Expanding Base: Urban market to be back in reckoning
Emergence of urban India as a major consuming segment for products and services should merit a strategy review by companies, say Pankaj Gupta and Rajiv Subramanian.
Between 2006 and 2016, India’s population is expected to increase from 1,108 million to 1,269 million. While overall population is expected to grow to an annual rate of about 1.4%, India’s urban population is expected to grow at about 2.3% in the same period to reach approximately 400 million.
India’s projected economic prosperity is likely to be spearheaded by a real GDP growth of 8-9% with a possible annual per capita income of ~Rs 50,000 by 2012. This macro growth would entail significant sub-trends like a dip in low-income households and rapid increase in high-income (super rich) households, led primarily by urban India.
Large Income Group
Between 2005-06 and 2013-14, the number of households with annual income greater than Rs 12 lakh ($30,000) will grow nearly fourfold. Within this band, there are 3.4 million households with an income in excess of Rs 24 lakh (about $60,000) at 2005-06 prices. This segment is likely to include more than 15 million people, greater than the population of Denmark, Finland and Ireland put together.
By 2014, the middle-high income band will consist of a substantial 11 million households. At a median income of $22,500, this segment represents a total income pool of nearly $250 billion. With spending patterns similar to the high-income group; this segment represents a very significant chunk of the consuming base.
A positive trend is seen in the middle-low band as well, where the number of households is likely to increase from about 14 million in 2006 to over 35 million in 2014. While low-income households will remain the largest segment, their numbers are expected to decrease by about 4 million (0.3% CAGR) in the same period. While the trend of increasing number of higher income households is true pan-India, urban India has always been the much larger contributor in the higher income brackets and is expected to further increase the same in coming years.
While public memory is constantly refreshed that India lives in villages, with urbanisation levels slated to cross 31% by 2016, the urban population will be ~400 million. Key markets like Tamil Nadu and Maharashtra with a population of 63 and 81 million, respectively, in 2001 are expected to cross the 50% urbanisation mark in 2007 and 2020, respectively. While you would have agri-oriented states of Punjab and Haryana making positive shifts in urbanisation, surprises could also be thrown up in states like Orissa and Chhattisgarh.
Urbanisation trends across geographies indicate that states with high urbanisation have higher income levels and tend to urbanise faster than others. Thus, current high income-high urbanisation states like Delhi, Tamil Nadu, Karnataka, Punjab, Haryana, Maharashtra and Gujarat would assume greater importance for marketers in future.
India’s projected economic prosperity is likely to be spearheaded by a real GDP growth of 8-9% with a possible annual per capita income of ~Rs 50,000 by 2012. This macro growth would entail significant sub-trends like a dip in low-income households and rapid increase in high-income (super rich) households, led primarily by urban India.
Large Income Group
Between 2005-06 and 2013-14, the number of households with annual income greater than Rs 12 lakh ($30,000) will grow nearly fourfold. Within this band, there are 3.4 million households with an income in excess of Rs 24 lakh (about $60,000) at 2005-06 prices. This segment is likely to include more than 15 million people, greater than the population of Denmark, Finland and Ireland put together.
By 2014, the middle-high income band will consist of a substantial 11 million households. At a median income of $22,500, this segment represents a total income pool of nearly $250 billion. With spending patterns similar to the high-income group; this segment represents a very significant chunk of the consuming base.
A positive trend is seen in the middle-low band as well, where the number of households is likely to increase from about 14 million in 2006 to over 35 million in 2014. While low-income households will remain the largest segment, their numbers are expected to decrease by about 4 million (0.3% CAGR) in the same period. While the trend of increasing number of higher income households is true pan-India, urban India has always been the much larger contributor in the higher income brackets and is expected to further increase the same in coming years.
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Urbanisation TrendWhile public memory is constantly refreshed that India lives in villages, with urbanisation levels slated to cross 31% by 2016, the urban population will be ~400 million. Key markets like Tamil Nadu and Maharashtra with a population of 63 and 81 million, respectively, in 2001 are expected to cross the 50% urbanisation mark in 2007 and 2020, respectively. While you would have agri-oriented states of Punjab and Haryana making positive shifts in urbanisation, surprises could also be thrown up in states like Orissa and Chhattisgarh.
Urbanisation trends across geographies indicate that states with high urbanisation have higher income levels and tend to urbanise faster than others. Thus, current high income-high urbanisation states like Delhi, Tamil Nadu, Karnataka, Punjab, Haryana, Maharashtra and Gujarat would assume greater importance for marketers in future.
Large Cities
By 2026, the number of million-plus cities is expected to increase from 35 to 75. The contribution of these 75 cities to the total urban population is likely to go up from 48% in 2001 to ~63% in 2026. Most likely their contribution to the total urban spend would be much higher, resulting in higher concentration of spending power.
Urban Consumer
Incomes are slated to increase faster in urban India than in rural India. The ratio of per capita incomes in urban to rural India is expected to go up from 3.3 in 2004-05 to 3.7 in 2010-11. Expectedly, share of urban India in the country’s net domestic product would go up from 52% in 2000 to over 60% in 2011.
Implications
With distinct income groups emerging, companies will need to look at a differentiated portfolio to leverage the increase in ability and willingness of consumers to pay. While basic products would target the consumers at the bottom of the pyramid, there would be a shift towards value-added products as we move higher up the income pyramid.
This demand shift is likely to be spearheaded by urban India with its faster growing incomes and favourable consumer preferences. The expected concentration of demand is likely to spring up newer routes-to-market, with companies finding more efficient and effective ways of serving their target consumer. While marketers have been taught that the key to growth lay in increasing rural penetration, greater urbanisation and faster increase in urban incomes has brought the urban consumer back to centre stage.
(Pankaj Gupta and Rajiv Subramanian are with Tata Strategic Management Group)
By 2026, the number of million-plus cities is expected to increase from 35 to 75. The contribution of these 75 cities to the total urban population is likely to go up from 48% in 2001 to ~63% in 2026. Most likely their contribution to the total urban spend would be much higher, resulting in higher concentration of spending power.
Urban Consumer
Incomes are slated to increase faster in urban India than in rural India. The ratio of per capita incomes in urban to rural India is expected to go up from 3.3 in 2004-05 to 3.7 in 2010-11. Expectedly, share of urban India in the country’s net domestic product would go up from 52% in 2000 to over 60% in 2011.
Implications
With distinct income groups emerging, companies will need to look at a differentiated portfolio to leverage the increase in ability and willingness of consumers to pay. While basic products would target the consumers at the bottom of the pyramid, there would be a shift towards value-added products as we move higher up the income pyramid.
This demand shift is likely to be spearheaded by urban India with its faster growing incomes and favourable consumer preferences. The expected concentration of demand is likely to spring up newer routes-to-market, with companies finding more efficient and effective ways of serving their target consumer. While marketers have been taught that the key to growth lay in increasing rural penetration, greater urbanisation and faster increase in urban incomes has brought the urban consumer back to centre stage.
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Consumer facing companies in sectors like food, financial products, healthcare, consumer durables, personal care, household products and apparel need to be aware of such discontinuities taking place in their consumer base. It would be imperative for them to revisit their strategies to avoid being caught off guard.(Pankaj Gupta and Rajiv Subramanian are with Tata Strategic Management Group)
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