Samsung, a key player in the air-conditioner (AC) market recently announced it was completely exiting the window AC segment. It cited falling demand for the product as the reason. And true to this claim, the share of window ACs in the Indian AC market has dropped from 70 per cent in 2006 to 30 per cent in 2011.
It is not just in ACs that Indian consumers are seeking out technologically superior products even if it means shelling out many thousand rupees more. It is actually a phenomenon being witnessed across the durable goods category.
It is due to the upgrading consumer that the boxy old colour televisions are giving way to panel televisions that use LCD technology. Or why fully-automatic washing machines are seeing higher demand compared to the semi-automatic variety.
So why are consumers moving towards premium and high-priced products when a slowdown is under way? What is driving this trend?
Leapfrog to new technology
In 2011 the demand for window ACs fell 26 per cent while that for split ACs registered a 75 per cent growth. Mahesh Krishnan, Vice-President (Home Appliances), Samsung Electronics (India), says the growth in split ACs is to a large extent supported by the technology innovation taking place in the product.
He is referring to the many extra features that come bundled with an AC today. A consumer buying an AC today is not just looking for a machine that spews out cool air. Instead, major brands of split ACs come with several value-added features. They may come fitted with a self-cleaning mechanism that makes the chore of cleaning the filters easier. Or they may have anti-bacteria filters that claim to keep out germs. Sensors that identify people in the room and waft a cooling breeze towards them are a possibility too. Then, there is pre-cool technology where the AC can be switched on through an SMS from your phone even before you enter your home. And as an AC has become a part of the living room, consumers prefer split models as they occupy less wall space and operate without creating a racket.
The preference for flat panel televisions too seems to be driven by the aesthetics factor. The old-fashioned cathode ray tube TVs — with their broad frames and heavy backs — may occupy a fair share of the market, but they are growing at a far slower pace compared to panel televisions.
While panel televisions have seen demand jump by 90-100 per cent every year for the last three years, the market for CRT TVs has been inching ahead by 5-10 per cent a year. Soon Kwon, President (South West Asia region) and Managing Director of LG India, a major player in the country's CRT television market, said the company is currently focusing on the LED and 3D Cinema televisions due to increasing market demand. He said Indian consumers tend to be early adopters of technology and are looking for premium products across categories.
The high-end models of LED and plasma televisions aren't just ‘idiot boxes'. With Internet connectivity, facility to download apps and video chatting through Skype, you can watch YouTube and Netflix for a host of video content.
Some models of the LCD/LED/plasma televisions are also 3D-capable and can convert 2D pictures into 3D. Now this is a feature that your kids will love. All that you need to do is don 3D glasses and play the TV. 3D content is now available through 3D Blu-ray discs from players such as Walt Disney and Sony. Some cable operators also provide 3D movies for an added fee.
Premium products are doing well in functional products such as washing machines too. Shantanu Das Gupta, Vice-President (Corporate Affairs), Whirlpool (India), says, “Fully-automatic washing machines are growing faster than semi-automatics and this is stimulated by the innovations in the space. One of these is the move from steel cabinets to plastic bodies”
Over the last few years there have been several design innovations in washing machines to minimise tangling of clothes and reduce the vibration that occurs during the washing cycle. Does your kid dirty her clothes everyday? Why not use ‘Ozone Clean' technology that sterilises clothes? A newly-wed who takes up the chore of washing for the first time can look at features such as audio assistance that will guide her through the washing cycle and sensors that determine the ideal wash pattern themselves.
Price or value?
If premium products are in greater demand compared to the low-end models, albeit with many extra features, are Indian consumers becoming less price-sensitive? Samsung's Krishnan said, “The main factor influencing a consumer's purchase decision now is the value that he gets from the product. It is not necessarily the price being the lowest in the market. The value could be in the form of higher energy efficiency, advanced technology, design, and such.” Kwon of LG India is also of the same opinion: “Insights from our sales people suggest Indian consumers are more value-conscious. If they feel that the product is ‘premium' with latest technology and features, they do not mind paying a premium price for the same”.
However, the narrowing price difference between high-end and entry-level products, thanks to advancements in technology, is stoking growth at the high end. A 21-inch basic model of an LCD television costs around Rs 12,000 now, down from Rs 15,000-18,000 three years ago. The starting price of a 21-inch CRT colour television is around Rs 7,500 currently, a high-end model here costs Rs 10,000-11,000. In ACs the price difference between a split AC and a window AC of same tonnage is about Rs 8,000-10,000 now, but was higher a few years ago.
The easy availability of credit is also driving demand for big ticket goods. Many dealers offer monthly instalment options with ‘zero' interest schemes during festivals. This reduces the immediate down payment the buyer needs to make. A dealer-level check also reveals that many consumers now make use of the EMI option on their credit card to buy big-ticket items.
New class of young buyers
Another explanation for the fast track growth of the premium products is the coming of more young buyers in the market who are tech-savvy, says the dealer of a large shop in South Chennai. “Many young couples come to our showroom everyday. They look for advanced products with best-in-class technology and most of them would have already browsed and read reviews of the product and don't look for insights from us,” he adds.
Players such as LG and Samsung are betting big on the young crowd and introducing features that appeal to this class across product categories.