City dreamers

Marketers are finally waking up to the potential of the urban poor.

Hiralal Gupta is preparing for his big purchase: a 21-inch colour TV that will take pride of place in his living room, right next to the 165-litre refrigerator he bought last year for Rs 8,000.

Leaning against his Rs 32,000 motorcycle, Gupta switches off his Nokia 1100 and admits he's a big spender "" considering his annual salary is less than Rs 1 lakh. A driver with a private firm in Mumbai, Gupta earns Rs 5,500-6,000 a month, including overtime. But he keeps aside Rs 2,000 a month to pay for the better things in life. It helps that his wife works as a maid.

People like Gupta and his wife tend to be faces in the crowd "" they're there, but no one really cares. But that was then. Now, as marketers are discovering, Gupta and others like him are a reason for considerable excitement.

Once dismissed as the urban poor, these are the people whose ambitions are fuelled by their interaction with the urban elite. They may not be able to afford the Vertus and plasma TVs their employers possess, but they're ready to buy whatever's affordable.

This is not a marketer's Technicolor dream "" it's hard fact, substantiated by market research. According to the Indian Readership Survey (IRS) 2005, those in the annual income bracket of Rs 90,000 and below account for 73 per cent of the urban population. That's almost 22 per cent of India's population total. It's not just the large base. Consumption in this group is also increasing and expanding.

A study conducted by IRS 2000, 2005, Market Research Users Council (MRUC) and Hansa Research indicates that in the SEC E 1 category, TV penetration has grown from 8.3 to 9.1 per cent from 2000 to 2005. There are similar numbers for sales of two-wheelers, washing machines and other white goods once considered white elephants by this SEC.

Importantly, these customers are located in cities where distribution channels for all categories are well connected. Their mailing address: places like Delhi's Govindpuri and Mandavli, Behrambaugh and Mankhurd in Mumbai, and Chennai's Washermanpet and Saidapet Kuppam.

What are marketers doing to reach out to Gupta and others like him?

Craft the product

The telecom industry, which saw an addition of 5 million subscribers almost every month in 2005, is a case in point. Its success strategy "" affordable entry level pricing. Pricing is no longer just about tariff plans "" now there are minimum recharge value of Rs 10, zero rental, free prepaid for lifetime and so on.

Companies also tie up with handset manufacturers to offer their customers a huge price advantage "" Hutch, for instance, has tied up with Motorola, Nokia and Sagem, while Reliance Infocomm offers combination offers with LG and Nokia handsets. The Hutch-Motorola offer gives customers a handset and connection for Rs 1,698 and includes talk time benefits extending for a year.

Even the handset manufacturers have their own gameplan. Motorola recently launched phones for less than Rs 2,000. In 2003, Nokia launched two models for Rs 3,100-4,500, aimed at entry level users. Prices are kept low by improving on logistics, or like Motorola and LG, manufacturing in India.

And low prices do not mean the models are stripped-down versions of the higher-end handsets. In fact, a number of products aimed at SEC E users are customised for the usage and preferences of this consumer group, including regional language SMS, long-lasting batteries and dust-resistant keypads.

And it's important that they don't look cheap, point out executives at Motorola. Which is why even mass market phones have high-end features like colour display.

If mobile phone companies are climbing down the price ladder, so are personal computer manufacturers. In 2005, HCL and Sahara launched PCs for an unbelievably low Rs 9,990.

Comments HCL Infosystems Executive Vice President, marketing, George Paul, "Consumers are looking for value-for-money brands. The challenge is to offer a good product at an affordable price." Of course, he points out, price is not the only attraction. HCL's sub-10K computers come with pre-loaded regional language software.

That is based on the understanding that most SEC E users (the target group for this product) are likely to be more comfortable in languages other than English.

Then, the "urban poor" aren't likely to have access to uninterrupted power supply "" and UPS machines will be an added burden on the budget. So when there's a cut in electricity, HCL PCs switch to a power battery that provide back-up of six hours. HCL claims to have sold over 40,000 units of its low-end PCs.

It's not just about gadgets and gizmos, though. The FMCG sector, too, is looking at the "urban poor" as a potential market for its high-end products "" hair conditioners, lotions and fairness creams. Here, the trick lies in luring in customers with trial-sized packs.

In early 2004, Godrej Consumer Products Ltd (GCPL) introduced its FairGlow and No. 1 soaps in 50 mg bars that cost just Rs 4 and Rs 5. The next year, Marico Industries launched a Rs 3-pack of its Silk and Shine hair lotion. "Consumers are willing to pay for the experience, especially if it's a new concept," says H K Press, executive director and vice president, GCPL.

In depth

Product customisation is only half the story. The urban poor may need to be targeted through different channels as well. Easy finance options is almost a hygiene factor when it comes to selling to this segment "" whether it's for washing machines, computers or motorcycles.

But that may not be enough. "Companies need to effectively address reach and delivery of the product to the lower-end urban consumer," points out Harminder Sahni, COO of retail consultancy Technopak. Put another way, that means this consumer group is willing and even able to buy the products sold in malls, but it may not be comfortable in that ambience.

The solution may lie in piggybacking on other, related products "" much like mobile handset manufacturers have done with cellular services providers. Direct marketing also seems to work.

Consider the Bajaj Auto experience. The company learnt the hard way that mass media advertising on easy finance options was a non-starter, even if it was specifically targeted at sub-100K earners. That's because lower-end customers refused to believe down-payments of Rs 1,000 and monthly instalments of Rs 999 could exist.

But Bajaj's market research indicated that customers were willing to pay up those sums to buy a motorcycle. Which meant that a direct marketing initiative would probably work. When Bajaj launched its CT 100 bike in end-2003, a direct market penetration programme was introduced simultaneously.

But SEC E consumers are still considered high-risk debtors, since they usually have no collateral or proof of income. So Bajaj, in alliance with Bajaj Auto Finance, offered buyers easy finance options combined with a two-year warranty period.

Say it right

Ask any marketer and he's likely to tell you that the psyche of consumers, particularly those who are influenced by the affluent segment, is the most complex. "Marketers need to pitch the product as upmarket in terms of look and feel and not focus only on the price," warns Prasoon Joshi, regional creative director, South and south east Asia, McCann Erickson.

He points out that a product advertised only on the basis of price stands in danger of being considered cheap. Which is why marketers are turning to celebrity endorsements to sell to this segment.

Again, look at the telecom industry. Granted, lower-end customers bring down the average revenue per user for the telecom companies and many use phones only to receive calls. But as a potential revenue source, this is a group too big to ignore; which explains packages like micro-recharge cards and lifetime prepaid facility.

And if Reliance Infocomm roped in cricketer Virender Sehwag, Hutch added actor Irfan Khan. Airtel and Tata Indicom brought out the big guns "" Shahrukh Khan, and Kajol and Ajay Devgan "" but made sure the ads didn't look too sophisticated or upmarket.

Mass media promotions, however, do not guarantee retention, since customers tend to churn more frequently. Motorola and Samsung organised road-shows in Nasik, Kanpur and other cities to showcase their range of products; Reliance, LG and several FMCG companies sponsor events like Durga Puja and Ganesh Chaturthi to increase visibility.

"Word-of-mouth publicity works the best in this segment. In a way, this builds an assurance that the brand is worth the buy," points out Bijou Kurien, chief operating officer, watches, Titan Industries.

Bright future

But Technopak's Sahni feels that companies could do more while targeting the urban poor. "As the retail environment is evolving, most organisations are focused on the urban middle class and are trying to upgrade with this segment, without realising that this market alone is not enough to increase consumption." Does that mean with customers like Gupta, companies have just touched the tip of the iceberg?