to look for the reasons as to why companies are increasingly using celebrities. Indians always love their heroes and heroines. Consumers like advertisements more if they are admirers of the celebrities in the advertisements. When a consumer likes the celebrity in the advertisement, he or she is more likely to accept what the celebrity says about the advertised   product and therefore will develop more positive feelings toward the advertisement and the brand itself. Famous celebrities are able to attract attention and retain attention by their mere presence in the advertisements. In the midst of the advertisement clutter, the advertisements that celebrities endorse also achieve high recall rates. When people see their favoured reference group members or celebrities in the advertisements, they pay more attention to them. Celebrities may also help reposition products. Products with sagging sales needs some boosting and in this Indian celebrities can help by way of they endorsing the product concerned.

3

Quality Oriented Outlets

Indian consumers looking for quality choose expensive brands as they feel that  price is an indicator of quality.

61

Factors Affecting The Indian Consumer Buying Pattern However, in the absence of well known brands in selected product range, consumers are likely to take cues from well established retail outlets hoping that these outlets carry quality products. Businessmen who prefer not to go for high-visibility, costly campaigns may embark on the strategy to engage well known retail outlets to capture the segment of Indian consumers looking for quality products. 4

Freebies

Indian consumer buying behaviour is influenced by freebies. Freebies are consumer products given free of charge as gifts to purchases of selected  products above a certain value. TVs, washing machines, refrigerators, and ready- made clothes are some of the product categories in which freebies are given to Indian consumers. Freebies generally comprise tooth paste, soaps, detergent, cooking oil etc. Companies wanting to penetrate the Indian market, perhaps should consider  giving freebies for the purchases made by the Indian consumers. Companies can work with the local business partners to attract the consumers by way of  such promotion campaigns.

5

Eco-Friendly Products

The environmental awareness in India has started affecting marketing of   products based upon their eco-friendliness. In general, Indian consumers are likely to buy environmentally responsible products and packs. The future key for marketing could be to select more ethical and ecological responsible   products and packaging, which is also convenient for consumers, thus,   balancing

environmental

concerns

with

commercial

considerations.

Consumers in India are taking lead in prompting manufacturers to adopt technologies to produce eco-friendly products. 62

Factors Affecting The Indian Consumer Buying Pattern

CHAPTER 9 Methodology

63

Factors Affecting The Indian Consumer Buying Pattern

CHAPTER 10.

CONCLUSION In the highly specialised study of “BUSINESS MANAGEMENT”, “BUSINESS ADMINISTRATION” or just “MANAGEMENT” today, “MARKETING MANAGEMENT” function plays a very critical role. This is because this functional area of management (1) “EARNS” the revenue, & (2) “WORKS” in the close proximity with the public or persons outside the organisation. Controlling these two attributes to have the desired benefits are the most difficult part of the management, because none of these two are within the direct control of the marketers. This doesn’t mean that the other functional areas are not useful, but they are not “DIRECTLY” involved in the activities mentioned above. Similarly, within the study of Marketing Management, the “Consumers” or the “Customers”  play a very critical role as these are the people who finally BUY the goods & services of the organisation, and the firm is always on the move to make them buy so as to earn revenue. It’s crucial from both the points of view as given below: 1.

From the customers’ point of view : Customers today are in a tough spot. Today, in

the highly developed & technologically advanced society, the customers have a great deal of choices & options (and often very close & competing) to decide on. 1.

They have the products of an extreme range of attributes (the 1st P - Product),

2.

they have a wide range of cost and payment choices (the 2nd P - Price),

3.

they can order them to be supplied to their door step or anywhere else (the 3rd P - Place),

64

Factors Affecting The Indian Consumer Buying Pattern 4.

and finally they are bombarded with more communications from more channels than ever before (the 4th P - Promotion).

How can they possibly decide where to spend their time and money, and where they should give their loyalty? 2.

From the marketers’ point of view: The purpose of marketing is to sell more stuff 

to more people more often for more money in order to make more profit”. This is the   basic principle of requirement for the marketers in earlier days where aggressive selling was the aim. Now it can’t be achieved by force, aggression or plain alluring. For the customers are today more informed, more knowledgeable, more demanding, more discerning. And above all there is no dearth of marketers to buy from. The marketers have to earn them or win them over.

The global marketplace is a study in diversity, diversity among consumers, producers, marketers, retailers, advertising media, cultures, and customs and of course the individual or    psychological behaviour. However, despite prevailing diversity, there also are many similarities. The object of the study of consumer behaviour is to provide conceptual and technical tools to enable the marketer to apply them to marketing practice, both profit & non profit. The study of Consumer Behaviour is one of the most important in business education,  because the purpose of a business is to create and keep customers. Customers are created and maintained through marketing strategies . And the quality of marketing strategies depends on knowing, serving, and influencing consumers. In other words, the success of a business is to achieve organisational objectives This suggests that the knowledge & information about consumers is critical for developing successful marketing strategies because it challenges the marketers to think about and analyse the relationship between the consumers & marketers, and the consumer behaviour & the marketing strategy. The main objective of the study of consumer behaviour is to provide marketers with the knowledge and skills, that are necessary to carry out detailed consumer analyses which could  be used for understanding markets and developing marketing strategies. Thus, consumer 

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