Archive for May, 2011
This article in the Indian Express today mentions a proposal for better identification of the Below Poverty Line (BPL) rural poor. The proposal suggests including classes like destitute, manual scavengers and primitive tribal groups while excluding those who own telephone landlines, refrigerators, two, three or four-wheelers, tractors, farmers with Rs.50,000 kisan credit limit, those with income of Rs.10,000/month and more.
While discussions around accurate classification of BPL poor (whether urban or rural) are led by economists, sociologists and policy experts, marketers have also been discussing the need for an accurate scale that captures spending power (of various socioeconomic groups) and consumption trends. For instance, a leading marketer such as Rama Bijapurkar has mentioned here the need to calibrate the current SEC classification with respect to asset ownership.
But, let me give some background first…
Socio Economic Classification (SEC) is a common parameter used by businesses to understand consumption potential in the Indian population. The urban SEC classification is a combination of education level and occupation of the chief wage earner of the household. According to this system, the urban Indian households are split across SEC A1, A2, B1, B2, C, D, E1 and E2.
Although this parameter is very commonly used, it has its drawbacks. One of the fundamental drawbacks is – since the classification is based on education and occupation level only, it misses out on the fact that income levels within an SEC can be quite disparate. The grid simply assumes that higher education and better occupation leads to higher income and thus higher consuming potential, but this may not always be the case.
Take the case of a shop owner with only primary education (classified as SEC D) who may be earning more than a graduate junior executive (classified as SEC A2); therefore the shop owner may have the potential for higher consumption, despite being categorized into a much lower SEC.
The chart below clearly illustrates how the standard SEC grid misses out on the fact that income levels within an SEC can be quite disparate. This is especially true of SEC A, and to a lesser extent, of SEC B. While there is a fairly large chunk of SEC A (34%) that earns less than Rs.3 lakh annually, the rest is composed of fairly thin slices of varying income levels. The richest slice, 16% of SEC A that earns over Rs.15 lakh per annum comprises of people of widely divergent income levels and very different purchasing power and consumption trends.
Therefore, SEC is too simplistic a classification and cannot be used as a consumer segmentation variable on its own – it needs to be layered with additional defining criteria such as income, asset ownership, etc.
Perhaps this classification did work when India was a uni-dimensional, mass market. But, with growing product offerings, new brands entering the market, more players in the market space, increased consumer involvement in decision making and higher aspirations and needs – the consumer has evolved, and so should the way of classifying him/ her.
Branded shirts are everywhere and for everyone. In a country where traditionally customers preferred buying fabric over the counter and then getting the same tailored, this is a paradigm shift. And the preference for fabric over garments has not always been about the money. “You won’t get the right fit”, “These brands are tailored for western bodies”, “There is greater variety in fabric”… have been reasons given to opt for fabric rather than readymade garments.
But all this is changing. Branded shirts are growing and growing rapidly. The apparel industry is growing at a robust 15%. Brands such as Van Heusen have grown by as much as 60% in 2011. Shirts of varying sizes, styles and fits are now available everywhere. The market is not limited to metros anymore. Brands have penetrated tier I/II cities as well. Specific Mass Brands such as Liverpool (Gandhinagar, Ahmedabad), Cotton County cater to these areas. Increasing number of channels such as malls penetrating these cities has helped make this change faster.
How do these brands work? How do they differentiate from each other? How are they segmented?
Most brands purchase fabric directly from vendors. The fabric is sourced either to garment factories owned by the brand or to garment manufacturers/vendors. Sale is generally via dealers and/or directly to their customers via franchisees/fully owned retail outlets. They don’t risk inventory. Most operate on a “Sell before Make” model. Have trade shows, call all major dealers, get yardages of potential season designs made and take bookings before fabric orders are issued. Any extra fabric manufactured is generally sold off through their own outlets.
Brands typically operate with two lines “Autumn Winter” and “Spring Summer”. The former is a collection of dark dull-colored shirts while the latter is a range of bright lighter colors. This is generally followed by an End of Season Sale. The End of Season Sale is often a separate line made by compromising on the quality of the fabric and hence the price.
A close look at the market reveals a clear segmentation of brands. Peter England, John Player (ITC) are positioned as mass brands whereas Van Heusen, Allen Solly are positioned in the premium segments. Brands differ in the product offering. While Peter England and John Player play with polyester and cotton fibers, Van Heusen, Zodiac and Allen Solly dabble in fine expensive cotton yarns. Touch a Zodiac shirt and then a Peter England shirt. The difference in softness in the shirt is evident.
While brands are growing rapidly, the industry is facing its share of problems. Prices of cotton yarn have soared. A commonly used “40S” cotton yarn which was available in 2010 at INR 140-150 per kg is now available in 2011 at INR 290-300 per kg. Labor is increasingly short and becoming very expensive. Daily wage demands have soared from INR 175-200 to INR 250-300 per day. The budget had another shock for them. Garments now have an excise duty levy on them affecting the MRP by about 6-7%.
Have these problems changed targets for these brands? Probably not. With income levels in India increasing and an aspiring middle class, the Indian customer increasingly wants “brands”. The need is bound to grow and so is the market. So, which brand do you wear ?