afaqs!

101 Markets 2009: Youth do not define consumer markets

By Kapil Ohri , afaqs!, New Delhi | In Marketing | May 04, 2009
The type of consumers and their demography is a function of the economic structure of the city

In the first session of 101 Markets: India beyond the Metros, a day-long seminar organised by afaqs!, Laveesh Bhandari, founder director of Indicus Analytics, an economics research firm, talked about 'The making of 101 markets' and the economic structure in the non-metro markets. The event highlighted the marketing potential of the emerging towns of India and was sponsored by STAR Ananda, STAR Majha, Hindustan and Jagran Solutions.

Bhandari started by pointing out that studies conducted by Indicus Analytics on the Indian economy have found several similarities between different cities and different groups of people.

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He said that there are no clear-cut criteria to help define the top 101 cities. The top 10 cities, including Surat and Coimbatore, are very different from the next 100.

He stated that the differences are due to the history and the evolution of cities. The major cities started off as close to a water body on some trade route, and typically, one economic activity occurred there - such as manufacturing or trade in agriculture commodities or services. But as a city grew, over a period of time, more economic activities got added to its portfolio.

Therefore, if one looks at large cities or the top eight metros, they are not defined by a single economic activity or sector; although one sector could be more dominating -- for instance, IT in Bengaluru or the garment sector in Delhi.

This multidimensional economic activity in a large city is important, as marketers get access to different sets of consumers. As a result, large cities can become the entry point for various products in the market.

At the other end of the spectrum are smaller cities, where a few economic activities tend to define the city.

Bhandari highlighted the relationship between the types of economic activities that take place in a city and the types of consumers that arise from those activities.

According to him, there are 35 cities, including state capitals and union territories, which are defined by a combination of great infrastructure and a large number of people employed in the government sector. Quality infrastructure and larger incomes increase the demand for high-quality and premium goods.

Bhandari then pointed out cities which are manufacturing hubs and give rise to different kinds of consumers, depending upon their organised or unorganised nature and the rate of growth.

Giving the examples of Kanpur and Meerut, he stated that both cities are similar in size and are manufacturing hubs; and both have high-income as well low-income consumers. Meerut has a high proportion of small scale industries and a large proportion of entrepreneurs, who access funds from their businesses for their personal consumption. Both Meerut and Kanpur have a large number of production workers, who belong to the lower middle class.

About the unorganised manufacturing hubs, such as Asansol, Aligarh and Muradabad, he stated that people who own or those who work in these manufacturing units tend to purchase items on cash. They face difficulty in buying items on credit -- financial institutions hesitate to provide loans to them, because there is no credible record of their employment; while they can get credit from the market at rates that range from 30 to 100 per cent annually, they rarely borrow at such high rates.

Bhandari then cited the examples of cities such as Nanded in Maharashtra, Belgaum in Karnataka and Guntur in Andhra Pradesh, where a large share of the population is dependent upon agriculture. He said that these towns tend to have a very important characteristic -- high seasonality in purchases and high price and cost fluctuations that correlate with the agriculture seasons.

Bhandari pointed out that the type of consumers present in a city is also a function of economic growth.

Some cities have been growing very rapidly in the last few years, for instance, Delhi, Pune and Surat. Delhi has been growing at an average rate of 10 per cent for the last 15 years. To feed and benefit from that growth, migration into these cities is occurring at a very rapid pace. Typically, most migrants tend to be in the age group of 18-25 years. Consequently, Delhi, Pune and Surat are among the youngest cities in India; with Delhi being younger than Mumbai or Kolkata.

While migrants work harder, and consequently, earn more, they save more as well. The migrant's expenditure behaviour is more oriented towards value for money than the non-migrant.

Bhandari also revealed that two-thirds of India's population, that is, 66 per cent, is below 35 years of age. He said that many of us believe that the youth, therefore, define consumer markets. But that is, surprisingly, not the case.

Among the middle classes and the affluent, the age structure is more like that of developed countries. It is only among the lower middle and poor classes that we have a pyramid-like age distribution. In other words, those with higher incomes and wealth tend to be older. The affluent in the smaller cities tend to be even older than those in larger cities.