India’s consumer market till now was broadly characterised as a pyramid; a very small affluent class with an appetite for luxury at the top, a middles-class at the centre and a large economically disadvantaged class at the bottom. This pyramid structure of the Indian market is slowly evolving into that of a diamond – a relatively large affluent class at the top, a huge middle class at the centre and a small economically disadvantaged class at the lower end.
Year after year, a segment of the 1.2 billion Indians attains more affluence and today’s middle class of some 5% of the population is growing steadily1.
Increasing urbanization and incomes, and the rising aspiration for a better life, especially, among the lower economic strata are some of the factors reshaping the Indian market. The result of this is a new consumer who is more discerning and brand conscious than ever, demanding innovation, quality and convenience but often still buying in small doses, especially in rural India.
That is why L’Oréal has adapted its products to cater to these 50 million or so consumers whose incomes are relatively low. Among the myriad of tiny shops that swarm the markets across India, the cosmetics group markets its preparations in individual packets and sachets of 7.5 and 5 ml (which cost €0.5 and €0.25 respectively).Since consumers regularly return to buy more, a kind of unit-by-unit loyalty is being created to help L’Oréal attract an increasingly large middle class that is better educated and progressively wealthier.
1 Source: Brookings Institution, Homi Kharas, 2011
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1/ Despite talk of a slowing Indian economy, small-town shoppers are starting to splurge.
Sheltered by government subsidies, good monsoons, high land prices and a low reliance on credit, rural incomes were up by 12% last year and have been growing more rapidly than urban ones since 2008 according to brokers Kotak Institutional Equities.
2/ The Indian middle class is defined by a system of 12 socio economic classes (SEC) from A1 to E3 (each letter has 3 levels).
This system results from the crossing of education with the number of durable objects owned by each household (color TV, refrigerator, washing machine …) and possession of agricultural lands. To give an idea of the corresponding income level, the middle classes begin at A2 for the highest and stop at B2.
In terms of income per household:
- A monthly income of 30 000 to 40 000 rupees corresponds to SEC B1/B2 (approximately 461 to 615 euros)
- A monthly income of 40 000 to 50 000 rupees is the SEC A2/A3 (approximately 615 to 769 euro)
3/ “The typical consumption cycle always begins with cosmetics, then watches, leather goods, and jewellery before fashion or travel”
Senior Partner and Managing Director of Boston Consulting Group
“La Chine, pays du bonheur des géants du luxe pour encore au moins cinq ans”
[China, heaven for the luxury giants for at least five more years]
17 May 2012