1. 1ITM,VASHIConsumer BehaviorConsumer Durable ProductsArun Balkrishna Khedwal2nd August 2014Ref No: VAS2012XMBA25P001

2. 2Chapter NoTopic detailsPage No1Introduction - Consumer Behavior3-22o Model of Consumer Behaviour (Stimulus-Response Model of Buyer Behaviour)o Steps in Consumer Buying Decision Processo Types of Consumer Buying Behaviouro Personal Determinants of Consumer Behaviour Theoryso Why Study Consumer Behavioro Applying Consumer Behavior Knowledge2Summary, Overview & History23-33o Major Playero Porters Five Forces Modelo Growth Scenarioo Government Initiatives3Smart Phone & Tablets Market34-39o Global & Local Market Overviewo Growth Potential4Consumer Electronics Indian Market40-48o Color televisions, Set top boxes,o Home appliances: Air Conditioners, Washing machines, Microwave ovens & Refrigeratorso Impact of WTO and FTAs5Conclusions and Recommendations49-59o Challenges, Opportunities & Future Prospectso SWOT 3. 31.1 Defining Consumer BehaviorIt is a segment or part of human behaviour. Human behaviour refers to the total process whereby the individual interacts with the environment. Every thought, feeling, or action that we have as individuals is part of human behaviour.Definition: Consumer behaviour is the study of how individuals, groups and organizations select, buy and dispose of goods, services, ideas or experiences to satisfy their needs and wants.ORConsumer behavior may be defined as the decision process and physical activity individuals engage in when evaluating, acquiring, using, or disposing of goods and services. Several aspects of this statement need emphasis and elaboration so that their meaning can be more fully appreciated.Customer and Consumer: - The term customer is typically used to refer to someone who regularly purchases form a particular store or company. Thus a person who uses BP petrol is viewed as a customer of that firm. The term consumer more generally refers to any one engaging in any of the activities used in our definition of consumer behavior. Therefore, a customer is defined in terms of a specific firm while a consumer in not.The Ultimate Consumer: - Those individuals who purchase for the purpose of individual or household consumption. Some have argued that studying ultimate consumers also reveals much about industrial and intermediate buyers and others involved in purchasing for business firms and institutions. While not denying this, we must recognized that much industrial purchasing behavior is unique because it often involves different buying motives and the influence of a large variety of people. For the sake of simplicity we will focus only on ultimate consume behavior and will not become involved in drawing comparisons with industrial purchasing situations.The Individual Buyer: - The most commonly thought of consumer situation is that of an individual making purchase with little or no influence form others. However, in some cases a number of people can be jointly involved in a purchase decision (new car, vacation). People can take different roles in what we have defined as consumer behavior. These roles may be initiator: the individual who determines that some need or want is not being met and authorizes a purchase to rectify the situation; influencer: a person who by some intentional or unintentional word or action influences the purchaseChapter 1: Introduction to Consumer Behavior 4. 4decision, the actual purchase, and/or the use of the product or service; buyer: the individual who actually makes the purchase transaction; user: the person most directly involved in the consumption or use of the purchase. Therefore, focusing on the buyer, while allowing for the influence of others on the purchase decision, still gives considerable flexibility while concentrating on one consumer role.The Decision Process: - Consumer behavior is seen to involve a mental decision process as well as physical activity. The actual act of purchase is just one stage in a series of mental and physical activities that occurring during a period of time. Some of these activities precede the actual buying, while others follow it. However, since all are capable if influencing the adoption of products or services, they will be considered as part of the behavior in which we are interested. The decision of switching a brand may be because of the general dissatisfaction with the result from the regular brand of from recent exposure to an advertisement for the competing brand or may be because of strong recommendation form friends. In some cases the time period is very short, while in other cases it can be quite long year or more.The marketer wants to know how consumers respond to various marketing strategy the company might use. It helps the firm to find better ways to satisfy consumers through creating a suitable marketing mix that will meet customers needs and requirements better than competitors.Understanding Consumer Behaviour: 7 OS Framework:-Who is the customer? OccupantsWhat does the consumer buy? ObjectsWhy did they buy? ObjectivesWho participate in the process? OrganisationWhen did they buy? OccasionsWhere do they buy/ Outlets or OnlineHow did they buy? Operations 5. 51.2 Model of Consumer Behaviour (Stimulus-Response Model of Buyer Behaviour)Figure 1.2.1 Stimulus-Response Model of Buyer BehaviourConsumers make many buying decisions every day. Most companies are interested to know what consumers buy, where they buy, how and how much they buy, when they buy, and why they buy. But learning about the consumer buying behavior is not easy task the central question for marketers is how consumers respond to various marketing stimuli. The company that understands how consumers will respond to different product features, prices, and advertising appeals has a great advantage over its competitors. The starting point is the stimulus-response model of buyer behavior. The above figure shows that marketing and other stimuli enter the consumers black box and produce certain responses.Marketing stimuli consist of the four Ps: product, price, place, and promotion. Other stimuli include major forces and events in the buyers environment: economic, technological, political, and cultural. All these inputs enter the buyers black box, where they are turned into a set of observable buyer responses: product choice, brand choice, dealer choice, purchase timing, and purchase amount. The marketer wants to understand how the stimuli are changed into responses inside the consumers black box, which has two parts. First, the buyers characteristics influence how he or she perceives and reacts to the stimuli. Second, the buyers decision process itself affects the buyers behaviour.1.3 Stages of the consumption processPre-purchase:- Problem recognition & information searchPurchase: - Mental evaluations & making of decision 6. 6Post-purchase:- The activities that the consumer undertakes after the purchase and includes; how he uses the product, his degree of satisfaction, and actions taken after the purchase is made.Participants in the buying process (The D.M.U.-Decision Making Unit)The marketer needs to know which people are involved in the buying decision. People might play any of several roles in the buying decision process; Initiator: - The person who first suggests or thinks of an idea of buying a particular product or service i.e. Who initiates the buying decision. Influencer: - A person whose views or advices carries some weight in making the final decision. Decider: - Is the one who ultimately makes a buying decision or any part of it, i.e. whether to buy, what to buy, where to buy. One or more people may be a decider. Buyer: - The person who makes the actual purchase. User: - The person who uses or consumes the product.Figure 1.3.1 The D.M.U.-Decision Making UnitA company needs to identify who occupies these roles because they affect product design, promotion, and other marketing strategy1.4 Steps in Consumer Buying Decision ProcessIt is made up of the following five steps;1) Problem recognition: - It is the stage when the individual recognizes a need or problem to be satisfied or solved. The need can be triggered by either an internal stimulus (hunger, thirst, or sex), or external stimulus (bread, car, or ad) 7. 72) Information research:- Information research of key interest to the marketer are the major information sources: Personal source- family neighbours, acquaintances Commercial sources- sales persons, dealers , packaging displays Public sources- mass media, consumer-rating organizations Experiential sources- handling, examining, or using the productThe relative amount and influence of these information sources vary with the product category and buyers characteristics.3) Evaluation of alternatives:- The consumer develops a set of brandbeliefs about a brand, which make up the brand image. The brand image will vary with his/her experiences as filtered by the effects of selective perception, selective distortion and selective retention. The consumer may evaluate brands on the basis of price, product design, colour, packaging, after-sales service, etc.4) Purchase decision: - Having evaluated various solutions, the buyer may develop a predisposition to make a purchase. However, two factors can intervene between the purchase intention and the purchase decision that may change the purchase intention, e.g. The attitude of others Unanticipated situational factorsIn executing a purchase intention, the consumer may take up to five purchase sub-decisions; A brand decision (brand A) Vendor decision (dealer 2) Quantity decision (1 computer) Timing decision (weekend) Payment method decision (cash/credit)5) Post purchase behaviour: - The consumer will experience some levelof satisfaction or dissatisfaction. Buyers do not follow the general decision sequence at all times. The procedure may vary depending upon; The time available Levels of perceived risk The degree of involvement a buyer has with a product.Marketers should provide after sales service and support to assure customer satisfaction.1.5 InvolvementInvolvement may be in terms of relevance and importance and is of two types;1) High involvement: - This occurs when a consumer perceives an expected purchase which is not only of high personal relevance but also 8. 8represents a high level of perceived risk. Cars, washing machines, houses and insurance policies fall in this category.2) Low involvement: - This suggests little threat or risk to the consumer. Low priced items such as washing soap, cooking oil, and breakfast products are bought frequently, and past experience of the product class and the brand cues the consumer into a purchase that require little information or support.1.6 Types of consumer problem solving behaviourConsumer decision-making varies with the type of buying decision. More complex decisions are likely to involve more buying participants and more buyer deliberations. There are three types of consumer problem-solving behaviour:1) Routine response behaviour: - This occurs when consumers buy low cost, frequently purchased items. The buyers have very few decisions to make. They know a lot about the product class and the major brands available and they have fairly clear preference among the brands. In general, consumers do not give much thought, search or time to the purchase. Marketers must satisfy current consumers by maintaining sufficient quality service and value. They must also try to attract new buyers by introducing new features and using point of purchase displays and price deals.2) Limited problem solving: - Buying is more complex when buyers confront an unfamiliar brand in a familiar product class (e.g. a new brand of mobile or toothpaste). E.g. people thinking about buying new music equipment may be shown a new brand with a new shape and new features. They may ask questions and watch adverts to learn more about the new brand. This is described as limited problem-solving because buyers are fully aware of the product class but are not familiar with all the brands available and their features.3) Extensive problem solving: - Sometimes buyers face complex buying decisions for more expensive, less frequently purchased products in a less familiar product class. For these products buyers do not often know what brands are available and what factors to consider in choosing between brands. E.g. suppose you want to buy an expensive stereo component system, you would probably spend time visiting several shops collecting information and comparing various brands before making the final decision. 9. 91.7 Types of Consumer Buying BehaviourFrom the understanding of general decision making process, perceived risk and involvement theory, it is possible to identify the following buying behaviours;1) Complex buying behaviour:- It involves three- step process; The buyer develops beliefs about a product, Then develops attitude, Then makes thoughtful choiceConsumers are highly involved in a purchase and are aware of significant differences among brands.Products are highly expensive, bought infrequently, risky and highly self- expressive e.g. automobiles.2) Dissonance: - Reducing buyer behaviour; where the consumer is highly involved in a purchase but sees little difference in brands.Purchase is expensive, infrequent and risky.If the consumer finds quality differences in the brands, he might go for the higher price.If he finds little difference, he might buy simply on price or convenience.3) Habitual buying behaviour:- Is characteristic with low involvement and the absence of significant brand differencesCommon with low cost, frequently purchased products e.g. saltConsumers reach for the same brand out of habit but there is no strong brand loyalty.4) Variety seeking behaviour:- Low involvement but significant brand differencesA lot of brand switchingMarketing communication should reinforce past decisions by stressing the positive features of the product or by providing more information to assist its use and application.1.8 Organizational/ Industrial Buyer BehaviourBusinesses ask themselves the same questions as consumer marketers i.e. who are our buyers and what are their needs. How do buyers make their buying decisions and what factors influence these decisions? What marketing programs will be most effective? 10. 10Definition: - Industrial buying is the decision making process by which formal organizations establish the need to purchase products and identify, evaluate and choose among alternative brands and suppliers.Types of organizational markets;1) The industrial market/: - It consists of all organizations acquiring goods and services that enter into the production of other goods and services that are sold or supplied to others. It is the largest organizational market.2) Reseller market: - It consists of all individuals and organizations that acquire goods for the purpose of reselling them to others for a profit. Resellers buy products for resale and for conducting their operations e.g. wholesalers.3) Government market: - It consists of government units from central and local government that purchase or rent goods and services for carrying out their main functions.4) The institutional market: - It is made up of hotels, hospitals, schools, colleges and other institutions that also buy goods and services.Figure 1.8.1 Types of organizational markets1.9 Differences between Organizational and Consumer marketsIn some ways organizational markets are similar to consumer markets- both involve people who assume buying roles and make purchase decisions to satisfy needs. But there are differences stemming from market structure, demand, product characteristics, promotion, distribution channels, price, nature of buying unit, and the decision process. 11. 111. Market characteristics:-a) Size: - Usually industrial consumers are few in number but purchase larger volumes on a repeat basis.b) Geographic concentration: - Industrial consumers tend to concentrate in specific areas especially urban areas.c) Competition: - Industrial organizations are more directly involved in international purchasing.2. Product characteristics: - In industrial markets products are purchased as component parts of other products. More emphasis is given to the technical aspect of the product. Purchases of industrial products are usually governed by customer specifications3. Buyer characteristics: - Typical consumer buyers have little knowledge of the product they purchase as contrasted with industrial buyers who are professionally and technically trained. Many industrial purchases involve large sums of money; technically complex products and decisions to purchase take longer and involve several people.4. Reciprocity: - Industrial buyers often select suppliers who may also buy from them e.g. a paper company that buys needed chemicals from a chemical company that in turn buys the companys paper.5. Channel characteristics: - In industrial markets, channels are direct where buyers often buy from producers rather than through middlemen.6. Promotional characteristics: - Personal selling is the dominant mode of promotion in industrial markets and advertising may only be used to lay a foundation for personal selling. Sales people act as consultants.7. Price: - Generally in industrial buying, price takes less prominence. Factors of interest are quality, product consistency, certainty and timeless of delivery, service and technical support.8. Demand: - Demand for industrial products is derived demand. It ultimately comes from demand for consumer goods. A cloth manufacturer buys cotton because consumers buy cloth. If consumers demand for cloths declines, so will the demand for cotton and all other products used to make cloth.The demand is also inelastic in organizational markets i.e. total demand is not much affected by price changes especially in the short-run e.g. a drop in the price of leather will not cause shoe manufacturers to buy more leather unless it results in lower shoe prices that in turn would increase customer demand for shoes.Participants in the industrial buying process- The buying centreThis is the group of people who make the buying decision. The group consists of all people who influence, whether positive or negative, at one or more stages of the purchasing process. The Decision Making Unit (D.M.U) has people playing the following roles; 12. 121. The gate keeper: - He controls the flow of information, ideas and instructions. Such roles may be played by the receptionist/secretary who controls the buying organizations diary. A gate keeper could also be a specialist who can feed relevant information to the rest of the D.M.U.2. Influencers: - These are the people such as engineers, accountants or the board of directors. They help define product specifications and provide information for evaluating alternatives. Technical personnel are particularly important influencers.3. Users: - These are the members of the organization who will use the product. In many cases they initiate the buying proposal and help define product specifications.4. Buyers: - They are people with formal authority to select the supplier and arrange terms of purchase. They negotiate with the selected supplier on issues such as price, delivery time, mode of delivery, etc.5. Deciders: - These are the people who have formal or informal power to select or approve the final suppliers. In routine or straight buying, the buyers are often the deciders.The buying centre concept presents a challenge to the industrial marketer who must learn the following; Who is involved in the decision? What decisions do they make? What is their relative degree of influence? What evaluative criteria does each participant use?Only when the above questions have been answered can the supplier plan the campaign to inform the key persons within the D.M.U. A multi-faceted attack may be necessary, involving direct mail, personal contact, as well as the use of advertising.1.10 Industrial Buying Situations1) Straight re-buy:- It is where the buyer knows his own requirements and the products on offer. The items tend to be regular purchases and the process is in most cases repeated frequently. A buyer would most likely purchase from the same supplier and it is often hard for another supplier to break into such a market.2) Modified re-buy:- In this category would fall the purchase of either a new product from an existing or known supplier, or the purchase of an existing product from a new supplier. It usually involves more decision participants.3) New task: - Involves the purchase of new unfamiliar products from previously unknown suppliers. In this situation the buyer must obtain a 13. 13lot of information about alternative products and suppliers. He must determine the following;Product specifications, price limits, delivery times and terms, service terms, payment terms, order quantities, etc.The buyer makes the fewest decisions in the straight re-buy and most in the new task situation. The new task situation is the marketers greatest opportunity. He tries to reach as many people with key buying influences as possible, and providing useful product information.1.11 Industrial Buyer Decision Making ProcessIn the industrial buyer decision making process, buyers facing a new task buyer situation will usually go through all stages of the buying process and those making straight or modified re-buys may skip some of the stages. They are;1. Problem recognition: - The process begins when someone in the firm recognizes a problem or need that can be solved by acquiring a specific product. The company may decide to launch a new product and need new equipment and materials to produce it or a machine may break down and need new parts etc.2. General need description: - This is description of the general characteristics and quantity of the needed item. Emphasis here is on reliability, durability, price and other attributes desired in the item.3. Product specification: - The items product specifications are analysed and the purchasing team (D.M.U.) decides on the best product characteristics and specify them accordingly.4. Supplier search: - This is carried out to find the best suppliers. Some suppliers may not be considered because they are not large enough to supply the needed quantity or because they have poor reputation. The suppliers task is to get listed in major directories and build reputation in the marketplace. Salespeople should watch for companies in the process of searching for suppliers and ensure their firm is considered.5. Proposal solicitation: - The buyer invites qualified suppliers to submit proposals. When the item is complex or expensive, the buyer will need detailed written proposals from each potential supplier.6. Supplier selection: - The buying centre (D.M.U.) reviews the proposals and selects a supplier. They will consider the technical competence of various suppliers, their ability to deliver the item on time and also deliver the necessary services. The following attributes have a strong influence on the relationship between the supplier and customer;Quality of products, on time delivery, competitive prices and delivery terms. 14. 147. Order routine specification: - This involves preparing the final order with the chosen supplier, listing the technical specifications, quantity needed, expected time of delivery, etc.8. Performance review: - Here the buyer reviews the performance of the supplier. The buyer may retain, modify, or drop the supplier in future hence the supplier should ensure that he is giving the expected satisfaction.1.11 Personal Determinants of Consumer BehaviourThese are needs, motivation, perception, learning, beliefs, and attitudes.1) Needs and Motivation:- A motive is a need that is sufficiently pressing to drive a person to act. Needs are either physiological-(hunger, thirst, comfort), or psychological-(recognition, self-esteem, etc.). Marketers study motivation theories for consumer analysis and marketing strategy. Three of the best known theories are those of Sigmund Freud, Abraham Maslow and Fredrick Herzberg.Freuds theory Assumes that the psychological forces shaping peoples behaviour are largely unconscious, and that a person cannot fully understand his/her own motivation. When a person examines specific brands, he/she will react not only to their stated capabilities, but also to other less conscious cues. Shape, size, weight, colour and brand can all trigger certain associations and emotions in the consumer. Motivation researchers often collect in- depth interviews to uncover deeper motives that trigger the purchase of a product.Maslows theory:- In order of importance, they are physiological needs, safety needs, social needs, esteem needs and self- actualization. A person will try to satisfy their most important needs first, after which he will then try to satisfy the next higher need. The theory helps marketers to understand how various products fit into the plans, goals, and lives of consumers.Herzbergs theory:- He developed a two- factor theory that distinguishes dissatisfiers (factors that cause dissatisfaction) and satisfiers (factors that cause satisfaction).Satisfiers must be actively present to motivate a purchase. The implications are that sellers must do their best to avoid dissatisfiers 15. 15e.g. poor instructions manual. The manufacturers should identify the major satisfiers and motivators and supply them to buyers.Perception:-Perception is a process by which an individual selects, organizes and interprets stimuli into a meaningful, coherent image or picture of the world. Simply said it is how an individual views a particular product.A motivated person is ready to act and how he acts is influenced by his or her perception of the situation. Two people in the same motivated state and objective situation may act quite differently because they perceive the situation differently. People can emerge with different perceptions of the same object because of three perceptual processes: selective attention, selective distortion, and selective retention.Learning:-Learning can be defined as a relatively permanent change in behaviour that occurs as a result of experience or reinforced practice.Most human behaviour is learned.Two main approaches to learning are: Behavioural-association, reinforcement and motivation. Cognitive-processing information in order that problems can be resolved.Learning theory teaches marketers that they can build up demand for a product by associating it with strong drives, using motivating cues, and reinforcement.Personality Theories:-Personality is, essentially, concerned with the inner properties of each individual, those characteristics that differentiate each of us.Freudian theory of personality; psychoanalytic theory: It assumes that the needs which motivate human behaviour are driven by primary instincts- life and death. The life instincts are considered to be predominantly sexual in nature, whereas the death instincts are believed to be manifested through self-destructive and/or aggressive behaviour. The personality of an individual is assumed to have developed in an attempt to gratify these needs, and consists of the id (pleasure seeking), super ego (acts within the rule of the society) and ego. 16. 16Trait theory:- Traits are distinguishing, relatively enduring ways in which one individual differs from another. Personality is measured and quantified e.g. the degree of assertiveness, responsiveness to change or level of sociability. Marketers identify specific traits and then develop consumer profiles which enable a distinct market segment to be determined. For example, Aspirers seek status and self- esteem (materialism) and are targeted with products which act as symbols of achievement e.g. designer clothes, latest hi-fi etc. Consumers are likely to choose brands whose personalities match their own. For example; Tommy Hilfiger-youthfulness, Levis- ruggedness. Brand personalities can attract consumers with the same self-concept (how somebody views himself).Beliefs and attitudes:-An attitude is a learned predisposition to behave in a consistently favourable or unfavourable way with respect to a given object.Through doing and learning, people acquire beliefs and attitudes.Attitudes relevant to purchase behaviour are formed as a result of direct experience with the product, word of mouth information acquired from others, or exposure to mass media advertising.A company can fit its products into existing attitudes rather than trying to changing them.Attitude change strategies include:- Changing the consumers basic motivational function, i.e., making particular needs prominent. Associating the product with an admired group or event e.g. social support events, celebrities, etc. Resolving two conflicting attitudes e.g. moving from negative to positive. Altering components of a multi attribute product e.g. toothpaste (regular and herbal, etc.). Changing consumer belief about competitors brands.1.12 External Determinants of Consumer BehaviourConsumers are social and cultural human beings. Their behaviour is affected by the social setting they find themselves in as well as the cultural practices of the community they live in. 17. 171) Culture: - It refers to the ways of life of a people. It is a set of socially transmitted beliefs, attitudes, norms and customs. Culture is learned from parents, teachers, and society in general. Culture describes the prescribed acceptable behaviours and norms of a society. Marketers has to understand the changes in cultural shifts in a society in order to capture opportunities to serve them in a better manners. Any marketer must be familiar with the culture of the people they wish to sell to.2) Social classes: - It is the division of the society into groups. It is also known as social stratification. Social functions have to be performed by a society for it to survive. Stratification in the world is done on the bases of education, occupation, income or economic and political station. In some societies eight to nine strata were found but in most of the society three classes were found i.e Upper class, middle class and lower class.A social class is an open aggregate of people with a similar social ranking. It is open since people can move in and out of the group. Mobility may take the form of education, occupation, talent, marriage, etc. Within a social class, people will to a certain extent have the same patterns of behaviour, similar attitudes, values, possessions, etc.Characteristics of social classes:-People within the same social class exhibit similar behaviour. People are ranked as occupying an inferior or superior social position according to their social class.A social class is not indicated by any single variable, but is as a result of the weighed function of an individuals occupation, place of residence, wealth, education, values, etc.The marketer has to identify the class differences due to the following reasons; Each class will have certain products that appeal to them and others that do not appeal to them. The marketer has to concentrate their marketing effort on specific social classes. In the same social class, there may be individual tastes that the marketer needs to take into consideration. The kind and quality of the product selected may vary from one consumer to another. Difference in classes may also show in marketing areas the consumers frequent. Certain classes may have a preference for a given shop, club, restaurant etc. The media habits of different classes will also differ. Some members of a class may read different newspapers and listen to different programs or watch different stations on T.V.3) Reference groups: - Reference group is a group of people who have direct or indirect influence on the individuals behaviour. It acts as point 18. 18of comparison or refences point/frame of reference for an individuals behaviour.Reference groups can be classified in to many Types; based on the degree of involvement we can classify into two groups i.e. primary and secondary groups.a) Primary groups: - These are groups that are small and very close to the consumer. The consumer has direct contact with group members and often has face-to-face communication with them. They include the family, co-workers and those one spends his leisure time with.b) Secondary groups: - Are larger and less intimate than the primary group. The consumer contact with this group may not be as frequent as those of the primary groups. They include religious organizations, professional organizations, clubs, unions, etc.4) Rationale groups: - These are membership groups that a person may join. They engage in activities which interest the consumer to express his idea, be guided and influenced in the type of goods consumed. They include YMCA, YWCA, scouting movement, etc.The reference group has norms that the members abide by. These norms promote conformity within the reference group. A reference group may influence the decision to buy in two ways; Being a member of a group, a person may buy a product or service since all those in the group have done so. A person may buy a product or service for the reason of wanting to belong to or be associated with the group. Some products can be sold by appealing them to a reference group. The consumer will use others as a point of reference; If he lacks specific experience in the purchase or use of a product, service or idea. When available sources of marketing information are judged as biased or inadequate. When the outcome of a consumers decision is highly visible and therefore open to disapproval from others. When the products are in high risk category e.g. are expensive.5) Role of Opinion leaders: - These are the pace setters or trend setters. They are the people who will first venture into sampling a new product before the others. They would then give information to the others before they commit themselves to buy the product or service. The opinion leaders or the pace setters are respected and serve as a source of advice to the rest. Characteristics of opinion leaders are; They are more interested and better read in areas they influence. They are more self-confident and sociable. They are slightly more innovative i.e., they take risks but cautiously 19. 19The word of mouth becomes an important tool for the spread of information here. The opinion leaders are the first to receive advertising messages and then pass them on to the others. Marketers should identify the opinion leaders first and focus information on them so that they can then influence others.6) The Family: - A Family comprises of two or more persons living together connected through blood or marriage or adoption and stay together. Different family structures were observed in the society i.e. married couples, nuclear family (parents and children) and extended family (parents+children+grandparents+uncles). Members of a family have a role in the buying process and the roles will depend on the product purchased. There are three important players in the family; they are husband, wife and children. These roles may be grouped as;a) Wife dominated decisions.b) Husband dominated decisions.c) Joint decisions1.13 Why Study Consumer BehaviorUnderstanding the reasons for studying a discipline enables one to better appreciate its contributions; therefore, this section presents a justification for the time and effort that the reader will expand in learning about consumers.1. Significance in Daily Lives: - In a general sense, the most important reason for studying consumer behavior is the significant role it plays in our lives. Much of our time is spent directly in the marketplace, shopping or engaging in other activities. A large amount of additional time is spent thinking about products and services, talking to friends about them, and seeing or hearing advertisements about them. In addition, the goods we purchase and the manner in which we use significantly influence how we live our daily lives. These general concerns alone are enough to justify our study.2. Application to Decision Making: - Consumers are often studied because certain decisions are significantly affected by their behavior or expected actions. For this reason, consumer behavior is said to be an applied discipline. Such applications can exist at two different levels of analysis. The micro perspective seeks application of this knowledge to problems faced by the individual firm or organization. The social perspective applies knowledge of consumers to aggregate-level problems faced by large groups or by society as a whole.Understanding consumer behavior form a macro perspective can provide insight into aggregate economic and social trends and can perhaps even predict such trends. In addition, this understanding may suggest ways to 20. 20increase the efficiency of the market system and improve the well-being of people in society.1.14 Applying Consumer Behavior KnowledgeThe following sections have been made form a variety of practical applications in the field of consumer behavior. Some involves a societal perspective while others illustrate a micro viewpoint. Together they underscore the importance of understanding consumers for solving a variety of contemporary problems.1. Consumer behavior and marketing management: - Marketing management is the process of planning and executing the conception, pricing, promotion, and distribution of goods, services, and ideas to create exchanges with target groups that satisfy customer and organizational objectives. A sound understanding of consumer behavior is essential to the long-run success of any marketing program. We need to know consumers wants and needs, company objectives and make an integrated strategy to achieve a firms objectives though consumer satisfaction.a. Market opportunity analysis: - this activity involves examining trends and conditions in the marketplace to identify consumers need and wants that are not being fully satisfied.b. Target market selection:- The process of reviewing market opportunities often results in identifying distinct groupings of consumers who have unique wants and needs, andc. Marketing mix determination: - This stage involves developing and implementing a strategy for an effective combination of want-satisfying features to consumers within target markets (product, price, promotion and place).2. Consumer behavior and non-profit and social marketing:- Can crime prevention, charitable contributions or the concept of family planning be sold to people in much the same way that some business firms sell soap? Very often, non-profit and social marketing companies appeal to the public for support in addition to attempting to satisfy some wants or need in society. A clear understanding of consume decision process can assist their effort.3. Consumer behavior and governmental decision-making:- In recent years the relevance of consumer-behavior principles to governmental decision-making has become quite evident. Two major areas of activity have been affecteda. Government policies that provide services to the public or result in decisions that influence consumer behavior andb. The design of legislation to protect consumer or to assist them evaluating products and services. 21. 214. Consumer behavior and demarketing: - The term demarketing refers to such efforts to encourage consumers to reduce their consumption of particular products or services (e. g anti-smoking campaign). Various government policies have supported the effort by private enterprise to stimulate the public to greater levels of consumption because of their favourable effect on economic development. However, it has become increasingly clear that we are entering an era of scarcity in terms of some natural resources such as oil, natural gas, and even water. These scarcities have led to promotions stressing conservation rather than consumption.5. Consumer behavior and consumer education: - Consumers also stand to benefit from orderly investigations of their own behavior. This can occur on an individual basis or as part of more formal educational program. What is learned about consumer behavior can also directly benefit consumers in a more formal sense. The knowledge can serve as data for the development of educational programs designed to improve consumers decision-making regarding products and services. Such courses are increasingly popular in higher education, which is based on a clear understanding of the important variables influencing consumers.1.15 Studying Consumer BehaviorWe should determine the general classes of variables influencing consumers behavior, understand the nature of these variables, and learn how to make inferences based on this knowledge. Three classes of variables are involved in understanding consumer behavior: stimulus, response, and intervening variables.Modeling Behavior: - The study of consumer behavior can also be quite complex, because of the many variables involved and their tendency to interact with and influence each other. Models of consumer behavior have been developed as a means of dealing with this complexity.1. External Variables: - The external environment depicted in the outer circle is made up of six specific influences on other factors. The six specific influences are culture, subculture, social class, social group, family, and personal influences. The concept of culture has been characterized as, that complex whole that includes knowledge, belief, art, moral, law, custom, and any other capabilities and habits acquired by man as a member of society. Subculture is the emphasis on segments of a given culture that have values, customs, traditions, and other ways of behaving that are unique and that distinguish them from others sharing the same cultural heritage. Social class refers to the process by which people in a society rank one another into different social positions. A social group can be viewed as a collection of people 22. 22who have a sense of relatedness resulting from some form of interaction with one another. The family is a special form of social group that is distinguished, at least in part, by numerous and strong face-to-face interactions among its members. The process of personal influence, which can be described as the effects on an individual resulting from communications with others, has long been of interest to marketers.2. Individual Determinants: - Major individual determinants of consumer behavior are portrayed in the inner ring. Personality and self-concept provide the consumer with a central them i.e., they provide a structure for the individual so that s consistent pattern of behavior can be developed. Motives are internal factors that energize behavior and provide guidance to direct the activated behavior. The term information processing refers to the activities that consumers engage in when acquiring, integrating, and evaluating information. What customers learn, how they learn, and what factors govern the retention of learned material in memory is crucial. Attitudes guide our basic orientation toward objects, people, events, and our activities.3. The Decision Process: - The major steps in the decision process are problem recognition, information search and evaluation, purchasing process and post-purchase behavior. Post-purchase experiences result in feedback to the problem-recognition stages. 23. 232.1 SummaryConsumer Durables Industry in India to post ~15% CAGR growth over next five years.We believe that the consumer durables industrys growth has been two pronged: Driven by lower penetration in rural markets and New innovations and replacement demand in urban markets.Key growth drivers include: Continued economic growth demonstrated through 8.4% CAGR growth in GDP over last 5 years Favourable demographics; 64% of the population in working age category Increasing Urbanization, nuclear families Increase in disposable incomes; which drives consumption Increasing affordability coupled with declining prices of products Lower consumer product penetration Availability of new products and technologies, Easy financing schemes and Increase in organized retailHowever, increasing raw material prices, intense competition and increased cost of service and distribution are major challenges being faced by industry.Valuation and view: In a scenario of shorter product life cycles and increasing competition, we believe that the companies with strong R&D, wide distribution network, strong brand would dominate the segment. Indian consumer durables sector has limited stock selection available for value investors.Figure 2.1.1 Consumer Durable GoodsChapter 2: About Industry 24. 242.2 OverviewIndia is expected to become the fifth largest consumer durable market in the world; the market is expected to reach US$12.5 billion by FY15 from US 7.3 billion in FY 12.Figure 2.2.1 Shares in the consumer durables market in India (FY14)Urban markets account for the major share (65 percent) of total revenues in the consumer durables sector in India. Demand in urban markets is likely to 65% increase for non-essential products such as LED TVs, laptops, split ACs Mobile phones and beauty and wellness products.In rural markets, durables like refrigerators and consumer electron goods a likely to witness high demand in the coming years as the Government of India plans to invest significantly in rural electrification.100 % FDI is allowed in the electronic hardware manufacturing sector under the automatic route. The consumer durables sector ranked in revenue worth US $ 7.3 billion in FY-12. Growth has been healthy over the year, recording a compounding annual growth rate (CAGR) of 10.8% over the FY03-13. The Consumer durable is expected to grow double at 14.8 % CAGR to reach US$12.5 billion in FY-15 from US$ 6.3 billion in FY10.Urban markets account for the major share (65% of total revenues in the consumer durable sector in India. Demand in urban markets is likely to increase for non-essential products such as LED TVs, laptops, split ACs and, beauty and wellness, products. In rural markets, durables like refrigerators as we as consumer electronic goods are likely to witness growing demand in three coming years.Figure 2.2.2 Size of the consumer durables market (USD billion) 25. 25The Consumer Durables industry consists of durable goods and appliances for domestic use such as televisions, refrigerators, air conditioners and washing machines. Instruments such as kitchen appliances (microwave ovens, grinders etc.) are also included in this category. This industry includes all those goods which are durable i.e. Products whose life expectancy is at least 3 years. These products are hard goods that cannot be used up at once. According to recent industry reports, the steadily growing market for consumer durables is estimated at Rs. 300 billion.The Indian Consumer Durables segment can be segmented into three groups:White goods Air conditioners Refrigerators Washing Machines Sewing Machines Watches and clocks Cleaning equipment Other domestic appliancesBrown goods Microwave Ovens Cooking Range Chimneys Mixers Grinders Electronic fans IronsConsumer electronics TVs Audio and video systems Electronic accessories PCs Mobile phones Digital cameras DVDs CamcordersBrown goods:-This is a highly penetrated marketElectric fans are an essential utility for more than six months of the year in most parts of the countryWhite goods:-Heavy consumer durables such as air conditioners, refrigerators, stoves, etc., which used to be painted only in white enamel finish. Despite their availability in varied colors now, they are still called white goodsConsumer electronics:-Consumer electronics (abbreviated CE) are electronic equipment intended for everyday use, most often in entertainment, communications and office productivity. 26. 262.3 HistoryWhile many appliances have existed for centuries, the self-contained electric or gas powered appliances are a uniquely American innovation that emerged in the twentieth century. The development of these appliances is tied the disappearance of full-time domestic servants and to reduce the time consuming activities in pursuit of more recreational time. In the early 1900s, electric and gas appliances included clothes washers, water heaters and refrigerators and sewing machines. Post-World War II, the domestic use of dishwashers, and clothes dryers where part of a shift for convenience. As discretionary spending increased, it was reflected by a rise in miscellaneous home appliances.In America during the 1980s, the industry shipped $1.5 billion worth of goods each year and employed over 14,000 workers, with revenues doubling between 1982 and 1990 to $3.3 billion. Throughout this period companies merged and acquired one another to reduce research and production costs and eliminate competitors, resulting in anti-trust legislation. The United States Department of Energy passed the National Appliance Energy Conservation Act in 1987 which set energy standards that required manufacturers to reduce the energy consumption of the appliances by 25% every five years.In 1987, home appliances the energy efficient standards helped every household save $2000 each or a total of $200 billion nationwide with the National Appliance Energy Conservation Act.[citation needed]In the 1990s, the appliance industry was very consolidated with over 90% of the products being sold by just five companies. For example, in 1991, dishwasher manufacturing market share was split between General Electric with 40% market share, Whirlpool with 31% market share, Electrolux with 20% market share, Maytag with 8% market share and Thermador with just 1% of market share.2.4 Major Players2.4.1 Samsung IndiaSamsung India commenced its operations in India in December 1995, today enjoys a sales turnover of over US$ 1 billion in just a decade of operations in the country. Samsung design centres are located in London, Los Angeles, San Francisco, Tokyo, Shanghai and Romen. Samsung India has its headquartered in New Delhi and has a network of 19 Branch Offices located all over the country.The Samsung manufacturing complex housing manufacturing facilities for Colour Televisions, Colour Monitors, Refrigerators and Washing Machines is located at Noida, near Delhi. Samsung Made in India products like Colour Televisions, Colour Monitors and Refrigerators are being exported to Middle East, CIS and SAARC countries from its Noida manufacturing complex.Samsung India currently employs over 1600 employees, with around 18% of its employees working in Research & Development. 27. 272.4.2 Whirlpool IndiaWhirlpool was established in 1911 as first commercial manufacturer of motorized washers to the current market position of being world's number one manufacturer and marketer of major home appliances. The parent company is headquartered at Benton Harbor, Michigan, USA with a global presence in over 170 countries and manufacturing operation in 13 countries with 11 major brand names such as Whirlpool, Kitchen Aid, Roper, Estate, Bauknecht, Laden and Ignis. Today, Whirlpool is the most recognized brand in home appliances in India and holds a market share of over 25 per cent. The company owns three state-of-the-art manufacturing facilities at Faridabad, Pondicherry and Pune.2.4.3 LG IndiaLG Electronics was established on October 1, 1958 (As a private Company) and in 1959, LGE started manufacturing radios, operating 77 subsidiaries around the world with over 72,000 employees worldwide it is one of the major giants in the consumer durable domain worldwide. The company has as many as 27 R & D canters and 5 design canters. Its global leading products includeresidential air conditioners, DVD players, CDMA handsets, home theatre systems and optical storage systems.2.4.4 Godrej IndiaGodrej India was established in 1897. The company was incorporated with limited liability on March 3, 1932, under the Indian Companies Act, 1913. The Company is one of the largest privately-held diversified industrial corporations in India. The Company has a network of 38 Company-owned Retail Stores, more than 2,200 wholesale dealers, and more than 18,000 retail outlets. The company has Representative Offices in Sharjah (UAE), Nairobi (Kenya), Colombo (Sri Lanka), Riyadh (Saudi Arabia) and Guangzhou (China-PRC).2.4.5 Sony IndiaSony Corporation, Japan, established its India operations in November 1994. In India, Sony has its distribution network comprising of over 7000 channel partners, 215 Sony World and Sony Exclusive outlets and 21 direct branch locations. The company also has presence across the country with 21company owned and 172 authorized service centres.2.4.6 Hitachi IndiaHitachi India Ltd (HIL) was established in June 1998 and engaged in marketing and sells a wide range of products ranging from Power and Industrial Systems, Industrial Components & Equipment, Air Conditioning & Refrigeration Equipment to International Procurement of software, materials and components. Some of HILs product range includes Semiconductors and Display Components. It also supports the sale of Plasma TVs, LCD TVs, LCD Projectors, Smart Boards and DVD Camcorders 28. 28Major Players in Consumer durable industryFigure 2.4.6.1 Major Players in Consumer durable industry 29. 292.5 Porters Five Forces Model 30. 302.6 Growth Scenario1) Rise in Disposable Income:-The demand for consumer durables has been rising with the increase in disposable income coupled with more and more consumers falling under the double income families. Also, the growing Indian middle-class plays a major role in increasing the demand. This, along with a fall in the prices of durable goods mainly due to the advancement of technology, easy import of components has led to an increase in the consumption expenditure on durable goods.2) Easy-availability of consumer financing:-Apart from steady growth in income of consumers, consumer financing has become a major driver in the consumer durables industry. In the case of more expensive consumer goods, such as refrigerators, washing machines, color televisions and personal computers, retailers are marketing their goods more aggressively by providing easy financing options to the consumers by partnering with banks. The easy-availability of consumer financing is beneficial mainly for the lower and middle income group, especially when the cost of capital and flexibility of the scheme is in their favour.3) Existing Potential in Rural Markets:-Growth is coming in a big way from the smaller towns and rural markets and is expected to be the next growth opportunity for the consumer durables market. In the last year ~30-35% of the total sales of consumer durables was from the rural market. This is expected to grow by 40-45% in the near future. The rural durables market has been growing by ~30% annually, mainly due to the growing affordability of products as well as the general buoyancy in the economy. Products like mobile phones, televisions and music systems are the ones which have witnessed high growth among the rural market. To further cater to this market many manufacturers have started using local languages while offering products to the rural crowd.4) Increasing share of Organised Retail:-Since the last couple of years there has been an increasing shift towards organized retail (brands) from the unorganized (unbranded) products. With rising income and purchasing power, and the younger generation preferring branded products, the share of organized shopping is increasing. Shopping in 31. 31malls is considered more of an experience these days. According to estimates, organized retail which constituted ~4% of the total buying till 2010, is expected to grow to over 10% by 2013.5) Entertainment and Media to boost growth:-According to a recent report by KPMG, the Indian Media & Entertainment (M&E) industry registered a growth of 11% over 2009 and touched Rs. 652 bn and is expected to achieve a 13% growth in 2011. Overall the industry is expected to register a CAGR of 14% to touch Rs.1275 bn by 2015. Out of this, the television industry is expected to achieve a 16% CAGR and is expected to account for almost half of the Indian M&E industry revenues. The television segment of the consumer durables industry is seeing high growth coming from high-end flat panel TV, LCD TVs and Plasma TVs. All of these were expected to register a 100%+ growth in the last year. Hence, the growing importance of entertainment and media on our lifestyles is expected to boost the demand for products like Plasma TVs, LCDs, DVD Players.6) Consumer Preferences:-Consumers purchase goods by looking at the brand, pricing, and discount schemes available at the time of buying. So, for the consumer durables industry following are important growth drivers:Availability of new and innovative products A company that upgrades its technology and comes out with new and innovative products catches the attention of consumers. Especially in the consumer electronics segment, manufacturers have to make sure they are updated with the latest technology that has entered the market. For the higher income groups the brand, technology and the product features play an important rolePricing of the products: - For the lower and middle income groups, price is the deciding factor especially in a price-sensitive industry like consumer durables.Festive discount schemes: The sales of many consumer durables goods are driven by festive discounts. For example people consider it auspicious to purchase goods like LCDs, Televisions, Washing Machines, etc during festivals like Diwali, Gudi Padwa, etc.1) Cheap imports from Asian Countries:-The cheap imports of consumer durable products from countries like China, Singapore etc. are a major concern.2) Increasing competition:-Presence of a large number of players in each segment leads to high rivalry. Also, the unorganized market is yet very strong in the case of many consumer durable goods. The pie of the unorganized sector is relatively large in most of the segments, hence increasing the competition.3) Fluctuating raw material prices:-Rising input costs of raw materials viz. copper, steel, aluminium and plastic - the major raw materials required for this industry will severely putting pressures on margins. 32. 324) Unfavourable Duty Structure:-Top players in the consumer durables industry have been demanding a more favourable import duty on durable components imported by them. Take the case of LCDs which the fastest growing segment is right now - the industry has been demanding a reduction in the import duty. Contrary to this is the case of set top boxes, where 80% of the set top boxes are imported. The industry has been recommending that the custom duty on STB should be increased by 5% to 10% in order to boost domestic manufacturing.5) Continuously changing technology; a challenge:-The consumer durables sector faces the challenge of a continuous change in technology and the inability to cope with it. High-end consumers prefer changing their goods along with the up-gradation of technology and manufacturers have to make sure they cater to this requirement.The Indian market is fast moving towards high-end products and the importance of media and entertainment is growing among the young market. The consumer durables industry needs to constantly focus on innovation and needs to come out with product variations across categories to meet the different expectations of a varied class of customers.With easy availability of finance, fall in prices due to increased competition, growth of media, growth in consumer base of rural sector, the consumer durables industry is growing at a fast pace. Given these factors, a good growth is projected in the future, too.With the Indian Economy expected to grow at ~7 8%, the existing potential in the durables market augurs well for the consumer durables industry. Hence, we can say that the consumer durables sector is expected to grow with a good growth rate and have a bright future.2.7 Government InitiativesRecent Developments/ Investments To acknowledge the fast growing online consumer base, Multi Screen Media (MSM) has recently launched its video-on-demand service Sony LIVE. The new offering aims at providing entertainment on the go for young India. Apart from enhancing the way entertainment is consumed in India, this user-friendly and interactive application is also a great platform for brands to strengthen their engagement and interaction with young consumers. The Sony LIVE application is available globally for free, online on sonyLIV.com and for download on major App stores iTunes and Google Play. Samsung has launched curved televisions in the Indian market priced between Rs 100,000449,000 (US$ 1,667.637,487.65) to tap high-end buyers. Under its curved range, the company is offering a range of 10 television models with ultra-high definition (UHD) and LED technologies. This technology should get adopted, we feel very strong. Its a global trend. People are now looking at much and much better picture quality and immersive nature of the TV, which we do not have till now. 33. 33 Kerala-based Paragon, which helped popularize branded rubber chappals in India, is now actively looking at new growth drivers. The Rs 1,400 crore (US$ 233.38 million) footwear maker is diversifying into trendier products such as sports shoes and non-leather formal footwear, before finally stepping into the larger leather footwear market. Canon India plans to get into the network security camera market. We have made forays into photo albums, cinematography and medical imaging. Sometime later this year, we will launch our first product in the Indian security camera market. Amul has clocked its highest ever growth in FY 2014, riding on a sharp rise in exports and entry to new markets. We have achieved 32 per cent growth in our annual turnover which is the highest ever growth since it was set up in 1973. Amway India plans to increase its proposed investment in its Tamil Nadu facility, with more production lines to manufacture its complete range of nutrition and beauty products. The company will invest Rs 150 crore (US$ 25 million) over and above the originally proposed Rs 400 crore (US$ 66.67 million) in the manufacturing facility that is coming up at Nilakottai near Madurai. It is expected to start commercial production by the end of 2014. UK-based Reckitt Benckiser, the household goods manufacturer that sells Dettol antiseptic and Harpic toilet cleaners in India, among other brands, has set a target to reach over 200 million people by 2020 to improve their health and hygiene behavior.The Indian Government is majorly concerned about the development of rural markets and hence, keeps introducing policies and initiatives to encourage their growth.In a bid to make economic development inclusive, the Indian Government has initiated many schemes and programs that aim at improving the standard of living in India villages or rural areas.For instance, the Government launched a time-bound business plan for action called Bharat Nirman for enhancing the infrastructure in hinterlands. Under this program, action is proposed in the areas of Water Supply, Housing, Telecommunication and Information Technology, Roads, Electrificationand Irrigation.Apart from that, the Government is considering enhancing the authorised capital of National Bank for Agriculture and Rural Development (NABARD) to Rs. 20,000 crore (US$ 3.71 billion) from Rs.5,000 crore (US$ 928.49 million). The increase in authorised capital is aimed at enhancing the operations and broadening the scope of activities of NABARD. 34. 343.1 Global Market Summary of Smartphone and TabletThe smartphone and tablet technology marketplace is now global, with devices typically launched simultaneously across multiple countries, accompanied by worldwide marketing and, for high profile brands, multimedia events. As still makes up a relatively small portion of the smartphone and tablet market, it does not have a significant impact on global trends. Rather, global developments and trends may have a strong bearing on developments and trends seen here, with pre-purchase reviews easily accessible online, apps transcending international borders keep pace with the latest global trends. With the power of super charged processor, open platforms, consumer can now multitask & experience the wonder of mobile applications like never before. This section examines the latest global trends and developments to provide context for patterns observed in the marketplace for the supply of smartphones and tablets. There are 6.8 billion mobile subscriptions worldwide.(Year 2013) Over half of the worlds mobile subscribers are in Asia Pacific The top 12 countries account for more than 56%of the worlds total mobile subscriptions. 29 % of the worlds mobile users live in India and China. Gartner (February 2013): 1.746 billion handsets were sold in 2012, down 1.7 % from 2011. (These figures include feature phones & Smartphone sales). Gartner (February 2013): predicts mobile device sales will grow to reach 1.9 billion units in 2013. Smartphone sales are expected to hit 1 billion units in 2013, which means that for the first time smartphones will outsell feature phones. The star performer is Samsung, which accounted for more than 20- 24 % of all handsets sold in 2012 and more than 30 % of smartphones. By the end of 2013, global smartphone penetration will have exploded from 5% of the global population in 2009, to 22%. That's an increase of nearly 1.3 billion smartphones in four years. On average, there will be two smartphones for every nine people on earth, or 1.4 billion smartphones, by the end of 2013.Chapter 3: Smart Phone & Tablets Market 35. 35 According to IDC, Android holds 79.3% share in global smartphone market. Apple's iOS is second with 13.2% while Windows Phone is third with 3.7% share. Globally today smart phones contribution stands at 27% of handsets sales, going as high as 63 % & 51 % in the developed telecom markets of North America & European Union respectively. It has led consumers to use their handsets in ways reaching far beyond the rudiments of basic mobiles phones. Its no surprise that the adoption of smartphones & tablets worldwide has grown vertically in the short spans of last 2 years.Figure 3.1.1 Country wise mobile phone ownership 36. 363.2 Indian Market Summary of Smartphone and TabletSmartphone category in India is still very nascent at 8-10 %.Smartphone use is booming in India and is quickly becoming the dominant way many of the countrys 900 million mobile phone users stay connected. Looking at recent trends, the country may have as many as 40 million of these devices in use by early this year. The dramatic growth is being driven by a desire among users to stay connected and have instant access to social networking sites a global trend that represents an exponential growth opportunity in developing countries like India.Indian Tablet PC market will cross $2 billion of revenue by the end of 2013. The growth is lead by increased use of tablets in education and enterprise sectors. 62% of recent smartphone buyers chose Android More than one in 10 smartphone owners intended to purchase a tablet Among users who paid for apps, 58% purchased games making it the most popular categoryAccording to MAIT, the apex body representing India's training and R&D services sectors, IT hardware industry, tablet sales in 2012-13 were at 1.9 million units as against 0.36 million units in 2011-12 witnessing a massive growth of 427 per cent.CyberMedia Research (CMR) stated that the Indian tablet market increased 107.4 per cent year-on-year to 1,150,000 tablets in the second quarter of 2013. Global research firm IDC stated that the overall tablet market in India has crossed 2.66 million units and will reach 6 million units in 2013. A recent IDC report stated that tablet sales will surpass PCs in Q4 of 2013 and will surpass total PC shipments on an annual basis by 2015 year end.According to IDC, Google's mobile operating system has a 91% market share in the country, giving it an overwhelming lead over its competitors. The second most used mobile OS in the country is Windows Phone, which has a market share of 5.4%. The figures from IDC, which tracks units of phones shipped in a market, are for the second quarter of this year. Apples iOS, which powers iPhones, has a market share of just 2.3%. 37. 37Figure 3.1.2 Indian Smartphone & Tablet Market 3.2 The era of the smartphone Smartphone use is booming in India and is quickly becoming the dominant way many of the countrys 900 million mobile phone users stay connected while theyre on the go. Looking at recent trends, the country may have as many as 40 million of these devices in use by early this year. The dramatic growth is being driven by a desire among users to stay connected and have instant access to social networking sites a global trend that represents an exponential growth opportunity in developing countries like India. Decreasing device and data costs, coupled with a wide range of features that todays smartphones offer are also readily encouraging consumers to trade in their traditional cell phones for handsets with much more functionality.Android leads the packThe Indian Smartphone User study found that 93 percent of smartphone users own only one handset, making it their single source of infotainment on the go. The smartphone users in India overwhelmingly prefer mobile devices that operate on the Android operating system. Insights found that three out of five consumers, who recently bought a smartphone, preferred Android device - a preference that highlights Indian consumers' desire for a platform that is open and available across multiple brands and prices. While Symbian usage is also high in India, Windows, BlackBerry and iOS devices each only have single-digit figures when it comes to share of purchase. 38. 38Figure 3.2.1 Share of Purchase (Source: Nielsen Informate Mobile Insights) Mobile internet access: Room for growth Mobile internet connectivity and smartphone usage go hand-in-hand, but only half of the smartphone users polled have active data access. While this percentage may be significantly higher than the mobile data penetration for feature phone users, it indicates that millions of smartphone users still dont have access to mobile internet connectivity. It is interesting to note that the youth are quick to adopt internet connectivity on their smartphones with over half of all data users falling in the sub-25 year bracket. Figure 3.2.1 Mobile internet Usage (Source: Nielsen Informate Mobile Insights) 39. 393.3 Growth Potential Motorola has sold million-plus smartphone handsets in the five months since it started selling in India again. And all of that through the one exclusive distribution network that it chose India's e-commerce poster boy Flipkart. "We believe these sales figures should put Motorola among the top five mobile brands in the country. That could be true for the smartphone segment, where, according to research firm IDC, vendors shipped a total of 17.59 million smartphones in the first quarter of this year. Nokia at the fifth spot had a 4% share or 7 lakh units. The figures demonstrate how quickly the Indian consumer is adapting to the online market and letting go of traditional brick-and-mortar stores. It signifies how the Indian consumer has been able to get past the touch-and-feel barrier, and enjoying the speed and convenience of shopping from home or office or from one's smartphone. With the advent of affordable smartphones (3,00010,000/US$50US$165) designed for the Indian user from indigenous manufacturers such as Micromax, Karbonn, etc., as well as increasingly low-cost data connectivity options, more people are shifting to smartphones and mobile Internet. Other factors heavily contribute to this shift, including the fact that 98.9% of India currently has no access to fixed-line broadband connectivity options and industries like banking, retail, entertainment, health and education have begun to introduce compelling mobile services. Predictably, the contribution of smartphone users to Internet traffic has long overtaken that of PC users and the gap continues to widen. Due to these factors, smartphone sales have begun to cannibalize the traditional feature phone market while the overall market grew by 12% last year, the smartphone market grew by a whopping 229%. Whats more, industry insiders say that we are more or less at the tipping point for the smartphone market and this trend is expected to sustain in the coming quarters. At this rate, the smartphone market will overtake feature phones in terms of number of units sold, by 2017. In fact, in India more than 50% of users access the Internet only via their smartphones, most of these from tier 2 and tier 3 cities. After their first brush with email, social media, web-search services, and the like, people are finding innovative ways to improve their lives. IAMAI reports that while rural areas have a much smaller contribution to mobile Internet activity (2.5 crore or 25M users) compared to urban (8.5 crore or 85M users), this statistic will soon change as growth of smartphone users in rural India, at 50% per year is more than double the growth in urban India. We are enthusiastic about the scale and potential of opportunities presented by the proliferation of low-cost smartphones to create new disruptive business models reaching the masses in India. Were actively seeking great entrepreneurs who are building startups around this new and upcoming space. Reach out to us if you are an entrepreneur or know one working in this area. 40. 404.1 Overview Indian Consumer Electronics market has been witnessing sustained double digit growth rate in the past few years. Increasing product awareness, affordable pricing, innovative products and the high disposable incomes have aided in the strong growth in the consumer electronics market in India. Rapidly shrinking replacement cycle for consumer durables is observed as sustaining demand in urban India. The existing low penetration rates and the increasing usage of consumer durables have catapulted rural India to the high demand generating segment. The consumer electronics market in India is characterized by technological advancements, innovative product introductions, price fluctuations and intense competition 4.2 Penetration levels CTVs (Colour Televisions):- Indian television market is highly under penetrated compared to China, developed countries and world average. Figure 4.2.1 Comparison of TV PenetrationChapter 4: Consumer Electronics 41. 41Market sizes and growth rates CTVs:- Television market in India is expected to grow at a robust rate of 19% CAGR till 2016. Figure 4.2.2 Market Size of TV in India (in INR Billion) Television continues to be the mainstay of the consumer electronics industry in India, with the transition slowly occurring to newer technologies such as LCD, LED, Plasma 3-D and PDP. There was a huge demand for colour televisions all through the 90s. During the last two years 11.5% of Indian homes bought a TV set. This figure is even higher among the top eight metros at 21.3% about one in every five home in these cities acquired a TV set in the last two years. Indian TV industry is technology driven, so companies need to constantly improvise, innovate and customize their products. Colour cabinets, headphones, 3-D 360 degree sound technology and e-mail in TV, plasma TV and golden eye technology are just a few examples. The last few years have seen a quantitative and qualitative change in TV technology and software. With the advent of several local and foreign satellite channels, demand for CTVs has seen a rise. In fact, the television manufacturing industry has come a long way from the big black and white TV sets to the modern day ultra-thin Plasma, LED and LCD TV sets. With the ever changing technology the Television industry has adapted itself suitably to cater to the changing tastes of the consumer. Although the top players viz. LG, Sony, Videocon, Phillips, Samsung and Onida have drastically reduced prices, they have gained more volume due to increasing market size and higher penetration levels, coupled with conscious shift towards flat colour televisions. Aggressive and innovative marketing strategies and technological advances have led to strong brand differentiation and prices. In the process the industry has evolved with products available at different price points at all levels. This process was also facilitated by growth in production in the organized segment and domestic availability of multinational brands due to lowering of import duties and other liberal measures. The television industry, thus, appears to have two clearly differentiated segments. The MNCs also have an edge over their Indian counterparts in terms of technology, aggressive marketing strategy, economies of scale in branding through international events (like sports events or International Summits) and associations combined with a steady flow of capital. Thus, the sale of TVs also tends to be event driven. For instance, during the Cricket World Cup in 1999, CTV sales recorded a phenomenal rise of 40-50%. 42. 42Many MNCs and domestic companies are now making India as a manufacturing centre because: Low cost skilled labor Tax free zones i.e. SEZs Qualified workforce Untapped domestic market Excellent supply base for glass and colour picture tubes Some economic measures that have also played a role in this phenomenal growth are: Custom duty on colour picture tubes (CPTs) lowered to 20% from 25% Abatement rates on TV sets have changed from 35% to 40% Special additional duty on customs of 4% was done away with Single rate of excise duty at 16% Globalization and its impact on Television Industry in India In countries like India, the economic liberalization has influenced the consumer durable industry especially the television industry. This industry has seen a gamut of changes in the past one decade making its market highly competitive and consumer driven. Changing and growing demands of the consumers made the industry competitive. This globalization is important for various reasons as discussed below New areas for growth. Globalization provides the Indian television industry an access to new markets beyond its typical Southeast Asian demographic constituents. Serving new markets can not only provide new revenue sources but also lead to product innovations in the industry. Minimal marginal cost. Globalization requires significant initial investment and learning. But once global, the firm can easily release the programs produced for one market in other markets. The success rate of a program across various markets may differ; nonetheless the marginal cost is extremely low post-penetration thereby providing much higher overall returns. Diversify and stabilize. Political, economic, or viewer preference upheavals in a market can be disastrous to a firm, if the firm is completely dependent on that market. Globalization can provide the much-needed diversification, stability, and insurance against unexpected, drastic changes. A global firm can easily survive and organically adapt to the changes in market conditions. Better utilization of assets. Over the years, the Indian television industry has developed both tangible and intangible assets in terms of production facilities, program libraries, and experienced talent. Recycling and reusing these assets in global markets can increase the return on these assets and make a better economic sense. It also provides global exposure to the Indian talent leading to the development of professional approach to the activities of the industry. Analysing these benefits, after globalization and liberalization, many foreign players have entered the Indian market. Together with this, consumers in India with open markets on an average are enjoying lower prices, improved consumption, and improved savings and rising standards of living. Before liberalization in India, the 43. 43consumer was at the mercy of the producer and savings management was prevailing in the sense that individuals saved and then consumed. This might be because of no financing facilities, no credit card facilities and moreover demand side economic were prevailing. After liberalization the total scenario has changed- consumers in India moved from savings management to expenditure management. This is because of the availability of goods and services at lower price, availability of credit cards, availability of finance at low interest and in some cases zero interest and moreover the death of power of monopoly in many sectors because of the entry of the foreign players. Producers have become price takers rather than price setters. The tastes and preferences, life style and consumption patterns of the consumers have also changed. Like other third world countries, people in India have started spending much more money and there has been a distinct shift from joint family system to that of nuclear families. Because of the entry of the foreign players we felt that in the Indian T.V. Industry, the following changes have taken place: 1. Economic substitutability and technical substitutability:- The T.V industry is facing intense competition and in the process new innovations in the form of giving additional features are taking place; 2. Indifference in brand preference: - The consumers are indifferent in choosing the brand because whatever the brand that the consumer is going to purchase gives the same satisfaction. This because the features of T.V in almost all the brands are same and there is a negligible difference in the prices. However, local made company products are cheaper. Hence we can define the indifference in brand preference as the locus of all brands in which the consumer gets the same level of satisfaction; 3. Excludability: - The producers are not excluding the customer before going to produce the product like how they ventilate them before liberalization. Without due care and attention, the relationship between producer and consumer becomes much more akin to a gibberish than a purchase and sale one; 4. Rivalry: - In the information era economy the use or enjoyment will no longer necessarily involve rivalry. Especially with most tangible goods like TV, if X uses one brand of TV there is no guarantee that Y also uses the same brand. Free market price provides the producer with an ample award for its effort. It also leads to the appropriate level of production. 5. Transparency: - The consumers know what they want and what they are buying so that they can effectively take the advantage of competition and comparison. They can now shop around and collect the required information whose marginal cost is zero. Hence the producers should be transparent. Set top boxes (STB):- The set-top box (STB) market is growing rapidly, due to the expansion of DTH and introduction of digitalisation of Cable TV networks in metros & tier II cities. The DTH market was worth USD 2.2 billion in FY13; the subscriber base reached 51 million from 23 million during 2010-13, subscriber base is expected to reach 200 million by 2018, thereby making India one of the worlds largest DTH markets. Evaluating the present market scenario, around 80% of the total cable TV subscribers are still on analog based networks, which is expected to be covered under the 3rd and 4th phase of digitalization. 44. 44The Indian STB manufacturers are facing a disadvantage due to anomaly in the tax structure. The disadvantage is arising out of the business model practiced by Direct- To-Home (DTH) and Main Service Operators (MSO). Operators, who provide content to subscribers through a Set Top Box, pay Service Tax only on the content provided and not on the Set-Top Box which is packaged as activation charge, with tax being charged on installation alone. Since the STB is not being supplied against a charge or deposit, DTH and MSO operators are not paying VAT and hence are unable to issue Form C. This makes the landed cost of domestically manufactured products more expensive versus imports, since Indian manufactures have to pay CST equivalent to local VAT (which is 12.5%-14% without `C form). Indian manufacturers are therefore unable to compete with imported equivalents. Manufacturing of consumer electronics in India Electronics production in India was valued at USD 34.8 billion in FY13. Production expanded at a CAGR of 16.6 percent since FY06. Figure 4.2.2 Electronics Production in India (in USD Billion)4.3 Home appliancesOverviewDemand in urban markets is likely to increase for products such as LED TVs, laptops, split ACs and, beauty and wellness products. In rural markets, durables like refrigerators as well as other home appliances are likely to witness growing demand in the coming years. The rural market has recently experienced around 30 per cent growth rate in demand for electronics and home appliances. Urban growth is likely to be driven by new technology/innovative products, lifestyle products and replacement demand. 45. 45Penetration levels Refrigerator has the highest penetration in India of 31% Figure 4.2.3 Household penetration of home appliancesAir Conditioners:- The Indian AC market accounted for sales of 3.6 million units in 2013. ACs are perceived as high-end products; current penetration stands at 6.8 per cent including Window and Split AC. The segment had a 13.0 per cent share (2013) in the consumer appliances market. High income growth and rising demand for split ACs are the key growth drivers. The room air-conditioning market represents approximately 50% of the total market, with the other 50% comprised of central and specialist air-conditioning systems. The room AC market can again be divided into two sub-segments. On the one hand the residential segment which now constitutes a majority 60% market share and on the other hand the commercial segment which represents a smaller 40%. Figure 4.2.4 Household penetration of air conditioners Washing machines:- Washing machines are the second largest contributor to the consumer appliances market (after refrigerators); in FY 2013 total sales was around 7.5 million units. Fully automatic washing machines are garnering an increasing share of the market due to reduction in prices and higher disposable incomes. LG Electronics continued to be the leading player in home laundry appliances in India with a share of 25% in 2013, followed closely by Samsung Electronics (23.2%). The major chunk of this growth is expected to be driven by newer households purchasing washing machines, as well as a greater number of households replacing their semi-automatic washing 46. 46machines with fully automatic washing machines. 6-9.9 Kg is the most popular category in India with 72.2% share in the total sales. Figure 4.2.5 Market size of washing machines Microwave ovens:- Due to the convenience of mobility and ease of operation, freestanding microwaves continue to dominate the Indian market in 2013, accounting for almost all volume sales. LG Electronics continued to be the market leader in 2013 with a volume share of 32%. Samsung Electronics ranked second with a 22% share followed by Whirlpool with just over 11% and Bajaj Electricals with 10%. Figure 4.2.6 Market size of Microwave OvensRefrigerators:- Refrigerator sales stood at ~14.0 million units in 2013. This segment makes up 18.0 per cent of the consumer appliances market. The market share of direct cool and frost free segment is 76.3 per cent and 23.7 per cent respectively. Key growth drivers are lower prices and rising demand for frost-free refrigerators. Fridges with a capacity range of 142-340 litres dominated fridge sales over the review period, representing 74% of total volume sales. In fact, the 165-litre fridge was the standard 47. 47in almost all households until the arrival of competition and the need to differentiate, coupled with economic development, which led to the development of higher capacities. Over the review period, fridges with 341-540-litre capacities continued to gain momentum to account for 20% of total fridge volume sales in 2013. Market share of LG is 24.50% and Samsung is 20.60% in 2013. Figure 4.2.7 Market size of Refrigerators Industry players:- The Indian market is dominated by multinationals whereas the Chinese market has large home grown companies Figure 4.2.7 Indian & Chinese market players 48. 484.3 Impact of WTO and FTAs Electronic components which form the basis of any electronic products is low volume, low weight, cheap and easy to transport across the globe. Moreover, under the Information Technology agreement-1 (ITA-1) of the world trade organization, which came into force in 1997, a large number of electronic components and products are bound with zero tariffs making trade unrestricted across international borders. Also, electronics manufacturing is characterized by high volume and low margins. All these factors have resulted in the electronics hardware industry being globally integrated with few large global players catering to a large part of the world demand. In the current WTO regime, India is a party to the Trade Related Aspects of the Intellectual Properties (TRIPs) Agreement and has accordingly, amended most of its IPR Acts and Rules to conform to the said Agreement. The Indian Copyright Act 1957 was amended in 1999; the patent Act 1970 was amended in 1999 & 2003 and Tradem