Shop or stop: How will the consumer respond to the slowdown?

Eight points to remember when trying to understand how the Indian consumer will respond to the slowdown

It has been like viewing the perfect financial storm. Indian consumers watched with amazement the thunder and the lightning on the horizon, which approximated to the US. Then, very quickly, the storm began to change direction. It started heading towards them. Even if the storm has only brushed by India, it has left the consumers wet and shivering, their ardour to spend cooled.

Not everyone has been affected equally. Evidence suggests that people closest to the stock markets and real estate transactions, that is people in the metros, have been the most shaken. Consumers in smaller towns, perhaps smaller participants in the financial orgy, have been much less burnt. Government employees, whose compensation has been recently revised, may actually be better off than before: pockets full, they are staring at some great offers across categories as marketers try to reach their sales targets.

But for much of the rest, “The economic slowdown has converted a generation of care-free spenders into cautious spenders,” believes Ramesh Srinivas, executive director, KPMG, an international consultancy. afaqs! looks at how consumers may approach the market and how they may rationalise their decision- making in the Year of Pain, 2009. Instead of looking product categories, we have tried to understand their broader view of life. It makes for a richer analysis.

1. Not now, darling

A recent study by (media agency) Starcom and The Key (a qualitative research firm), conducted in Delhi, Mumbai and Bengaluru shows that consumers are procrastinating in their decision to buy things they want. They are content buying what they need.

One consumer in the survey said he’d indefinitely postponed his decision to upgrade from his Maruti 800 to a Honda City. Another said he’d cancelled the New Year holiday in Goa that he’d promised his wife. The purchase of white goods is being commonly deferred – though not of consumer electronics (more on that later).

The survey shows that where SEC A has been hit hard, SEC B has been largely unaffected. Their views of life are dramatically different. Take travel. For SEC A, travel is examining the various aspects of India or perhaps going abroad – it’s a luxury and an indulgence; for SEC B, it’s a necessity. It means going to their home town or village at least twice a year, and that is mandatory. Attractive travel packages may tempt them to try tourism, though. Don’t be surprised if domestic tourism actually does well in 2009.

Consumers in SEC B don’t understand ‘slowdown’ in the same way that SEC A does. Since their incomes are less affected, a SEC B consumer believes a slowdown is on only if prices have dropped (due to lower demand). Unfortunately, many of them use public transport so they haven’t benefited from the decline in fuel prices. Many of the other major heads like health and education remain the same as before. Oh yes, the good news is that prices of cooking oil have dropped.

2. Living it ‘down’

In times of stress, will consumers take a step down to less expensive options? ‘People will not stop living’ but might find a variety of ways to spend less. In the auto sector, this might translate into buyers considering second-hand cars. The used car market could see buoyancy. Another nugget: some consumers who had moved to buying high-octane petrol like Speed, Power or Extra Premium, now feel that the regular fuel is good enough.

In the Starcom-The Key study, one consumer who had upgraded to Dove about a year ago, said she’s returned to Sunsilk shampoo. She has also curtailed experimentation, she said. No choco-flavoured cornflakes in the family now. Even Mohan Meakins would do. Similarly, no fruit flavoured dishwash liquids or floor cleaners. The regular version is just fine.

Brand loyalty is low in many impulse buys anyway. So, when it comes to packaged snacks, locally packed namkeens may find fresh favour. As for apparel brands, they may find that consumers are willing to swarm in only if they offer substantial discounts and thus give buyers a self-justification to spend. Consumers may be more than willing to trade down to less expensive brands as long as they are within the acceptable basket of brands.

This does not mean that people are compromising on personal hygiene: they will probably stay by their brand of toothpaste and soap, and even detergent. A body wash may be a bit of a luxury. Branded hand-wash liquids may stay, however, since ‘guests see them’.

If fast moving consumer goods have been relatively unaffected, white goods sales have been hit. But when people do go in for a purchase, buyers would tend to stick with their favourite brands. First-time buyers may be more swayed by the price rather than the brand, however.

3. Bye-bye impulse, hello discretion

Branded or non-branded, do we really need another purchase, is a question consumers are asking. One female respondent said she had put her cosmetic kit in order after many months and dug out occasionally used shades of lipstick, nail-paint and creams besides. She’s also had a relook at her wardrobe which contained many unused new clothes, either bought or received as gifts. There were also four unused bedsheets she had bought at different times impulsively. Now was the right time to dip into her hoard and avoid expenses.

4. Paying as you go

The mantra for saving seems to be pay as you go along. The consumer who wants to upgrade from a Maruti 800 to a Honda City is ready to go ahead if the company doesn’t demand a down-payment. “I’ll buy it tomorrow itself if the company converts the entire amount into EMIs (Equated Monthly Instalments) and comes up with some flexible repayment schemes,” he says.

According to consumer behaviour experts, consumers will obviously respond to bundled offers and freebies. But a woman consumer’s condition: “They’ll have to give me an eye-liner free with a lipstick. A lipstick free with another lipstick won’t do,” she says. So, even within bundles, consumers will seek real value.

Shalini Rawla of The Key feels that in the changed scenario, there could be few takers for annual memberships of gyms and clubs. On another note, there may be a greater lure towards lotteries and other games of skill and chance, including game shows on television.

5. Home is where the mart is

One of the big trends of the year is that consumers may visit modern format retail stores only to window shop. Some may avoid going there altogether and thus stay out of temptation’s way. Movies may appear expensive to many even though escapist entertainment generally tends to do well when times are bad. A family of four could end up spending upwards of Rs 800 for tickets, travel and some popcorn. If dinner is thrown in, add another Rs 500 at least.

Far more affordable, then, to watch television at home or to rent a DVD. Anuj Mukherjee, vice-president, Seventymm, a movie rental service, says that his firm has been acquiring new customers at an accelerating rate since September last year. The average consumption of movies by his customers has risen too, he says.

Because entertainment may be more at home than earlier, sale of consumer electronic items such as TV sets and DVD players is expected to do well even as white good sales take a knocking.

If the consumer is not going out, this presents an opportunity for a niche channel such as HomeShop18. Value for money becomes critical in bad times, says Sundeep Malhotra, CEO, HomeShop18 and this explains why there has been a surge in sales post October 2008.

Wherever possible, youngsters are more likely to drink at home or a friend’s rather than visit a pub (in the West, sale of both cigarettes and liquor tend to increase during an economic downturn – beer seems to do especially well. It remains to be seen whether the same thing will happen in India.) Families will probably eat out a bit less but may supplement the home meal by ordering in.

According to the Nielsen Global Consumer Confidence Survey, conducted in October 2008, 44 per cent Indian respondents said that they would cut down on out-of-home entertainment during the economic slowdown.

6. Read more, blog more

It’s not just the television that people are hooked on to. More time at home means reading more newspapers and magazines and surfing online. People are eager to know what’s happening around – in India and abroad. The internet not only provides a virtual world to beat the recessionary blues but also a platform to air opinions. Hence blogging and the presence on social communities like Orkut and Facebook, according to the survey by Starcom and The Key has increased. Shalini Rawla of The Key thinks that the phenomenon is not restricted to non-office hours. “In fact as business has slowed down and employees have less work to do, and with the axe of a job-loss hanging, everyone is pretending to be busy. Blogs and online communities are proving useful,” she says.

7. A rupee saved is a rupee earned

If the local tailor looks attractive again, so do the public sector banks. Their service may be sloppy but there is a certain no-nonsense solidity about them that reassures consumers. People have gone off the stock market: fixed deposits, bonds and term policies (insurance) are back in favour. According to Debashis Sarkar, senior director & chief marketing officer, Max New York Life, insurance has three core values – investment, saving and protection. While insurance as an investment may slow down, the fear of the future may prompt people to look at insurance as a savings and protection option. Hence healthcare insurance, retirement policies, children’s education plans may see a surge.

According to KPMG, India has been the largest consumer of gold in the world, accounting for 20 per cent of the consumption in 2007-08. Out of the 800 tonnes that India consumed, nearly 75 per cent was is in the form of jewellery. But with the gold prices peaking in the last couple of months, the used-gold sales by consumers went up by 25 per cent in February. Even after gold prices fall slightly, there will be an increased enthusiasm for gold as an investment vehicle – that is, bullion as against gold jewellery - in the near term.

8. Looking for little comforts

Not all is bad. The economic slowdown has also given people a chance to slow down the mad race to get ahead. The family is more likely to arrive at major purchase decisions together. And yes, the family prays together too. Meditation, yoga, pilgrimages too may see a rise. Expect sales of chocolates to grow, as people indulge in little luxuries to cheer themselves up. Some people may use the slowdown or a job loss to consider further studies.

Long deserted hobbies may be picked up again and gardening is on the top of the list for many people. Expect people to potter around their kitchen garden. Another priority is redecorating the house: people may choose to paint a corner of the house if they can’t afford to redo the whole of it. And expect gifts and presents with a personal “do it yourself” touch.

KPMG reckons, though, that as families look to tighten their spending, giving up comforts they have been used to may not be always easy. In some cases it could lead to stress and a general feeling of dissatisfaction.

One of the most striking aspects of the slowdown is the speed with which economic darkness has descended upon us. Consumers do not know how long it will last and when recovery will begin. But an intrinsic optimism’s return to growth remains. When consumers do see the glimmer of new light on the horizon, the buoyancy of spirit may return quicker than now seems possible.

(The article has been written based on interviews with Sonia Pall, executive director, Consumer Research, South Asia, The Nielsen Company; Ramesh Srinivas, executive director, KPMG; Anand Ramanathan, senior consultant, KPMG; Shalini Rawla, managing consultant, The Key; Satish Krishnamurthy, strategic consultant, Final Mile; Dev Amritesh, senior vice president, marketing, Domino's Pizza India; Anuj Mukherjee, vice president, marketing, Seventymm; Sundeep Malhotra, chief executive officer, HomeShop18; Debashis Sarkar, chief marketing officer, Max New York Life; Ajay Bimbhet, managing director, Royal Sundaram Alliance Insurance Company; and Vasanth Kumar, executive director, Max Retail.)