The price-sensitive nature of the Indian market is a major challenge to foreign suppliers. But analysts argue this can be managed with a proper understanding of local consumer behavior.
India is expected to be the fastest growing large economy in the world by next year. For the global security industry, this presents a major opportunity, especially since the China continues to show signs of slowdown.
But entering the Indian market is easier said than done. Being quite different from any developed or emerging market, India poses several challenges for foreign suppliers.
One key issue that has been cited often in this regard is the price-sensitive nature of the consumer. Although analysts expect it to change in the long run, this aspect remains a part of the way businesses work in India.
Price-sensitivity has often restricted large manufacturers to the premium segment, which is only a small portion of the market. The real opportunity lies outside these high-end customers, but to tap into them companies have to realize how the concept of price-sensitivity works.
Pawan Desai, CEO of Mitkat Advisory Services, who has worked with several foreign companies attempting to enter the Indian market, used the metaphor of an ice-cream seller to explain Indian consumer behavior.
“An example of the way the foreign companies try to market a product is ‘I’ll sell you a plain vanilla flavor ice cream for $100, with toppings at $125, and toppings and packaging at $150’. In India, it is different,”
- Pawan Desai, CEO, Mitkat Advisory Services
“An example of the way the foreign companies try to market a product is ‘I’ll sell you a plain vanilla flavor ice cream for $100, with toppings at $125, and toppings and packaging at $150,’” Desai said. “In India, it is different. Here you have to market the product at $150 first, and then offer without packaging at $125 and without toppings at $100. This is the fundamental mismatch that I think most of the foreign companies have with India.”
Desai added that a lot of companies have already realized this and changed their approach accordingly. Following this method, the value of the product remains the same, but marketing strategy is adapted to give importance to the consumer habits.
And even when following such an approach, it is important that the companies strive to keep the prices as low as possible. Incidentally, the Indian government’s “Make in India” scheme, to encourage manufacturing within the country, will help foreign companies achieve just that.
Low labor costs, low costs of setting up manufacturing plants, and access to the world’s largest population of young people are some of the advantages often cited to making in India. But perhaps the most significant incentive would be avoiding taxes.
“One of the goals of ‘Make in India’ is to try and get the costs down, especially on import duties and related costs, which are substantially high at this point,” Ranjith Nambiar, Director for India and SAARC at HID Global, said. “If you add up such costs for security products, it comes to about 30 percent. Once you bring these costs down, the products are more affordable and market is easier to penetrate.”
From a marketing perspective, manufacturing in India will also help companies align themselves to the national sentiment to boost the local economy. It will also help companies take advantage of the various incentives that the government continues to roll out to encourage local production.