In the previous part to this column (The case of the missing millions, April 27, 2006), we concluded that for most international companies looking at India, the potential target market was in the region of 18-19 million people, or over three million households. When international companies look at the middle class they may be looking at annual household incomes adjusted for PPP (purchasing power parity) in the region of $40,000 (Rs 5 lakh, in absolute terms, not adjusted for PPP), and this population number is what appears on the radar.
Clearly, this is less than a tenth of the figures around which many new businesses are being launched; 200 million, 300 milliontake your picktheyre all in the mythical range! Its time to put out a missing persons alert for the hundreds of millions of so-called middle-class consumers, on whose back the current retail boom is to be built.
The trick is in changing the frame of reference.
Most marketers live in a high-income urban India paradigm (read Mumbai, Delhi, Bangalore). Passing out of even a second-tier business school today, starting salaries can easily be over Rs 20,000 a month. When you get into the middle-management segment, metropolitan salaries in the private sector can be Rs 35,000-50,000 a month.
This may not sound like much money in the Delhi-Mumbai-Bangalore paradigm, but it is big as you go further down the list of cities and towns in India. So, to this evaluation I would add another attributethis middle segment should be a substantial proportion of the total population. Clearly, a population that is only 2% of the total is still very much at the narrow tip of the pyramid. We definitely need to move further down.
The next annual household income range defined by NCAER is Rs 2 lakh to Rs 5 lakh. Here we are talking about approximately nine million households or a little under 50 million people. An income of Rs 2 lakh ($ 4,500 in absolute terms) is equivalent to a little over $16,000 by PPP, which is well below middle-class standards in developed economies.
In India an income of Rs 16,700 per month brings a number of aspirational and discretionary purchases within reach. This population is about the same, or larger, than many countries in Europe and will grow to 70-80 million by the end of the decade. However, were still only in the range of 6% of the total population. We need to move further down the income scale, to the Rs 90,000-200,000 annual household income range.
NCAER identifies this segment as having over 41 million householdsthat is over 225 million peopleabout 22% of the total population. Large towns (population of over 500,000) have about 30% of this population, while rural India has about half of this income group. Earning between Rs 7,500 a month and over Rs 16,000 a month, this is the population that is the real growth engine.
This population has discretionary income, and yet it spends with discretion. It is a population that is just beginning to be touched by cashless spending, a population that is beginning to appreciate the comforts of modern retail. It is a population that is discovering the benefits of investing as much as it is the joys of spending. Many brands are ending up planning for the 150-200 million real middle-class population, while offering products and prices more appropriate for the ersatz middle-class of 15-20 million.
Consumer markets are structured around obsolescence, replacement and repeat purchases. If your product fits in the price-value equation for repeat purchases, you have a winner. If you dont, what you get is a bunch of occasional purchases from most of your consumers, with long replacement cycles (or even, no repurchase).
The result is the sales plateau that is the characteristic of so many brands. If you want volumes, prepare a product and price offer that makes sense to the real Indian middle class. The small shampoo packs make sense, the chhota recharge on the mobile phones makes sense. Does your product
The missing millions are- nt really missingtheyre just invisible through our Delhi- Mumbai-Bangalore upper-income blinkers. Its time to take off the blinkers.
The writer is chief executive of Third Eyesight, a services firm focused on retail and consumer products