Premiumisation: Key play for India

As the Indian consumer market recovers from the Corona-induced lockdown and the ailing economy gradually heads back to normalcy, the spate of deal-making in the telecom sector has firmly brought the focus on the Indian consumer markets and the potential the consumer market holds in the foreseeable future.

For investors with a long-term view and using other markets as a template, the Indian consumer theme hinges upon the idea of gradually rising incomes for a significant mass of people leading to higher demands creating opportunities in satisfying the consequent consumer needs.

As investors and businesses assess the dynamics of the Indian consumer markets, it would be prudent to be aware of a few important trends. In the context of the Indian consumer market, "premiumisation" of product, the importance of both experience and product quality and market intricacies will be vital in this context. "Premiumisation" of a product refers to the need of the consumer that can be satisfied by products that climb up the value chain in terms of both quality and the concomitant experience. For businesses across the board, a significant opportunity will be to satisfy consumer needs that demand both higher quality and experience than what they are currently consuming. This would span industries from FMCG to apparel. While this trend isn't new, one would expect that as consumer wallets expand beyond the essentials for a significant part of the population, the trend of premiumisation will gather momentum.

The premiumisation trend implies that investors and businesses alike must focus even more on creating "premium" brands in the different consumer segments to fulfil future consumption needs. Also, as the premiumisation theme gathers momentum, it is reiterated, a focus on both product quality and experience will be vital. One can almost view the product experience as a subset of the entertainment business. Regarding the experience component of the package, entertainment helps understand that the consumers will be looking for something beyond just the product quality. The "entertainment" aspect of satisfying consumer needs is especially crucial for physical retail businesses that will compete in what will be an omnichannel world, as far as distribution is concerned.

Mainly, the ability to highly differentiate the consumer experience will be a significant driver of value creation for consumers and therefore businesses. Offering an exceptional premium product will be one part of the business, but the capacity to deliver the experience will help brands differentiate, gain market share and eventually emerge as winners in their categories.

The last decade has seen significant investments in the "pipelines" that reach the consumer. One can view e-commerce platforms, and telecom plays as the "carriage". While the carriage part of the businesses will continue to see significant interest, the coming decade will also see increasing interest in the "content" part. Primarily, increased innovation around the product and experience delivered to the consumer. The increased focus on consumer products and the experience associated with the product is where the premiumisation theme will play out in India.

While premiumisation will be essential, in India, one will have to bear in mind that product designs for India will have to factor in the definition of "premium" in India and Indian tastes. Furthermore, as incomes rise in India, the premium product need not necessarily be the one considered premium in more developed economies. The ability to pick the point on the demand curve with significant demand and yet create a premium offering will be a critical factor for brands that eventually emerge as winners. Additionally, Indian tastes in a lot of segments are very well defined. For instance, Indian breakfast habits didn't budge much as certain people had expected when breakfast cereals were introduced to India. Primarily, catering products that suit the Indian sensibilities will be essential going forward.

In summary, the trend of premiumisation is one that is bound to happen with gradually rising incomes. The opportunity to create consumer value and business success in India will be immense. A keen eye on the market intricacies in the Indian context will be a vital factor separating the winners from the losers.

(The views expressed in this article are personal and that of the author. The author heads Development Tracks, an advisory firm. You can contact him at taponeel.mukherjee@development-tracks.com)