Across most of urban India and particularly in the major metros, there are now clear signs of a lowered consumer optimism and declining confidence leading to the deferment of consumer spending. This deferred or reduced spending is now extending across most major consumption sectors such as discretionary food and groceries, clothing and home textiles, consumer durables and home appliances, jewellery, furniture and furnishings, leisure travel, and entertainment.
Oddly, the response of many manufacturers, marketers and retailers has been counter-intuitive. While most of them tried to stimulate consumer demand in the last quarter of 2008 through aggressive discounting and promotional activity, the same enthusiasm is not so visible in the first quarter of 2009. It is, therefore, no surprise to observe very substantial decline in customer traffic in shopping high streets and malls. It is unlikely that there is going to be any further external trigger leading to an upsurge in consumer sentiment, and with the onset of the summer and summer vacations, there is going to be a further attrition in consumers’ intentions to spend on discretionary goods and services. Hence, in such an environment, it is extremely crucial for manufacturers and retailers to think harder and more innovatively, and then launch their own “marketing stimulus” efforts without any further delay.
In these times of already dented sales growth and reduced margins, the temptation to preserve further erosion of prices and margins is understandably high. For listed companies, already reeling under drastically reduced valuations of their equity, the announcement of financial results that reflect further reduction in their gross margins may put further pressure on the performance of their scrips on various bourses. Hence, there would also be pressure on marketers from their Board members and Chief Executives to shore up the margins rather than undertake any further price reductions or additional sales promotional activity. This is already visible in the steady creeping up of prices, notwithstanding the recent reduction of Cenvat rates across the board, including automobiles, airfares, hotel room tariffs and new summer clothing ranges. In some instances, the fig leaf of justification is the weakening of the rupee while in others, it is the increase in input costs even though in most cases, the input costs have actually come down. Nothing can be more dangerous for such companies since any further sharper fall in consumer spending is bound to be highly damaging to the top lines of these businesses and lead to a collapse in the bottom line immediately.
The reassuring factor for the marketers and retailers should be that India is not seeing any across-the-board decline in consumer income and, therefore, its discretionary spending/purchasing power. There is a slowdown in the growth of incomes, and in some sectors, a marginal reduction in incomes. However, India has yet not seen massive layoffs and with the economy still expected to grow at 5 per cent or more, there will be a corresponding increase in the overall consumer purchasing capacity. Hence, an intelligently “administered” marketing stimulus should deliver the desired results in terms of increased sales and thereby, increased overall financial contribution for businesses that can enable them to meet their fixed expenses more easily.
The starting point, for most companies and retailers, is to come up with a product assortment that can deliver more value to the consumers at this time. Mere discounting is not enough. Excessive, sustained discounting can be extremely dangerous to the power of such brands themselves and does actually erode consumers’ trust in those brands. In the backdrop of the Nano-saturated media, manufacturers across other consumer product categories and even services (especially food services and entertainment) have to think innovatively and come out with their equivalents of Nanos at the earliest possible. Retailers have to work more closely with their vendors to create a product assortment that is much more value-oriented, and be willing to sacrifice gross margins in the near term for sustaining consumer spending in their outlets.
The next step is to get the consumers out of their homes and bring them back in droves to the markets and shopping malls. This, of course, has to be city- and market-specific but, by and large, it will need a collaborative effort between brands, landlords and retailers to come up with localised efforts and promotions to get the shoppers to come visiting again in large numbers. It will also require a pragmatic approach towards removing irritants such as parking (free valet parking or free parking in general), clean and safe environment without mindless harassment of visitors purportedly on account of enhanced security measures, in-the-market excitement reminiscent of a mela-like environment, appropriate food options including licensed hawkers for “street” food etc.
The final step is to come up with attractive and sometimes bundled packages for goods and services that tempt consumers to spend more, and feel good about spending rather than feeling guilty. Further, this effort has to be sustained through the next two quarters, ie till the onset of the autumn/winter season when further momentum may be achieved with the onset of festival buying.
In the absence of this marketing stimulus, there is a real danger of a total seizure of consumer spending that will be disastrous for all.