The Hindu Business Line : Spreading the economic gain: The challenge of the new year

In 2007, the challenge for the manager is to find ways to quickly spread the prosperity and sense of acceleration in the economy to a wider base of consumers

As we enter the New Year, the economy is on song and the omens seem good. Conversations with a cross section of professionals suggests a strong mood of optimism about India sustaining the growth of real gross domestic product (GDP) around the 8.5 per cent level. Cautious soothsayers, however, point out with good reason that we have not yet become truly independent of the unpredictable weather and rainfall.

Questions have been raised whether there is a tolerable level of inflation commensurate with developing economies; and, at 6 per cent plus, whether this has been breached. Many who fear the prospect of an overheated economy feel that, similarly, a real GDP growth of 8 per cent is all we can take and anything further will strain the infrastructure to breaking point.

In plain English, this means we will be unable to move the goods we produce fast enough or store and ship them out in time to meet our export commitments, nor complete the large scale projects on time. Costs of land and labour will rise faster and we will incur too many costs of inefficiency, over-runs and overload. After all, it is not only a matter of not having enough roads, ports, airports, warehousing and transportation, but also one of inability to bridge the shortfall rapidly enough. The Prime Minister's visit to Japan at year's end apparently elicited an excellent response, particularly for additional money for infrastructure projects.

There are other objective grounds too, for the feel good factor. Tax collections of the central government are well above the asking rate, and if all goes well, the direct tax collection budget for 2006-07 could be exceeded by a comfortable margin. In Mumbai, corporate income tax collections, a sure indicator of business prosperity, are up nearly 75 per cent as of now. This, then, is no ordinary buoyancy.

Therefore the challenge, not merely for the politician but also for the manager, in 2007 is: How do we quickly spread the prosperity and sense of acceleration in the economy to a wider base of consumers? To use a cliché, can we humanise development?

Liquidity and savings are no longer the constant worry that they used to be. Overall state finances are on the mend, fiscal deficit is declining and a national sales tax regime has also been ushered in, all of which must help smoother transactions. Banks have reported growth in deposits in tune with the lending increases, after a gap of many years. There is some concern about creation of assets such as housing and stocks going overboard. Others are genuinely worried about an asset bubble in real estate in particular. It is doubtful whether the price of accommodation and land will ever come down in the thickly populated metropolitan areas — if anything, the semi-rural regions are also seeing a spurt in prices as investment is flowing in anticipation of the move to tier two and three towns.

Marketers will have to find new means of reaching this potential, and innovate in distribution and channel structure, because merely extending the well-tried systems from metros and using the same promotional activities will probably not prove such a smart thing to do in these areas.

Cost of direct coverage through travelling sales people from the major cities is bound to continue, but will be increasingly expensive. On the other hand, much cheaper telephony and mobile phone usage along with the e-mail and SMS culture will make a big difference. In many ways, the use and the impact of ICT (information and communication technologies) is not peculiar to India or for the year 2007. Yet, there is no doubt that at the current level of growth in the IT enabled services and rural networking, the coming year will mark a significant beginning. Obviously, the self-help groups and the micro-finance movement will both gain substantial ground — and provide a viable alternative as a distribution channel. This has gone beyond the stage of experimentation although more Indian companies will have to invest in the development of capacity for the long haul. Rural is no longer a fashion or flavour of the year!

At one time the two favourite excuses heard from marketing managers for not exploiting the rural purchasing power were the inadequate literacy levels and road networks, which made it difficult to connect the urban-based marketer with his village and small town customers. Satellite television, computers, low cost communication, falling real costs of air travel and explosive growth of mobile phones have together made such excuses inoperative. Today, it is a question of more and more businesses emulating, with some creative variation in the formula, the independent selling network of the LIC agent type and the no-frills outlets now much in vogue amongst the enthusiasts for `financial inclusion'. A far-reaching view of the opportunity would indeed pay off in some years, but it calls for patience and not being sidetracked by short-term costs or criticisms. After all, the ITC, Lever or Union Carbide systems of distribution and marketing were not built in short order.

To what extent should product design be regionalised? As we go ahead into the 21st century, this issue will figure prominently in marketing conferences, much as the localisation of formulae and packaging were with the world's largest companies which operated in developing markets. Yet, today, no one is surprised to hear about local compromises in all but the core elements of an international marketing mix. More along these lines will happen, and more rapidly, in the coming year. So far, it was fashionable to speak of India as the land of distant potential. One feels that 2007 will prove to more and more managements that this is an accessible potential — nearing a stage of being seriously considered as a major international market and not just in purchasing power parity terms, but real money.

De-linking ownership from use has so far been the major breakthrough idea in marketing. The sachet revolution showed the way in making the single-serve, throwaway pack. The pay-for-use concept, which we knew in the telephone kiosk, moved to cyber cafes and then to holiday homes and mobile phones. Similarly, the less-noticed practice of providing a low cost, lower shelf life refill pack has saved money for the housewife. Instalment payments, price off deals and exchange melas are a fixture nowadays of the bazaar scene for almost any product. Thus, the bugbear of the high initial outlay has been substantially overcome. A fourth element was the emergence of a number of regional low-cost manufacturers, who have gone on to improve the quality of their products continuously. Thus, the so-called brand premium enjoyed by the more established personal or household product category brand can no longer be taken for granted. Even airlines have caught the infection of offering absurdly low-budget flights. And the trend is growing, and in the coming year will affect many more categories. The key here is to increase penetration in terms of share of households. The solution lies in reducing the real (as distinct from nominal price) cost of usage, adjusted for the inflation and wage factors.

In the consumer durables arena, what should be the comparable breakthrough? One possibility could be that a series of innovations leading to low-energy consumption products or those with a rechargeable battery, which are both lightweight and low on running costs and maintenance. These hold ample promise for the emerging market in semi-durable or durable items — perhaps all of them sub-10,000 or even sub-5,000 Rupee sticker-price goods, such as two-wheelers, computers, refrigerators, and home entertainment products. The question that the intelligent manager will therefore keep asking is: What innovation will drop the number of days' wages required to buy/share/hire use of my product? As this number keeps on reducing, a huge segment of the population will come into their fold. That way lies long-term marketing success.