MARKETING OF LUXURY GOODS IN INDIA – WHAT AN IDEA !! pot

MARKETING OF LUXURY GOODS IN INDIA – WHAT AN IDEA !!. It also looks at the luxury goods market, and how the goods sold are different for men and women.. The key drivers of this growth ar

MARKETING OF LUXURY GOODS IN INDIA – WHAT AN IDEA !!

Abstract

The paper examines the current trend and growth of the retail industry in India The focus is more

on the organized retail and its performance It also looks at the luxury goods market, and how the goods sold are different for men and women Considering the increasing numbers of HNWIs in India, this market is poised to grow at a phenomenal rate

The key drivers of this growth are evaluated and discussed, with pointers on how some of the luxury goods are being sold The authors then try to draw lessons for marketers of luxury goods

in India, in light of the cultural difference in the Indian sub–continent

Keywords : Retail, Luxury Goods, HNWI, Luxury Brands

INDIAN RETAIL MARKET

India offers a dynamic retail landscape, which is very attractive to the retail companies It has the potential to become a strategic retail hub Given the huge population of India, a burgeoning middle class, which is getting more and more affluent, and a changing lifestyle, it is a literal haven for retail companies Retail spending in India has been growing at a double digit figure It is estimated1 that Private Final Consumption Expenditure (PFCE) stands at Rs 26,07,584 crores in 2007–2008 as compared to the previous year when it was Rs 23,12,105 crores This makes it a growth of 12.8% in just a year Table 1 below shows the growth of the Indian Retail market as well as the growth of the Organized Retail market Table 2 shows the share of organized and unorganized retail market by various categories

The Indian Retail market stands at Rs 13,30,000 crores of which the Organized Retail market is just Rs 78,300 crores This shows that organized retail is still in a nascent stage in India The silver lining, however, is that this organized segment grew at 42.4% in 2007 and is expected to maintain an even faster growth in the following 3 years This would mean that organized retail is likely to touch Rs 2,30,000 crores by 2010 (at constant prices), which would constitute roughly 13% of the total retail in India

1

India Retail Report - 2008

Table 1 – Growth of Indian Retail Growth of Indian Retail

0 5000 10000

15000

20000

2004 2005 2006 2007 2008 2009 2010

Year

Organised Retail Retail Market

Source : India Retail Report – 2008

India has more than 15 million retail outlets, of which a major number is the small ‘kirana’ store, that we are all familiar with Yet there seems to be no major conflict between these two formats,

as the Indian economy is seen as consumption–driven In fact, over the last decade or so, retail industry has undergone a transformation, especially in understanding the right scalable and profitable models that will work in Indian conditions

Table 2 – Organized v/s Total Retail in India - 2007 Organized v/s Total Retail in India

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7

Food & G

roce ry

C

th

g / F

ashi

on A

cces

sorie s

O

H F

ood

Leis

ure

Ent er

inm

ent

Jew

lery

Wat

ches

Foot

wea r

Hea lth &

Bea

uty

care

Pha

rmac

eutic

als

Con

sum

Dur

able s

Mob iles

& Ac

cess

orie s

Furn iture

Category

Indian Retail Organised Retail

Source : India Retail Report – 2008

LUXURY GOODS MARKET IN INDIA

India has more consumers for luxury goods than the adult population of several countries A recent study2, on the luxury goods sector shows that, there could well be more than 1 million consumers The projections are that it will treble by 2010

India is leading the demographics in terms of the growth of HNWIs, as shown in Table 3 below With an impressive 22.7% growth on a base figure of 123 million (in 2007), as shown in Table 4 below, it is clear that India will continue to remain a destination of choice for sale of luxury goods

The Luxury Goods market can be divided into

• Luxury Goods

• Luxury & Premium Goods

Both markets (Luxury Goods and Luxury & Premium Goods) markets in India are growing at a phenomenal rate If we look at the projected figures for 2012 and 2017, we see an impressive growth CAGR of 14.87% for Luxury Goods and 14.23% for Luxury & Premium Goods, based on

2 KSA Techopak, India Luxury Trends 2006

forecasts made by KSA Technopak (Table 5)

Table 3 – Growth of HNWI Population

Growth of HNWI Population

22.7%

20.3% 19.1% 18.9%

16.8% 16.0% 15.3%15.3% 15.1%14.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Indi

a

Chin

a

Braz il

S Ko

rea

Indo

nesia

Slov

akia

Sing

apor

e

UAE

Chec

h R

epub

lic

Russ

ia

Source : Capgemini Lorenz curve Analysis, 2008

Table 4 - HNWI Population Growth Growth

(in %)

Population (in millions) – 2007

Population (in millions) – 2010

Population (in millions) - 2015

Czech

Source : Marketing Whitebook, 2007 - 2008

Table 5 – HNWI Market Growth HNWI Market Growth

8 18

35

56

0

10

20

30

40

50

60

Luxury Luxury & Premium

Source : KSA Technopak

The personal spending (Table 6) in the luxury goods market is close to INR 63,655 crores (US$ 14,804 millions) with a per capita household spend of INR 397,822 (US$ 9,252) A detailed look

at the spending shows that almost 72.7% is spent on the top 5 categories is shown in Table 7

Table 6– Personal Luxury spending (2004 – 2005)

Personal Luxury spending

0.27 0.16

0.13 0.08 0.08 0.06 0.06 0.04 0.02 0.02 0.01 0.01 0.06

Jewellery Designer wear Digital Accessories Timewear Cosmetic & Skin care

Footwear Accessories Perfumes Crystal ware Gourmet Foods Intimate wear Table wear Wine & Liquor

Table 7 – Personal Luxury spending (2004 – 2005)

(INR crores)

Amount (US$ millions)

%age of total

Digital accessories 8,244 1,917 12.95

Cosmetic & Skin care 4,897 1,139 7.69

The break-up of the above spends for men (INR 22,784 crores) and women (INR 40,734 crores) differs slightly, both in terms of the spending as well as the category on which it is spent These figures are shown in Tables 8 and 9

Table 8 – Personal Luxury spending among men (2004 – 2005)

(INR crores)

Amount (US$ millions)

%age of total

Mobiles, PDAs & iPODs 5,285 1,229 23.19

Wines & Liquor 3,707 862 16.27

Table9 – Personal Luxury spending among women (2004 – 2005)

(INR crores)

Amount (US$ millions)

%age of total

Cosmetic & Skin care 4,897 1139 12.02

Source : Marketing Whitebook 2007 - 2008

For most part, the immediate priorities for many consumers for luxury goods fall into the

categories of

• Housing

• Travel

• Education

• Higher–end automobiles

• Entertainment electronics

• Home Lifestyle improvement products

Over the next 2–3 years, the market for luxury goods is likely to boom in the categories of

• Men's clothing

• Women's jewellery

• Women's accessories (including handbags and footwear)

• Watches

• Gourmet food and wines

From a few high–end merchants having miniscule interest in India to more than a handful of luxury brands operating in India (although from boutiques located in 5–star hotels, let us examine what has happened to change the situation

The key driver in this change has been India's demographic makeup, as the nation's booming economy rapidly adds to the near–critical mass of newly affluent consumers The average salary

of Indians has grown 14% (those of IT professionals have grown by 18%), which is probably the highest wage growth in Asia.3 There are now about 1.6 million Indian households that spend an average of $9,000 (Rs 4,50,000) a year on luxury goods, according to The Knowledge Company,

a management-consulting firm in New Delhi Mr Thakran of LVMH says "With multi-income families and increasing international exposure through travel and the Internet, the attitude is changing from the traditional [emphasis on] savings to a spending approach” There are strong indications that the expense basket is shifting from necessity to lifestyle products Priya Sunder4 says “Younger Indians from wealthier families increasingly match (and sometimes even eclipse) the purchasing power of their European and American counterparts"

3 A study done by Hewitt Associates

4 Priya Sunder is Director of PeakAlpha, a Bangalore–based financial–planning company that advises IT professionals on their investments

Source : “Growth at the high end of the market in India”, AT Kearney 2006

The luxury goods market seems to have its consumers divided into 4 categories as shown in the diagram below

1 Luxuriented

2 New Rich

3 Getting There

4 Mid Affluents

Source : “India Luxury Goods Sector 2006”, Technopak Consulting 2006

Today, luxury goods makers have started descending on India, and surprisingly, the nation's wealthy are enjoying indulgence not seen since the time of the maharajahs The old rich have, of course, always been rich But something in Indian culture has inhibited ostentatious displays of wealth That coyness seems to have vanished

Retail consultancy firm KSA Technopak estimates that India's luxury market is growing at 20% a year The market for high-end clothing and accessories alone is estimated to be worth $US445 million ($A610 million) Yet, when luxury brands first came to India, many predicted their early demise They were proven wrong because Louis Vuitton handbags sold out in minutes

MARKETING LUXURY GOODS – A DIFFERENT BALL GAME

Marketing of luxury goods requires the same 4Ps of marketing mix But their focus is different

We are all familiar with stated, unstated and hidden needs of a customer In case of luxury goods, these needs have to be relooked at from a different perspective Some live cases will help to understand how the companies have applied the 4Ps to the marketing mix, in a unique way

Hospitality Industry – Four Seasons Hotel (Mumbai)

From the frontage, one would not be able to make out that The Four Seasons is a super– luxury hotel in Mumbai Located in mid – town, it does not have the aura of a location like Colaba, Nariman Point or a Juhu beach The hotel realized that luxury is not merely offering a fantastic view of the Arabian Sea, but about a superb product – an irresistible combination of rooms, quiet lobby and a boutique hotel feel

The Four Seasons hotel, tried to redefine what luxury actually means by ensuring that a guest, at Mumbai, has the same experience as in any other Four Seasons property across the world It tried to redefine luxury by adding a fleet of BMW 7 series cars, to transport its guests They realized that the devil is in the detail To take care of it, they took their staffers on a visit of Mumbai city so that they could learn and soak in the sights This not only helped them to give authentic suggestions to guests, but also created a connect with the local food, shopping and community life

Realising that people were the key in delivering a consistent luxury service, they made sure that their employees carried no baggage (read that as not having pre–set ideas or mindsets) They even went to the extent of teaching the staffers ho to behave when a celebrity shopper was to be served

Bespoke Production

Bespoke (or custom made products) have always symbolized the epitome of luxury It is quite common that a designer who has been successful in capturing the heart of a buyer

is asked to make another bespoke piece One such one–off piece was designed by Ravi Chawla5 He designed a 7 foot high idol of Srinathji, which was the result of several visits

to the temple at Udaipur, thousands of hours of exquisite craftsmanship and the best of materials which gave the luxury look to the idol The result – a proud owner family and a blank cheque

In case of bespoke products, Milton Pedraza6 says “Exclusivity and uniqueness matter enormously to the wealthy When luxury brands are widely available, sooner or later, they lose their cachet of exclusivity”

Another case in example is Ferrari, which has a programme called ‘One–to–One’, where with the help of a Ferrari advisor, a customer can modify virtually every part of the car, which does no affect reliability

To bring the story a little closer to home, Viren Bhagat, a jeweller from Mumbai, who specializes in bespoke pieces, believes in the take–it–or–leave–it attitude He believes that allowing a customer to make changes to the design destroys the uniqueness of the price He also insists that a customer visit his office to buy the price

UB City, Bangalore

There are just 2 luxury malls in India – Bangalore and Delhi Bangalore boasts of a

destination called UB City and Delhi has The Emporio Mall The kind of outlets that they

have would give the impression that the shopper was very much in Dubai, Singapore or Paris Global brands such as Louis Vuitton, Gucci, Fendi, Dunhill, Rolex, Omega,

Tiffany’s, Kimaya, Tod’s, Versace, Ferragamo, Paul Smith and Jimmy Choo are having a presence at these places

LESSONS FOR MARKETING LUXURY GOODS

Experts say that there are a whole lot of differences in marketing of Luxury Goods Patience is most likely to pay–off in this market Global brands must remember to be prepared to invest for

5 Ravi Chawla is creator of Ravissant, India’s oldest luxury retail brand

6 Chief Executive of NY based Luxury Institute

several years before pay–off can really begin Tarun Joshi says that “In the first 3 years, any sales you make are good” CBRE8 says that buying to luxury goods is done in a very different way as compared to other goods It puts the need for luxury high streets and luxury malls as a pre–requisite for luxury goods market to grow in India There is a need for buyers of luxury goods

to be not located in places where there are offices, even though many of the top executives of

MNCs may be buyers of such goods, mainly because luxury shopping is never done after office

hours The ambience must give the feeling of opulence

Some of these lessons can be summed up as follows :

1 Luxury Goods brands must be “expansive” – it should be full of innovation

opportunities for the marketer and in terms of satisfying the divergent needs of the

luxury consumer

2 Luxury brands must tell a story – a story of either heritage or performance or other aspects that goes on to build the aura of a brand over time The story must accentuate

the identity of the brand

3 Luxury brands must be relevant to the consumers’ needs – especially the mindset of the

luxury class It is imperative that the brand satisfies those needs, whether it be

recognition or functional use

4 Brand must align with consumers’ values – luxury items must project a form of

expression or identification for the luxury consumer

5 Luxury brands must perform – whichever category the brand belongs to, a performance

assurance is a must for the brand if it wishes to be in the evoked set of luxury

consumers, considering the price being paid for luxury

6 Luxury brands must reflect Affluence – Customer will switch to whichever brand that accentuates his affluence

7 Luxury brand must reflect “Nothing but the Best” – Because the buyer considers himself

as the Best They want the best, be it in whichever category because it helps them relate

to the feeling of being the best in their fields, thus completing their sense of

accomplishment

8 Luxury brands must bring the world to the fingertips of its customers – Customers seek the “I’ve Made It” feeling which can only be achieved if a consumer has access to the luxury products before anyone else Others having access to those luxury goods, makes

it a me–too product

7 Managing Director, Brandhouse Retail

8 CB Richard Ellis