Mini Project Report

On

Industry Analysis and Application of Emerging Technologies In

The Indian Consumer Durable Industry
(Consumer Appliances)   

        

Submitted in partial fulfillment of the requirements for the Two

Years
                       Masters of Business Administration 

(Affiliated To Dr. A.P.J. Abdul Kalam Technical University Uttar Pradesh, Lucknow)

Session: 2020-2022

Under Supervision of :                                                           Submitted By :           

Mrs. Bhavana Singh                                                          Deepak Tripathi           
Assistant Professor                                                                Roll No: MBA/08/061 
SMS, Varanasi                                                                       MBA II Semester 
                                                                                                   SMS, Varanasi      

 
    
   DECLARATION

I hereby declare that the information presented in this Mini Project Report is correct to the best of

my knowledge and the analysis is as per the norms and guidelines provided for the project. I have

utilized the requisite concepts and applied the required methodologies to analyze the data collected

to conclude present in the project.

 I feel extremely exhilarated to have completed this mini-project under the able and inspiring

guidance of Dr. Bhavana Singh (Assistant Professor). Her guidance and timely encouragement

has infused courage in me to complete the work successfully.

 I claim the project to be my indigenous work and has not been published anywhere else.

Deepak Tripathi
MBA IInd Semester
MBA/08/061
 Preface
The Consumer Durables industry consists of durable goods and appliances for domestic use such as

televisions, refrigerators, air conditioners and washing machines. Instruments such as cell phones and

kitchen appliances like microwave ovens are also included in this category. This sector has been

witnessing significant growth in recent years. It is assisted several factors such as the emerging retail

boom, real estate and housing demand, greater disposable income and an overall improvement of

standard of life of a significant section of the population. The industry is represented by major

international and local players such as BPL, Videocon, Voltas, Blue Star, Titan, Whirlpool, etc.

The consumer durables sector includes consumer appliances and consumer electronics. The consumer

appliances sector includes air conditioners, refrigerators, washing machines, sewing machines, electric

fans, cleaning equipment, microwave ovens and other domestic appliances. Consumer electronics

include televisions, audio and video systems, electronic accessories, CD and DVD players, digital

cameras and cam corders. By 2025, it is expected that India is will become the fifth largest consumer

durables market globally. The consumer durables industry is projected to double at 14.8% CAGR to

reach approximately USD 12.5 billion in FY15 from USD 6.3 billion in FY10.

At present, more than 77% of households in urban India have a television, 33% own a refrigerator,

17% have an air cooler, and 13% own a washing machine. Air conditioner penetration

in India compares unfavorably with other developing markets, especially Asian countries, along with

the other consumer durables categories within the country.

The improving living standards have made home washing machines an essential consumer good in the

Indian market. The changing environmental dynamics, urbanization and rising income levels are

driving the growth of this segment that was once inhibited by the high price point. The Indian

refrigerator market was worth INR 41 billion in 2009 and is projected to reach INR 223 billion by

2020. Although the market has been growing, it still remains underpenetrated. Market penetration of

refrigerators in India is 21% as compared with the global average of 85%.

The Indian television market is shifting from the traditional cathode ray tube (CRT) technology to

LED, LCD and Plasma televisions. Some leading players have officially stopped the production of

CRT televisions and are now concentrating on LED TV's. While in 2012 CRT sales stood at 7 million

units and flat panels stood at 5 million units, in 2014 CRT sales were only 2.5 million units while flat

panel sales stood at close to 9 million units.It is expected the TV industry revenue will reach

INR 130,500 crore by 2020.TVs form the next largest imports in the consumer durables sector behind

air conditioners in India.

Content
Section-I
1.0   Introduction

In a generally short space of time, electronic items have become a fundamental piece of everyday life.

The Purchaser Gadgets (CE) industry is developing step by step with the reception of present-day

gadgets and shopper advancements. Shoppers are getting more astute and search for greatest

proficiency from new items. Industry players must be buyer-centered and give consistent and

customized items to provide food to current day buyers. Development in the Indian customer hardware

market can be ascribed to expansions popular from families, changing ways of life of people, simple

admittance to credit, and rising expendable salaries. The shopper hardware area has seen the most

elevated offer in the aggregate creation of electronic merchandise in India is probably going to arise as

a potential future assembling center point for the district, given the public authority shows satisfactory

help and core interest towards this area. Explicit elements expected to push the production in India are

comprehensive of, decrease in getting costs, trade motivations, a decrease of customs obligations in

crude materials and segments, and improvement in the simplicity of working together. The Indian

shopper hardware market is expected to arrive at USD 118.4 billion by 2025. Rising extra cash, quick

urbanization just as the presentation of novel items in the market is relied upon to additionally add to

the market development. 

KEY POINTS:
Consumer durables can be broadly categorized into the following:

 White Goods: White products mostly incorporate forced air systems, fridges, clothes washers,

sound gear, and speakers.

 Brown Merchandise: This sort of buyer durables for the most part incorporate kitchen

machines like fireplaces, electric fans, processors, iron, microwaves, blenders, and changed

other cooking ranges.

 Purchaser Hardware: A portion of the generally utilized customer electronic merchandise are

DVD players, MP3 players, cell phones, phones, VCD players, and so forth.

Brief overview of the Market

India in its 62 years of excursion has seen complex expansion in the pay of its natives (Rs. 38,084 as

on 2010) and this has prompted outlook change in the buying conduct of individuals here. There is a

perceivable change in the buyer's inclination for better quality, innovatively unrivaled marked items,

the interest being prodded by expanding purchaser mindfulness and inclination for new models. This

shift is likewise a result of the increment in assembling of marked items and narrowing down of cost

among marked and non-marked products. Contest has constrained the organizations to offer

productive after deals administration and backing and this, thus, has influenced client inclination for

marked items. Post advancement there has been immersion of merchandise rising above the

boundaries and the client has a more extensive decision, breaking the shackles of the shoppers with

respect to constraints of decisions. Indian customer durables market used to be overwhelmed by a

couple of homegrown players like Godrej, Allwyn, Kelvinator, and Voltas. Be that as it may, post-

advancement numerous unfamiliar organizations have gone into India, ousting the Indian players and

ruling the market. The significant classifications in the market are CTVs, fridges, forced air systems

furthermore, clothes washers. The provincial market is becoming quicker than the metropolitan

business sectors, albeit the entrance level in provincial region is a lot of lower. The CTV fragment is

expected to be the biggest contributing section to the general development of the business.

The rising pay levels, twofold pay families and expanding customer mindfulness are the fundamental

development drivers of this industry. Notwithstanding them the youthful idea of populace and simple

account alternatives are likewise fuelling the market and its elements.

Shoppers today are more liberal in commercial center than their archetypes There has been shift in the

meaning of requirements and needs. For instance a cell phone is to a greater degree a need today then

a need. Westernization has impacted the mind of the Indian clients to some extent. This report is an

endeavor to mirror the progressions in the buyer purchasing conduct in the Indian Market particularly

in home machines purchasing.

Strong products are those which don't destroy rapidly, yielding utility after some time as opposed to on

the double. The customer durables industry can be extensively grouped into two fragments: Shopper
Hardware and Purchaser Apparatuses. Purchaser Machines can be additionally ordered into Earthy

colored Products and White Merchandise.

Indian Market Overview

India is an innovation non-industrial nation and has expanding innovation entrance at a pace of around

15% in 2017. With the propelling innovation, there is pattern of brilliant workplaces and keen homes,

where purchaser hardware is a significant piece of it. Rising extra cash of individuals of shopper

hardware and their change in inclinations towards keen homes and shrewd workplaces climate, are

accordingly significantly driving the development of the business. Top of the line items actually needs

to go far to gain bigger industry share in India. For example, 4K television is a pattern in India

however it has ability to change and redesign according to the created innovation across the globe.

Also, China has expanding producing cost which has drawn in India to be ideal assembling center

point. The "Make in India" strategy of the public authority is further drawing in more interests in

shopper electronic industry. Of the all out electronic industry in India, purchaser gadgets has around

9.5% piece of the pie, with significant selection among the center pay bunch populace. However, the

insufficient testing offices and inept neighborhood fabricating foundation are frustrating the

development of the business. Goldstein Market Knowledge expert figure that the India shopper

hardware industry is set to develop at a CAGR of 5.91% over the estimate period (2017-2030).

Indian Equipment market is surveyed at USD 98.8 billion in FY 18. The local equipment use is met

likewise by close by creation (51%) and balance by imports (49%), which was regarded at USD 48.3

billion, however admission of electronic product from India was regarded at USD 9.3 billion in FY 18.

With the exceptional rising in solicitation and consistent premium conditions, the Indian market is

prepared to fill stunningly in the accompanying 5 years basically because of creating per capita pay,

usage of equipment stock (for instance, cells, purchaser equipment, etc), and creating current

premium. Organized assessment of market, creation, and trade has been given in the spaces

underneath.

2.0   Industry Overview:

The consumer durables market in India was estimated to be around US$ 4.5 billion in 2006-07. More

than 7 million units of consumer durable appliances have been sold in the year 2006-07 with colour

televisions (CTV) forming the bulk of the sales with 30 per cent share of volumes. CTV, refrigerators

and Air-conditioners together constitute more than 60 per cent of the sales in terms of the number of

units sold. In the refrigerators market, the frost-free category has grown by 8.3 per cent while direct

cool segment has grown by 9 per cent. Companies like LG, Whirlpool and Samsung have registered

double-digit growth in the direct cool refrigerator market. In the case of washing machines, the semi-

automatic category with a higher base and fully-automatic categories have grown by 4 per cent to

526,000 units and by 8 per cent to 229,000 units, respectively. In the air-conditioners segment, the

sales of window ACs have grown by 32 per cent and that of split ACs by 97 per cent. Since the

penetration in the urban areas for these Consumer Durables.

3 products is already quite high, the markets for both CTVs and refrigerators are shifting to the semi-

urban and rural areas. The growth across product categories in different segments is assessed in the

following sections. Consumer Electronics The CTV production was 15.10 million units in 2006-07

and is expected to grow by at least 25 per cent. At the disaggregated level, conventional CTV volumes

have been falling while flat TVs have grown strongly. Market sources indicate that most CTV majors

have phased out conventional TVs and have been instead focusing more on flat TVs. The flat segment

of CTVs now account for over 60 per cent of the total domestic TV production and is likely to be

around 65 per cent in 2007-08. High-end products such as liquid crystal display (LCD) and plasma

display CTV grew by 400 per cent and 150 per cent respectively in 2006–07 following a sharp decline
in prices of these products and this trend is expected to continue. The audio/video player market has

seen significant growth rates in the domestic market as prices have dropped. This trend is expected to

continue through 2007- 08, as competition is likely to intensify to scale and capture the mass market.

Mobile Phones – The New Opportunity Mobile phone production in India is expected to grow at a

Compound Annual Growth Rate (CAGR) of 28.3 per cent from 31 million units in 2006 to 107 million

units in 2011. Production of mobile phones is expected to be a US$ 13.6 billion industry by 2011. The

current US$ 4.9 billion industry revenue is growing at a CAGR of 26.6 per cent. The growth of mobile

telephony market is highest in India with 6 to 7 million subscribers being added on a monthly basis

compared to the US, which adds 2 million subscribers and China, which adds about 5 million

subscribers. India is also emerging as a global base for handsets as key global players. India produced

nearly 31 million mobile phones in 2006 worth about US$ 5 billion. This segment made the largest

contribution to overall electronics production revenue and the total available market for

semiconductors. For 2007, it is projected that the handset production will increase by 68 per cent in

volume to about 51 million units and 65 per cent in value terms. Starting on an already strong base,

over six million users are being added every month and are building a large local market for mobile

manufacturers. Low mobile penetration and favourable government policies are driving global mobile

phone manufacturers to set up manufacturing facilities in India. Nokia started its manufacturing unit in

Chennai in January 2006 and produced about 25 million handsets in the first year of its operation.

India has now become the second largest market for Nokia phones in the world. Nokia is also

exporting mobiles from its Indian facilities to Sri Lanka. Motorola and Electronics Manufacturing

Service vendors (EMS) like Foxconn and Flextronics have also set up plants in India. According to a
study by Gartner, though the world’s top five handset makers will retain a major share of production

volume, local manufacturers can be expected to capture up to a fifth of India’s overall mobile phone

production volume by the end of 2011. Growing demand for low-cost mobile phones and the need for

EMS vendors to reduce their revenue exposure to Nokia, Motorola and Sony Ericsson, for whom they

are now manufacturing in India, are the key factors expected to contribute to this trend. Most of the

components are imported today. Development of local component manufacturing industry will be

essential for continuous growth of total handset manufacturing. Given the price-sensitivity of the

Indian consumer, access to lowcost, feature-rich and local-specific chip designs, as well as a strong

distribution network, remain key considerations in this market. Key stakeholders in the mobile phone

industry value chain provide these, and local manufacturers could be expected to look to form

alliances and partnerships White Goods Increased consumer demand is expected to boost the white

goods segment to achieve production levels of US$ 5.09 billion by the end of 2007-08 against US$

4.54 billion in 2006-07, with a growth rate of 12.5 per cent.

Air-Conditioners

Growth in the white goods segment was largely driven by the Air-conditioner (AC) segment. Within

this, split ACs have been the main growth drivers, recording a growth of over 90 per cent in 2006.
Growth, albeit at a slower rateof 32 per cent, has also been experienced in the segment of window

ACs. The window AC segment is slightly less organised as compared to split AC segment. The market

for air-conditioners is divided quite uniformly across customer segments, with about 45 per cent share

for private sector corporates, 20 per cent for domestic use, 15 per cent each for public sector

companies and government use and 5 per cent for hospitals.

Washing Machines
The sales of washing machines has grown from about 780,000 units to 1,948,000 units during the

period, fiscal year 1999 to 2007, registering a near 12.2 per cent annual growth rate. The washing

machine market may be segmented into semi-automatic and fully automatic machines. Semiautomatic

washing machines enjoy a dominant share of 85 per cent. Fully automatic washing machines have

been gaining share as a consequence of product improvement, competitive pricing and resultant

convenience. However, semi-automatic machines will continue to play a major role in the Indian

market for quite sometime. Fully automatic washing machines have been the growing at 44.5 per cent

and semi-automatic segment, at about 18 per cent. The entry of MNCs has widened the range to more

than 10 brands with a proliferation of models, while ensuring technology upgradation. A visible

impact of this churn has been the exit of a few established players from the market.

Refrigerators

Refrigerators are one of the most sought after appliances in Indian middle class homes. The

refrigerator market has two segments: Direct Cool and the relatively new Frost-Free type. The market

for refrigerators in 2006-07 was about 6.5 million units. The growth of refrigerator segment is

projected to be between 18 to 22 per cent over the next 5 years. A critical success factor for the

refrigerator market, given its widespread use, is deeper reach into the market and increased

penetration. Recently, the market is getting reinforced by the replacement segment as well.

Vacuum Cleaners
Vacuum Cleaners are an emerging segment in the Indian market, still at a nascent stage. The drivers

for demand have been the improvement in life style and higher aspirations of urban middle class and

the top income brackets. While the market has been growing, this segment is not expected to reach

significant volumes soon. Part of this could be attributed to the lifestyle compatibility of Indian

customers with the product. In the large majority of Indian houses, for instance, floors are not carpeted

and the product will have to meet dual requirements of sweeping and mopping. Another impediment

to the adoption of vacuum cleaners has been the availability of cheap domestic help in most cities.

Domestic Electrical Appliances

Brown goods or domestic kitchen appliances are indicators of the changing consumer scenario in post-

liberalisation economic environment. The major products constituting the brown goods market are

mixers, grinders, irons, microwave-ovens, rice cookers, water heaters or geysers, electric fans and

exhausts. The branded brown goods market has expanded at a significant pace and is expected to

retain the momentum into the future as well. The market has been transformed by the entry of over a

dozen new brands, moreover competition has intensified. While focus on price competency remains a

key priority, players have also started focusing on other product features such as safety and total cost

of ownership of the device. Goods, like the rice cooker have been continuously growing in a slow and

steady manner over a significant period of time, while microwave ovens have grown exponentially

after the initial period of customisation to local requirements. The electrical iron market can be divided

into two segments: heavy and light-weight. The market is also segmented into two sub-segments:

steam and non-steam irons. India being a tropical country, electric fans are an essential utility for more

than six months of the year in most parts of the country. The present market size is estimated at around

11.6 million pieces. The market is divided among ceiling, pedestal, wall and table fans. Industrial and

exhaust fans are another important segment. The major players include Orient Fan, Crompton

Greaves, Jay Engineering, Bajaj Electricals, Polar, Khaitan and Alsthom. The electrical appliances

industry, which had been focused on the urban market, is now reaching out to semi-urban and rural
markets as well, because of the shift in living style of the population, increasing electrification of

villages and relatively higher purchasing power of consumers. As the market penetrates into the core

middle class segment in both urban and rural areas, it is expected to expand phenomenally, offering

large volumes to the industry.

Trends Favoring the Growth of the Consumer Durables Industry

The key trends that impact the Indian Consumer Durables Industry today are reflected in the diagram

and discussed separately in the following sections.

Objectives of the Report

 To find out the profile of the consumer durable products.

 To find out the future prospects of the consumer durable industry.

 To find out the PESTEL analysis of the durable industry.

 To find the SWOT analysis of the durable industry.

 Impact of the Covid-19 on the durable industry.

 To find out the performance of consumer durables goods in India.

 To find out the demand of consumer durable goods in India and world.

 To find out the demand of consumer durable goods in rural and urban area.

Research Methdology
SECTION II
Evolution of the consumer durable goods

The improving living standards have made home washing machines an essential consumer good in the

Indian market. The changing environmental dynamics, urbanization and rising income levels are

driving the growth of this segment that was once inhibited by the high price point. The Indian

refrigerator market was worth INR 41 billion in 2009 and is projected to reach INR 223 billion by

2020. Although the market has been growing, it remains underpenetrated. Market penetration of

refrigerators in India is 21% as compared with the global average of 85%.With the continuous inflow

of disposable income and the advancement of technology, the need for the varied consumer durable

goods are increasing. This in turn is leading to a strong competition among the different consumer

durable brands available in the nation. The rural and urban market of consumer durables has been

growing at a rate of around 15 % on an average.

 The consumer durables sector ranked in revenues worth USD7.3 billion in FY12.

 Growth has been healthy over the years, the sector recorded a CAGR of 10.8 per cent over

FY03-12.
  This sector is expected to post a CAGR of 13 per cent over 2003-15 to reach USD12.5 billion

in FY15. Growth estimated to be 20 per cent in FY14.

 Consumer durables market is expected to double at 14.7 per cent CAGR to USD12.5 billion in

FY15 from USD6.3 billion in FY10.

 Further, demand from rural and semi-urban areas is expected to expand at a CAGR of 25 per

cent to USD6.4 billion in FY15 from USD2.1 billion in FY10.

List of main companies producing consumer durable goods in India

S No. Companies Products

1 Videocon Industries Telivision, Microwave oven, Refrigerator, Washing Machine, Air
Conditioners.
2 Samsung Vaccum Cleaners, Mobile Phones, Telivision, Refrigerator
3 Whirpool India Refrigerator, Washing Machine
4 Goderaj Refrigerator, Air Conditioners
5 Panasonic Telivision, CD/DVT Players
6 Mrc Electronics Telivision
7 Voltas Refrigerator, Air Conditioners
8 Bajaj Electricals Geysers, Electric Fans
9 BPL Telivisions
10 Blue Star Air Conditioners
11 Nokia Mobile phone
12 Euraka Forbes Vaccum Cleaner
13 Croma Telvision, Microwave oven, Refrigerator, Washing machine, Air
 Conditioners
14 Daikin Air Conditioners
15 IFB Washing Machine

INDIA’S CONSUMER MARKET

India is the world's 12th largest consumer market. By 2025, it is projected to be ahead of Germany, the

fifth largest, according to a recent McKinsey survey. The biggest strength of Indian markets lies in the

size, not in individual spending. With the rise in income, over 291 million people will move from

desperate poverty to a more sustainable life, and India’s middle class will increase incredibly by over
ten times from its current size of 50 million to 583 million people. India’s consumer market is riding

the crest of the country’s economic boom. Driven by a young population with access to disposable

incomes and easy finance options, the consumer market has been throwing up staggering figures. The

Indian durables market, with a market size of US$ 27.38 billion in 2008–09, has grown by 7.1% over

the previous year. India officially classifies its population in five groups, based on annual household

income (based on year 1995-96 indices). These groups are: Lower Income; three subgroups of Middle

Income; and Higher Income. Household income in the top 20 boom cities in India is projected to grow

at 10 per cent annually over the next eight years, which is likely to increase consumer spending on

durables. With the emergence of concepts such as quick and easy loan, zero equated monthly

installment (EMI) charges, loan through credit card, loan over phone, it has become easy for Indian

consumers to afford more expensive consumer goods. Even discounting the purchase power parity

factor, income classifications do not serve as an effective indicator of ownership and consumption

trends in the economy. Accordingly, the National Council for Applied Economic Research (NCAER),

India’s premier economic research institution, has released an alternative classification system based

on consumption indicators, which is more relevant for 82 ascertaining consumption patterns of various

classes of goods. There are five classes of consumer households, ranging from the destitute to the

highly affluent, which differ considerably in their consumption behavior and ownership patterns across

various categories of goods. These classes exist in urban as well as rural households both, and

consumption trends may differ significantly between similar income households in urban and rural

areas. The rapid economic growth is increasing and enhancing employment and business opportunities

and in turn increasing disposable incomes. Middle class, defined as households with disposable

incomes from Rs 200,000 to 1,000,000 a year comprises about 50 million people, roughly 5% of the

population at present. By 2025 the size of middle class will increase to about 583 million people, or

41% of the population. Extreme rural poverty has declined from 94% in 1985 to 61% in 2005 and is

projected to drop to 26% by 2025. Affluent class, defined as earnings above Rs 1,000,000 a year will
increase from 0.2% of the population at present to 2% of the population by 2025. Affluent class’s

share of national private consumption will increase from 7% at present to 20% in 2025. 3.1.5

Consumer durable market overview

Indian markets have become contestable only recently as a result of market reforms. Until the reforms,

incumbents in these markets were protected by an industrial licensing regime which prevents them

from contest. Incumbents in domestic industries thus worked without much concern for potential
entrants. Their prices or product position in the quality space were not typical of incumbents who fear

potential entry, but were more akin to monopolists or cartelized oligopolies.

As a result, they had not made the usual entry due to deterrent investments and later when licensing

was abolished and markets made contestable, they were at a disadvantage position. Besides, the pre-

reform import-substituting package of the government of India had protected domestic producers from

imports as well as generally leading producers to product quality below international standards. Thus,

even though the brands of the incumbent firms were widely sold and bought over the whole country,

they had not generated significant brand loyalty that could be used against potential entrants in the

post-reform era. On the other hand ,due to the large size of the Indian market, incumbents had

significant sunk costs in production capacity that would act as an inertial force against quick changes

in product quality or product innovation in the post-reform competitive phase. Entry of foreign players

led to the improvement in product quality as well as a general fall in prices. Thus it has made the

Indian consumer durable market more competitive and has also led to its exponential growth in recent

years.

Apart from these India provides a liberal, attractive, and investor friendly investment climate. India

has the most liberal and transparent policies on foreign direct investment (FDI) among major

economies of the world. India is among the top 10 FDI destinations. In addition to all this Government

of India accords high priority to development of infrastructure in highways, ports, railways, airports,

power, telecom.

STRENGTH OF THE INDIAN CONSUMER DURABLE SECTOR

During FY08, volume share of the single largest consumer durable was colour TVs at 34%, followed

by refrigerators and air conditioners at 19% and 15% respectively. Washing machines and other

assorted consumer durables captured a share in the total volume by 6% and 26% respectively.
 1. Rise in disposable income

The demand for consumer electronics has been rising with the increase in disposable income coupled

with more and more consumers falling under the double income families. The growing Indian middle

class is an attraction for companies who are out there to woo them.

2. Availability of newer variants of a product

Consumers are spoilt for choice when it comes to choosing products. Newer variants of a product will

help a company in getting the attention of consumers who look for innovation in products.

3. Product pricing

The consumer durables industry is highly price sensitive, making price the determining factor in

increasing volumes, at least for lower range consumers. For middle and upper range consumers, it is

the brand name, technology and product features that are important.

4. Availability of financing schemes

Availability of credit and the structure of the loan determine the affordability of the product. Sale of a

particular product is determined by the cost of credit as much as the flexibility of the scheme.

5. Rise in the share of organized retail

According to a working paper released by the Indian Council for Research on International Economic

Relations (ICRIER), organized retail which constituted a mere 6 % of the retail sector in FY08.

6. Innovative advertising and brand promotion

Sales promotion measures such as discounts, free gifts and exchange offers help a company in

distinguishing itself from others.

7. Festive season sales

Demand for colour TVs usually pick up during the festive seasons. As a result most companies come

out with offers during this period to cash in on the festive mood. This period will continue to be the

growth driver for consumer durable companies.

OBSTACLES OF INDIAN CONSUMER DURABLES SECTOR

1. Global companies

The domestic consumer durables sector faces threat from newer companies, especially from global

ones who have technologically advanced products to offer.

 2. Competition

Presence of a large number of players in the domestic consumer durables industry leads to competition

and rivalry among companies. Threat from rivalry and competition poses a threat to domestic

companies.

3. Potential markets remaining yet untapped

A large segment of the domestic market, mostly the rural market is yet to be tapped. Tapping this yet

untapped and unorganised market is a major challenge for the Indian consumer durables sector.

4. Substitute products/services

The domestic consumer durables industry is plagued by threats from substitute products. Easy

accessibility to theatres/multiplexes, especially in urban areas has turned off the viewer ship from TV

to a large extent. With the advent of a horde of FM radio stations, radio sets have now substituted TVs.

5. Availability of choice

The availability of a wide product line on account of most products being homogeneous, poses a threat

for companies operating in the consumer durables sector. Customers have the choice of both

domestically produced and imported goods, with similar features.

PERFORMANCE OF CONSUMER DURABLE GOODS IN INDIA

In the past 10 years, the global market has witnessed a surge in demand as economies such as Brazil,

Mexico, India and China have opened up and begun rapid development, welcoming globalization with

élan. The consumer durables industry has always exhibited impressive growth despite strong
competition and constant price cutting, and the first contraction since the 2001 dot-com bust has been

due to the global recession. Given the strong correlation between demand for durables (both new and

replacements) and income, the industry naturally suffered during the 2008-2009 period. However,

projections for current year going forward are very optimistic, as 83 consumers resume spending, and

producers launch new enticing variants to grab new customers. Leading players include Sony

Corporation, Toshiba Corporation, Whirlpool Corporation and Panasonic Corporation. Developing

countries such as India and China have largely been shielded from the backlash of the recession, as

consumers continued to buy basic appliances. In fact, China has been ranked the second-biggest

market in the world for consumer electronics. Despite the recession, their strong domestic economy

and growing high-income population have buoyed demand leading to aggressive market growth. There

is growing interest for new age products such as LCD-TVs and DVD players. Meanwhile, the

penetration of the basic, largest dollar items such as ovens, washing machines and refrigerators is also

increasing. India too, has witnessed a similar phenomenon, with the urban consumer durables market

growing at almost 10 %p.a., and the rural durables market growing at 25% p.a. Some high-growth

categories within this segment include mobile phones, TVs and music systems. The Indian consumer

durables industry has witnessed a considerable change in the past couple of years. Changing lifestyle,

higher disposable income coupled with greater affordability and a surge in advertising has been

instrumental in bringing about a sea change in the consumer behaviour pattern. In addition, change in

policy, such as the WTO FTA in 2005 resulted in zero customs duty on imports of all telecom

equipment, thereby improving the pricing and affordability of imported goods. The biggest attraction

for MNCs is the growing Indian middle class. This market is characterized with low penetration levels.

MNCs hold an edge over their Indian counterparts in terms of superior technology combined with a

steady flow of capital, while domestic companies compete on the basis of their well-acknowledged

brands, an extensive distribution network and an insight in local market conditions.

Rural and Urban market share in India
  Urban markets account for the major share (65 per cent) of total revenues in the consumer

durables sector in India.

 Demand in urban markets is likely to increase for nonessential products such as LED TVs,

laptops, split ACs and, beauty and wellness products.

 In rural markets, durables like refrigerators as well as consumer electronic goods are likely to

witness growing demand in the coming years as the government plans to invest significantly in

rural electrification. Rural market is expected to grow from USD2.1 billion in FY10 to USD6.4

billion in FY15.

 Rural and semi-urban markets are likely to contribute a majority of consumer sales. The rural

consumer durables market is growing at the annual growth (CAGR) of 25 per cent

OPPORTTUNITES OF CONSUMER DURALE INDUSTRY IN INDIA

Growing demand Source - Demand growth is likely to accelerate with rising disposable incomes and

easy access to credit. Increasing electrification of rural areas and wide usability of online sales would

also aid growth in demand. Opportunity for Rural and semi-urban market - Rural and semi-urban

markets currently contribute 35 per cent to total sales and their combined size is set to post a CAGR of
25 per centover 2010-15. Also, Huge untapped rural market is the main advantage. Currently there is

only 2 per cent penetration for refrigerators and 0.5 per cent for washing machines.

Increasing investments - Consumer durable Sector has attracted significant investments over the

years (even during the global downturn of 2009- 10). USD 1 billion worth of investments in

production distribution and R&D in the next few years. Japanese giants‘ companies LG, Samsung,

Panasonic to invest in India to have a greater share in the market.

Policy support– Govt of India has given 100 per cent FDI allowed in the electronics

hardwaremanufacturing sector under the automatic route. The approval of 51 per cent in multibrand

would further fuel the growth in this sector. Furthermore, Duty relaxation, schemes such as EPCG,

EHTP to provide tax sops and National Electronic policy (2012) to boost investment in the sector.

CHALLENGES OF CONSUMER DURALE INDUSTRY IN INDIA

Increasing completion – Indian manufacturers face strong competition from Chinese and other SE

Asian counterparts which have a huge supply base and installed capacities. Moreover, China

government provides numerous subsidies for manufacturing unit development which the Indian

government is unable to match.

Capital intensive nature of business - Cost of production in India is higher as compared to China and

other SE Asian countries due to high finance cost. Moreover, given the frequency changing energy

efficient norms manufactures will need to invest substantial amounts for products with high rating.

The cost of capital at 12% - 14% is much higher than global average of 5% - 7%.

Limited scale and quality – Most of the suppliers of raw materials and component in India do not

have scale to cater to the substantial demand in the industry, making them less cost competitive as

compared to the import. Moreover, the quality of inputs is not as competitive to Chinese or other SE

Asian counterparts. This has led various global major to scale down operation in India.

Tax and duty structure – Indian taxation system is usually complex, especially where indirect taxes

are concerned. While income tax, excise and customs duty are set by the Central Government, state

and municipalities also levy their own taxes.

Infrastructure deficiency – India‘s spent on infrastructure was only 7.2% of its GDP in 2012. The

basic infrastructure for any industry comprises good roads, power, water, telecommunication, finance

raw materials, components and logistics. In India, these facilities are not up to the mark even in

established industrial estates.

The above chart shows that in the past, India has lagged behind its peers in manufacturing sector. It is

in 13th position in the world market. There is huge difference between manufacturing and supply of

consumer durable products.

 The global electronics industry is at US$1.8 trillion, of which India consumes around US$125

billion electronics.
  This consumption is expected to grow to US$400 billion by 2020 with the local production of

only US$104 billion given current conditions.

 Electronics manufacturing industry contributes significantly to most to the developed countries

GDP.

 There is an immediate and urgent need to boost electronics manufacturing in India.

 The case for promoting India as a manufacturing destination is also getting stronger with time

 Burgeoning local demand

 Increasing maturity of the Indian market

 Viable export markets of SAARC, the Middle East and Africa

TRENDS IN COSUMER DURABLE SECTOR

Increasing presence of organised retail - The Indian retail industry has experienced growth of 10.6

per cent between 2010-12 and retail industry is worth USD500 billion and is expected to reach

USD750-850 billion by 2015. The penetration of modern retail is 12.0 per cent in consumer durables
segment. The sector is witnessing the emergence of modern durable retail chains and e-retailers like

Tata Croma, Reliance Digital, E zone. Within the organised retail sector, apparel is the largest

segment.

Improved affordability of products - Advancement in technology and higher competition are driving

price reductions across various consumer durable product segments such as computers, mobile phones,

refrigerators and TVs.

Focus on energy-efficient and environment-friendly products - Leading companies have introduced

star-rated, energy-efficient ACs and refrigerators. Companies also plan to increase the use of

environment-friendly (eco-friendly) components and reduce e-waste by promoting product recycling.

Expansion into new segments - Companies are expanding their product portfolio to include products

like High-Definition Televisions (HDTVs), tablets and smart phones, etc, demand for which are rising

with consumer‘s income, easy availability of credit and wide use of online sales.

STRATEGIES ADOPTED BY INDIAN CONSUMER DURABLE MARKET

Marketing strategies - The firms are now offering combo products instead of discounts to attract the

customers. Such kind of offers help manufacturers to boost sales and also ensures a saving. For

example, a firm offers a combo of LCDs and home theatres etc.

Powerful competitive strategy - Samsung is more focusing on product innovations and

diversification than LG. Sony is focusing on both quality and technology; it launched Z1 with a latest

technology.

Occasion based marketing - India, being the land of occasions and festivals, therefore, customers are

offered great deals. For instance, the prices of products during Diwali, New Year, etc. go down and

also the customers are offered with great deals. Such strategies are adopted so as to enhance revenues

plus to maintain the goodwill amongst the buyers.

Focus on energy efficiency - Companies are focusing on energy efficiency in their range, pushing the

low cost of ownership. Bureau of Energy Efficiency is encouraging the companies to manufacture

35Watt fans

Policy environment, challenges for the ACE sector and the way forward

India is undergoing a major change in its economic environment and is growing fast. In the preceding

chapter we showed the overall macroeconomic positives and challenges for the industry. The current

chapter deals with the policy environment, challenges and the way forward for the sector to remain on

the growth path.

It is crucial to boost domestic electronics manufacturing through an enabling policy environment.

Some of the challenges facing the appliance and consumer electronics (ACE) industry include the

following:

A. Competitiveness
India has an advantage in terms of having a highly skilled workforce that is available at a

comparatively lower cost. This point combined with English being a widely spoken language lures

companies considering India as a base for setting up a manufacturing unit. These advantages, however,

are often offset by the high manufacturing cost structure and lack of economies of scale. The cost of

finance, power and transportation together add a cost disability of 7-8% . Interest rates in India range

from 10 to 14% compared to approximately 5-6% in countries such as China, Vietnam, Japan and

South Korea. Logistic challenges such as availability of ports and quality of infrastructure add to the

cost of manufacturing in India.

B. Free Trade Agreements (FTA)

India has signed FTA with several countries such as Singapore, Thailand and ASEAN. Under the

FTA, each country is required to gradually reduce and eventually eliminate tariff rates on the other

country’s goods (including electronic goods) according to predecided timelines for implementation.

As an example, the FTA signed by India are with production-driven economies resulting in finished

products from these countries being imported into India at a cost lower than what it would have cost to

manufacture the same products in India. This factor combined with the fact that in most cases,

components of the finished products are subject to import duties at rates higher than the duties

applicable on finished products, the FTA has contributed to the decline of the manufacturing of

products in India.

C. Compliance costs

The ACE sector has been witnessing an increasing cost burden due to the evolving nature of

compliances prescribed by the Government in the recent years. This cost burden is ultimately passed

on to the consumer, making the products unaffordable and having a detrimental impact on demand.

Following are a few of the compliance elements:

BEE Star rating compliance

A major segment of electronic durables such as air conditioners, refrigerators, geysers, colour

televisions fall under the mandatory Standards and Labeling Programme introduced by the Bureau of

Energy Efficiency (BEE) under the Ministry of Power. This has been undertaken to limit the growing

electricity demand by introducing energy efficient, environment and cost saving appliances. While it is

crucial that consumer appliances in India continue to innovate to remain energy efficient, the industry

is of the view that BEE is ‘pushing too fast, too ahead’ in its aggressive push towards annually

changing stringent standards. The BEE ratings are changing almost biennially, making it difficult for

the industry to abide by the norms and equip the appliances with new technologies. This has two

implications for the industry.

1. The changing of standards results in downgrading of the existing 4 and 5-star rated appliances, thus

affecting the demand and reputation of the highly rated products.

2. A phased approach in revising the standards will allow the Industry to do a value add with the

planned R & D. Sudden changes increases the cost of the new product and renders the older products

obsolete much before the end of their lifespan.

BIS testing and certification

As a part of the Indian Government’s push towards quality control, the ACE sector is required to

ensure testing and certification of its appliances by the Bureau of Indian Standards (BIS). One of the

challenges faced by the industry is the delay in the testing and certification of the products on account

of a limited number of BIS approved labs in India. The increasing cost of compliance with enhanced

fees adds to the cost of production for the organized sector.”

Environmental norms

While plastic waste management rules and e-waste management rules and compliance with its

obligations is a progressive initiative towards environment protection, lack of clarity in its

implementation framework and uncertainty around the policy changes increase the overall compliance

costs. This leads to increasing the costof manufacturing in India resulting in an increase in the price of

the products, and that in turn negatively impacts consumer demand.

D. Incentive schemes - modified special incentive package scheme

M-SIPS was introduced by the government to offset disability and attract investments in Electronic

manufacturing. It has been well appreciated by the industry and helped in reducing domestic

manufacturers disabilities. Appliance and consumer electronics manufacturers have applied for and

obtained the relevant approval under the modified special incentive package scheme. The scheme

provides for capital subsidy that is an important aspect of making manufacturing cost efficient in

India. The industry has been facing delays in disbursements of the capital subsidy incentives, resulting

in the industry being unable to realise the benefits of these schemes. Indian consumer durables market

is broadly segregated into urban and rural markets and is attracting marketers from across the world.

The sector comprises of a huge middle class, relatively large affluent class and a small economically

disadvantaged class. Global corporations view India as one of the key markets from where future

growth is likely to emerge. The growth in India’s consumer market would be primarily driven by a

favorable population composition and increasing disposable income.

Market Size

 Appliances and consumer electronics industry is expected to double to reach Rs. 1.48 lakh

crore (US$ 21.18 billion) by 2025.

 Electronics hardware production in the country increased from Rs. 4.43 trillion (US$ 72.38

billion) in FY19 to Rs. 5.47 trillion (US$ 89.38 billion) in FY20.

 In FY20, TV penetration in India stood at 69%, driven by the DTH market. The total count of

DTH subscribers in the country stood at 70.58 million in the country in 2020.
  As of FY20, electronics, domestic appliances and air conditioner market in India were

estimated to be around Rs. 5,976 crore (US$ 0.86 billion), Rs. 17,873 crore (US$ 1.80 billion)

and Rs. 12,568 crore (US$ 2.56 billion), respectively.

 According to India Cellular & Electronics Association (ICEA), India has the potential to

achieve a value of US$ 100 billion in manufacturing of laptops and tablets by 2025.

 Smartphone shipments in India increased eight% y-o-y to reach 152.5 million units in 2019,

thereby making it the fastest growing among the top 20 smartphone markets in the world.

 
 Investments

According to Department for Promotion of Industry and Internal Trade, between April 2020 and

December 2020, exports of electronic goods from India stood at US$ 8.77 billion.

Following are some recent investments and developments in the Indian consumer market sector.

 In January 2021, Panasonic India announced its plan to double its residential air-conditioning

business by 2024.

 In January 2021, the Indian smartphone firm, Lava Mobiles released the world's first

customisable smartphone that enables users to select components, such as camera, memory,

storage space and colour, from the company's website on their own.

 In November 2020, Saudi Arabia's Public Investment Fund invested Rs 9,555 crore (US$ 1.29

billion) in Reliance Retail, taking the total fundraise in the last two months to Rs 47,265 crore

(US$ 6.37 billion).

 In November 2020, three private equity funds—Investcorp, Norwest Venture Partners and Gaja

Capital together invested ~Rs. 800 crore (US$ 110 million) to acquire ~ 31% stake in

Xpressbees, the e-commerce focussed end-to-end supply chain solutions provider.

 In November 2020, Pegatron Corp., an iPhone assembler in Taiwan, announced its plans to

invest US$150 million in building a plant in India.

 In October 2020, the Karnataka government approved a Rs. 3,540 crore (US$ 482.63 million)

investment by Aequs SEZ Private Limited to develop a consumer electronics and durables

goods (CEDG) cluster in Hubballi—about 430 kms from Bengaluru.

 In October 2020, Amazon India launched new specialised fulfilment centre with a storage

capacity of 1.2 million cubic feet in Bengaluru, which is specialised to store and manage

customer orders from the large consumer appliances and furniture categories in their portfolio.
 Government Initiatives

 The Indian government has been encouraging to consumer durable brands in India to ‘Make in

India’ thereby expecting they should be self-reliant for the future; consumer too are showing an

affinity towards homegrown products

 The National Policy on Electronics 2019 is targeting production of one billion mobile handsets

valued at US$ 190 billion by 2025, out of which 600 million handsets valued at US$ 100

billion are likely to be exported.

 The Government of India has allowed 100% Foreign Direct Investment (FDI) under the

automatic route in Electronics Systems Design and Manufacturing sector. FDI into single

brand retail has been increased from 51% to 100%; the government is planning to hike FDI

limit in multi-brand retail to 51%.

 In September 2020, the Government of India planned to offer production-linked incentives

worth Rs. 1.68 trillion (US$ 23 billion) to companies such as consumer appliance, automobile

and solar panel to attract companies to establish manufacturing plants in India.

 On November 11, 2020, Union Cabinet approved the Production-Linked Incentive (PLI)

scheme in 10 key sectors (including electronics and white goods) to boost India’s

manufacturing capabilities, exports and promote the ‘Atmanirbhar Bharat’ initiative.

 Mobile phone exports in India are expected to reach a record of US$ 1.5 billion in 2020, of

which 98% are expected to be smartphones.

 The PLI scheme, which has been approved for 16 electronics firms, including 10

manufacturers of mobile handsets, would further improve India's role in the global mobile

market and complement the goal of making the country a global mobile production hub for

manufacturers.
 Key Credit Factors For The Consumer Durables Industry

Part I--Business Risk Analysis

Industry risk

1. Within the framework of our corporate methodology for assessing industry risk, we view

consumer durables as an intermediate risk industry (category 3). Our industry risk assessment

for consumer durables is derived from our view of the segment's intermediate (category 3)

cyclicality, and our assessment that the industry warrants an intermediate risk (category 3)

competitive risk and growth assessment.

2. . Key economic indicators tend to drive cyclicality in the consumer durable products industry.

Key drivers include consumer confidence, consumer spending and saving patterns,

unemployment rates and employment growth trends, household formation and net worth,

interest rates, availability of consumer credit, and government incentives.

3. In our opinion, the discretionary nature of many consumer durable products increases the

cyclicality of demand for these companies relative to other, lower-risk industries and sectors,

such as consumer nondurables. During periods of economic weakness it is common to see

consumer spending decline, with consumers trading down to lower-priced products or

deferring purchases altogether. However, favorable secular long-term growth trends (like

population growth, rising household disposable income in emerging markets, and increasing

penetration of many durable products in emerging markets) tend to offset volume declines in

developed markets during weak economic periods.

4. Price competition is moderate overall, and intensity can vary depending on the specific durable

products category. Price competition may manifest itself in multiple forms, including reduction

of list prices, promotions, discounts, and other customer incentives, and is often more

pronounced in mature retail markets and on mid-price-range products. Additionally, pricing

 competition can increase during industry downturns, which can compound the cyclical decline

in revenues. We believe that manufacturers with greater product innovation and/or a broad

range of products at various price points are somewhat less sensitive to price competition.

Cyclicality in profitability tends to be moderate. Although there is variability by category,

durable consumer products in general are relatively discretionary in nature. Durable companies

can be sensitive to rises in input and raw material costs, which can be volatile. Periods of lower

consumer demand and commodity price inflation can lower margins, as companies can

experience negative operating leverage from reduced volumes for a period of time.

Cyclicality

1. We assess cyclicality for the consumer durable products industry as intermediate risk. The

industry has demonstrated moderate cyclicality--relative to other industries--in both revenue

and profitability, which are two key measures used to derive an industry's cyclicality

assessment (see "Methodology: Industry Risk," published Nov. 19, 2013). Based on our

analysis of global Compustat data, consumer durable products companies experienced an

average peak-to-trough (PTT) decline in EBITDA margin of about 10% during recessionary

periods since 1952. In addition, in five of the recessionary periods, the EBITDA margin

decline was equal to or greater than 10%, with the steepest being about 18% during the 2007-

2009 and 1972-1975 downturns. Since 1952, consumer durables companies experienced an

average PTT decline in revenues of about 7.4% during recessionary periods, with PTT revenue

declines materially exceeding the average in four of the nine periods. The largest PTT drop in

revenues totaled 18.5%, and occurred in the most recent recession (2007-2009).

2. With an average drop in profitability of 10% and an average revenue decline of more than 7%,

consumer durable products' cyclicality assessment calibrates to "intermediate risk". We

generally consider that the higher the level of profitability cyclicality in an industry, the higher

the credit risk of entities operating in that industry. However, the overall effect of cyclicality on
 an industry's risk profile may be mitigated or exacerbated by an industry's competitive risk and

growth environment.

Competitive risk and growth

We view consumer durable products as warranting an intermediate (category 3) competitive risk and

growth assessment. To assess competitive risk and growth, we assess four subfactors as low, medium,

or high risk. These subfactors are:

• Effectiveness of industry barriers to entry;

• Level and trend of industry profit margins;

• Risk of secular change and substitution by products, services, and technologies; and

• Risk in growth trends.

Effectiveness of the consumer durable products industry's barriers to entry--

Medium Risk

1. Barriers to entry in the consumer durable products industry are moderate. While new players can

enter the market, they can experience disadvantages relative to more established industry

participants. For example, smaller companies may have some difficulty competing against larger,

global industry leaders that have not only established brands, but also greater financial flexibility

to advertise and market these brands; established distribution networks, and economies of scale.

Factors such as manufacturing expertise, product technology, customer relationships, access to

distribution channels, capital intensity, and ability to service an installed base, are typically the

most prevalent barriers to entry in the industry. Less frequently, transportation costs and

government regulation may also constitute barriers to entry.

2. Access to capital can be an important differentiator during difficult market conditions, favoring

larger and more financially sound players. Having a lower cost of capital provides larger
 consumer durables companies greater opportunity and flexibility to quickly build out and expand

infrastructure and distribution networks internationally, particularly in higher-growth emerging

markets. Lack of capital market access can become more pronounced during weak global

economic conditions if third-party capital is unavailable or too costly for smaller, private industry

players. Small companies are often forced to rely on factoring, which can be a relatively

expensive and restrictive form of asset-based lending.

Level and trend of consumer durable products industry profit margins--Medium

Risk

1. Since the last global economic downturn, consumer durable products companies have generally

managed to improve their profit margins through successful restructuring actions, productivity

gains, the broad application of lean manufacturing techniques, pricing discipline, and the benefit

of a period of generally benign input cost inflation. Although these benefits could be partly

sustainable, profit levels will continue to vary both with the demand cycle and with segment-

specific competitive dynamics.

2. Degree of seasonality varies by category within durable consumer products, as certain

subcategories are more sensitive to seasonality (e.g., lawn and garden durable products).

Therefore, certain factors, such as weather conditions may have meaningful short-term effects in

such subsectors. However, many larger industry players have fairly diverse product portfolios as

well as geographic diversification that mitigate the impact of seasonality on profitability and may

be less impacted.

3. Durable products companies have some exposure to weaker consumer spending and consumer

trade-down to lower price-point products. However, ongoing innovation, product development,

and brand support by branded durable products companies have historically helped to blunt the

negative impact of such trends.

 4. Consumer durable products companies are exposed to changes in input costs, including raw

materials (such as steel and other metals, resins, packaging), fuel and other energy-related,

electronic or sourced components, and labor costs. The ability of consumer durable products

companies to offset the impact of higher input costs via higher selling prices varies depending on

such factors as contractual provisions, market structure, flexibility of the footprint and workforce

profile, and the intensity of competition; where this ability is limited, consumer durables

companies need to offset cost increases through productivity gains and other cost savings. The

degree of vertical integration and outsourcing also affects trends in profit margins in the industry:

manufacturers integrated into material processing or component manufacturing typically exhibit

higher fixed costs and capital spending than those focused on product design and assembly, and

are often subject to greater variation in profit margins over the business cycle. Working capital

requirements are typically moderate but may exhibit some seasonality.

Risk of secular change and substitution by products, services and technologies--

Low Risk

1. We view the risk of secular change and substitution by products, services, and technologies as low
because of the ubiquitous nature of the multiple products that come under the consumer durable

products industry.

2. There are durable product categories that the consumer perceives as more commodity-like (such

as some small appliance categories and home improvement products such as lighting fixtures),

thus offering less perceived value-add; such products are more exposed to increases in private-

label penetration, because these products primarily compete on price.

3. The need for continuous innovation is important to differentiate from private-label alternatives,

maintain strong brand equity, and achieve pricing power. A company's ability to introduce new
 products or to launch product extensions is key to addressing such risks and preserving market

share and profitability.

Risk in consumer durable products industry growth trends--Medium Risk

1. Growth trends in the consumer durable products industry are generally tied to economic

conditions prevalent both in mature low-growth markets and in newer faster-growing markets.

Durables revenue growth is generally expected to exceed GDP growth in emerging markets,

although economic slowdowns will dampen consumer demand and growth prospects.

2. Demand for durable products tends to grow faster than GDP during periods of economic

expansion, at a rate below GDP when growth is subdued, and to contract more than GDP during

recessions. As such, ongoing economic contraction or subdued growth in mature markets, and

slowing growth in emerging markets represent significant near-term risk to growth for the

consumer durable products industry.

3. Positive secular growth trends in emerging markets seem likely to persist for an extended period

of time. Demographic trends supportive of long-term demand include population growth, a rising

middle class, and increased household penetration of durable consumer products. However, there

are certain risks with entering emerging markets such as currency devaluation and local trade

policy changes that somewhat temper the growth rates in these markets. Still, the growth trends

seem likely to persist for an extended time period given most companies' limited market

penetration in these emerging markets.

4. Growth trends are less favorable in developed markets. Durables are generally discretionary in

nature, and some shifts do occur during difficult economic environments--including from

premium products to value-oriented branded and private-label (or store-branded products).

Moreover, shifts from traditional retail to alternative channels are occurring--and consumer

durables companies face the challenge of adapting to such new distribution channels--especially
 internet retailing. They also may need to restructure, rationalize, or streamline production

capacities to maintain profitability under the new modes of distribution.

Country risk

 Country risk plays a critical role in determining all ratings on companies in a given country.

Country-related risk factors can have a substantial effect on company creditworthiness, both

directly and indirectly. In assessing country risk for a consumer durable goods company, our

analysis uses the same methodology as with other corporate issuers (see "Corporate

Methodology"). A key factor in our business risk analysis for corporate issuers is the country

risk assessment, which includes the broad range of economic, institutional, financial market

and legal risks that arise from doing business in a specific country.

 We generally determine exposure to country risk using revenues, as this information is

consistently available. However this may not capture country risks beyond those affecting

demand potential. Therefore if country exposure by EBITDA or assets is available and

indicative of a materially different country exposure profile, we may instead use EBITDA or

assets. Competitive position (including profitability)

 Under our global corporate criteria, a company's competitive position is assessed as

(1) excellent,

(2) strong,

(3) satisfactory,

(4) fair,

(5) weak, or

(6) vulnerable.
 In assessing the competitive position for consumer products issuers we review an individual

company's

• Competitive advantage;

• Scale, scope, and diversity; • Operating efficiency; and • Profitability.

 The first three subfactors are independently assessed as either

(1) strong,

(2) strong/adequate,

(3) adequate,

(4) adequate/weak, or

(5) weak.

Profitability is assessed through the combination of two components, the level of profitability

and the volatility of profitability.

 After evaluating separately competitive advantage, scale scope and diversity, and operating

efficiency, we determine the preliminary competitive position assessment by ascribing a

specific weight to each component. The applicable weightings will depend on the company's

Competitive Position Group Profile (CPGP). The CPGP assigned to the majority of consumer

durables issuers is "Services and Product Focus," whereby we weigh the first three subfactors

of competitive position as follows: competitive advantage (45%); scale, scope, and diversity

(30%); and operating efficiency (25%).

 We may assign the "Capital or Asset Focus" CPGP to consumer products companies that

exhibit a sizable capital investment and asset outlays to sustain competitive position. Many

consumer durables companies manufacture products that exhibit at least some degree of

technical differentiation and require moderate capital investments to sustain their market

position, but exposure to cyclical demand patterns often makes operating efficiency the most

significant determinant of competitiveness for the more capital-intensive companies. The

 component weighting for companies assigned the "Capital or Asset Focus" CPGP is as follows:

competitive advantage (30%); scale, scope, and diversity (30%); and operating efficiency

(40%).

Competitive advantage

1. In assessing the competitive advantage of a consumer durables company we consider its:

• Business strategy and global market positions;

• Extensiveness of presence in consumer markets and in channels of distribution;

• Product range and differentiation versus competition;

• Brand equity and underlying price power;

• Capital spending plans on production, innovation, sales and marketing;

• Strategy regarding balancing volume growth and margins.

2. In reviewing a company's business strategy, we assess the company's ability to establish

leadership positions in the markets in which it competes, and at protecting or growing market

shares in a profitable manner. Consumer durables companies need to adjust their strategy to

evolving market conditions like demand growth prospects, industry supply capacities, and the

level of promotional activity. If they are successful at defending or growing leading market

shares, volumes should remain stable, thus protecting production costs.

3. We review the company's ability to access the largest possible number of customers for its

products and look at its presence in the largest consumer markets around the world. We also

consider the distribution strategy and the variety and sales growth prospects of its distribution

channels and main retailers. Wide and fast-growing distribution channels reach more

prospective customers for the manufacturers. The ability to participate in promotional activity

can be a differentiating competitive advantage by effectively helping support sales growth. We

also consider manufacturers' support of their key retail accounts through favorable payment

terms.
4. We assess the number of product segments in which a company operates and the size of its

product range in each of these segments. We review a company's track record in launching new

and successful products from a sales perspective. We consider the degree of product

uniqueness, customization, or specification against the competition.

5. Brand name recognition in the consumer durables industry is often associated with product

quality, design, or ease of use. Consumer durables companies that are able to offer

differentiated products or services or to capitalize on a strong brand name will generally

benefit from greater pricing power, and often greater customer loyalty than those offering more

commoditized products.

6. Manufacturers need to constantly reinvest cash flows in modernizing production capacities to

improve productivity; in research and development to support product innovation and

differentiation; in sales infrastructure to increase the presence in all distribution channels and to

reach consumers; and in marketing to promote the brand and support the pricing power.

7. The consumer durables industry is characterized by its medium capital intensity: higher than

consumer nondurable products but lower than large capital goods. Companies generally follow

two strategies to maintain a competitive advantage on production costs. The large players focus

on maintaining high capacity rates in their factories and generate higher profit with sales

volume growth. The smaller players tend to outsource some or all of their production to protect

their operating margins given their lower economies of scale. However, we think both large

and smaller players are price-takers on raw materials sourcing, with limited ability to achieve

procurement discounts. Strong brand equity can protect gross margin through the ability to

raise prices without adversely affecting sales volumes.

8. A consumer durables company with a "strong" or "strong/adequate" competitive advantage

assessment typically is characterized by a combination of:

• Global or regional leading market positions, and a business strategy that supports sales

growth and profitability.

 • A significant presence in the largest and in fast-growing consumer markets.

• Large product range and presence in the most dynamic product segments, and a superior track

record of product development, innovation, and customer satisfaction.

• Strong brand equity that provides the product a clear price premium relative to its

competitors.

• A demonstrated commitment and ability to reinvest in its asset base, as evidenced by a

continuous pipeline of new products with a track record of successful product launches.

• Ability to maintain volume growth and strong pricing power.

9. A consumer durables company with a "weak" or "adequate/weak" assessment of its

competitive advantage typically is characterized by a combination of:

• Business strategy that is inconsistent or not well adapted to marketplace conditions.

• The company is a small local manufacturer in a declining market.

• Most products are commoditized and could be replicated at lower cost by competitors.

• Weak brand power, no price premium relative to competing brands, and an inability to raise

prices when raw materials prices rise without losing market share.

• Low level of investment on product innovation and production capacities. Scale, scope, and

diversity.

10. In assessing the scale, scope, and diversity of a consumer durables company, we consider:

• The size of its revenues and earnings base in the context of the size and growth potential of

its geographical markets and product segments;

• The depth and breadth of its product offering;

• The geographical diversity of its sales and earnings;

• The level and localization of the production capacities and ability of the distribution network

to meet demand; and

• The degree of supplier and customer concentration.

11. We generally assume that participation in a number of markets will make for greater stability

of financial performance in market downturns, although some downturns are so extreme that

all markets are severely weakened. The relative attractiveness of the markets (in terms of size,

expected growth, cyclicality, barriers to entry, intensity of competition, etc.) and how the

consumer durables company is positioned in those markets influence our assessments of scale,

scope, diversity, and competitive advantage.

12. A large product offering in a particular segment and a presence in several product segments

enables a company to support its market share in one or several product segments. Consumers

are more likely to turn to a brand that provides a large range of options and alternatives to a

need. Also the presence in several product segments often enables a company to offset a

decline in sales in a particular segment.

13. We consider geographical diversity as important. A decline in consumer demand for durable

goods in a particular region or country can often be offset by more positive market dynamics in

another region or country. Hence a worldwide manufacturer is generally better positioned to

cope with drops in demand in one or several specific markets compared to a national player

facing the same prospects.

14. The size and location of production facilities will enable the company to meet demand levels.

Usually companies have large production facilities near the large consumer markets. However

they need to adapt their production capacities to demand trends. The size and global reach to

consumers is also important and we assess whether products are widely distributed through

major retailers or only available in certain outlets, and whether companies use online retailing

or rely on more traditional retail distribution networks.

15. We see the concentration risk of suppliers and customer (generally retailers) as an important

factor for a manufacturer. The default of a major supplier can severely disrupt the supply chain

and lead to the stoppage of the production process. This in turn will mean lower volumes and

problems supplying customers on time. The default of a major customer could lead to a large
 number of unsold products and, thus, loss of revenues and lower operating cash flow. To the

extent the manufacturer can recover its merchandise, there would typically be additional

inventory and transportation costs, and the products may ultimately be sold at a discount.

16. A consumer products company that warrants a "strong" or "strong/adequate" assessment of

scale, scope, and diversity typically is characterized by a combination of:

• Industry leading market shares, large size of production capacities, and large EBITDA base.

• A comprehensive range of products or service offerings, or a large portfolio of well-known

brands.

• Geographically diverse earnings in markets with favorable growth prospects.

• Large and geographically diverse manufacturing base as well as sourcing.

• Diverse customer and distribution channels with no large single-name concentration.

17. A consumer products company warranting a "weak" or "adequate/weak" assessment of scale,

scope and diversity typically is characterized by a combination of:

• Low market share and penetration, small industrial size, or limited growth prospects of main

markets.

• A single product or limited range of products.

• Sales in only a few markets.

• A small manufacturing base, or reliance on unique and/or declining distribution channel.

• Significant manufacturing and sourcing concentration, or high reliance on a single or few

customers.

Operating efficiency

1. In assessing operating efficiency for a consumer durables company, we consider its:

• Flexibility of its cost structure in absorbing demand declines or input cost pressures.

• Cost management and working capital management characteristics.

• Relative cost position versus industry peers.

2. In reviewing cost structure flexibility, we consider a consumer durables company's ability to

limit margin deterioration in a down cycle through cost reduction, and to pass on increases in

input costs. Indicators of cost flexibility may include: proportion of fixed versus variable costs,

degree of operating leverage, productivity and capacity rates, raw materials and components

cost exposure, labor and pension costs, and flexibility of labor contracts.

3. We consider a company's cost management by reviewing its record of cost reduction during

good and bad times, the effectiveness of its restructuring programs and lean manufacturing

programs in the different geographical regions, its track record at successfully integrating

acquisitions, and its working capital management metrics, especially regarding inventory and

transport costs. Companies exposed to significant seasonality and long cash conversion cycles

may exhibit lower operating margins than those without.

4. To the extent a consumer durables company has a high degree of operating efficiency, it should

be able to generate better profit margins than peers that compete in the same markets, whatever

the nature of the prevailing market conditions. In reviewing the relative cost position of a

consumer durables company compared to that of its peers, we primarily consider its EBITDA

margin level, supplemented by various indicators of cost efficiency, such as gross margin,

and/or selling, general, and administrative expenditures (SG&A) as percent of revenues. Both

the overall cost and margin profile of a consumer durables company and that of its various

reporting segments are important in our analysis.

5. A consumer durables company with a "strong" or "strong/adequate" operating efficiency

assessment typically is characterized by a combination of:

• Large size and scale that yield strong purchasing power, which can provide discounts for

higher volume purchases of key input costs; high productivity levels.

• Ability to rapidly adjust production and overhead costs (measured via SG&A as percent of

revenues) to market demand levels.

 • Lower fixed cost structure and better sourcing capacities than peers that supports profitability

(measured by gross margin and EBITDA to revenues) that is better than industry peers, taking

into account differences in sales mix and average selling prices. We also consider the

sustainability of these cost structures and profitability levels.

6. A consumer durables company with a "weak" or "adequate/weak" assessment of its operating

efficiency typically is characterized by a combination of:

• Inability to adequately source and hedge raw materials, which could be attributed to lack of

size, bargaining power, or centralized procurement; low average capacity utilization of

manufacturing facilities; high and rigid labor costs.

• Inability to control operating costs due to a rise in raw material prices and supply-chain

deficiencies. • Higher fixed cost structure than peers, leading to swings in profitability as soon

as demand for the products drops.

Profitability

The profitability assessment can confirm or modify the preliminary competitive position assessment.

The profitability assessment consists of

(1) the level of profitability, and

(2) the volatility of profitability.

The two components are combined into the final Profitability assessment using a matrix.

Level of profitability

1. The level of profitability is determined on a three point scale: "above average," "average," and

"below average."

2. We use EBITDA margin as the primary indicator of the level of profitability for a consumer

durables company, based on thresholds identified in table 1 below. We use return on capital
 (ROC) as a supplementary indicator to refine our assessment when EBITDA margin is close to

the thresholds for "below average" or "above average" (see ROC thresholds in table 2). For

instance, if a company's EBITDA margin is at the high end of the defined range for "average"

but its return on capital is comfortably in the "above average" range, we may assess its level of

profitability "above average." We could also use ROC if EBITDA is significantly distorted by

currency-exchange fluctuations. In accordance with the global corporate criteria, for this

assessment we typically determine the five-year average EBITDA margin and ROC using the

last two years of historical data, our forecast for the current year, and our forecast for the

following two years. We may put more emphasis on forecast years if historical data is not

deemed representative or to take into account projected shifts in profitability levels.

3. We use two EBITDA margin thresholds to differentiate between diversified consumer durable

companies that manufacture specific products for a local market versus home appliances

manufacturers, which tend to be more global and standardized. In our current rated universe,

the first group (diversified durables) has diverse businesses like outdoor equipment and home

furnishings. The higher thresholds reflect the typically smaller scale and EBITDA base but

higher average EBITDA margins. The second group of companies specifically includes home

appliances manufacturers only. These companies are generally characterized by a larger scale

and EBITDA base but a lower average EBITDA margin. We use the same ROC thresholds for

all durables companies because ROC is based on a measure of operating earnings after

depreciation, therefore capturing differences in depreciation (and to some degree capital

expenditure) profiles.
 Volatility of profitability

1. The volatility of profitability is determined on a six point scale, from '1' (least volatile) to '6'

(most volatile).

2. In accordance with our global corporate criteria, we generally determine the volatility of

profitability using the standard error of regression (SER), subject to having at least seven years

of historical annual data. We generally use nominal EBITDA as the metric to determine the

SER for consumer durables companies, although we may also use EBITDA margin or ROC. In

accordance with the global corporate criteria, we may --subject to certain conditions being

met--adjust the SER assessment by up to two categories better (less volatile) or worse (more

volatile). If we do not have sufficient historical information to determine the SER, we follow

the global corporate criteria guidelines to determine the volatility of profitability assessment.

Part II--Financial Risk Analysis

Accounting and analytical adjustments

1. Our analysis of a company's financial statements begins with a review of the accounting to

determine whether the statements accurately measure a company's performance and position

relative to its peers and the larger universe of corporate entities. To allow for globally

consistent and comparable financial analyses, our rating analysis may include quantitative

adjustments to a company's reported results. These adjustments also enable better alignment of
 a company's reported figures with our view of underlying economic conditions. Moreover, they

allow a more accurate portrayal of a company's ongoing business. Adjustments that pertain

broadly to all corporate sectors, including this sector, are discussed in “Corporate

Methodology: Ratios And Adjustments.” Cash flow/leverage analysis.

2. In assessing the cash flow adequacy of a consumer durables issuer, our analysis uses the same

methodology as with other corporate issuers (see "Corporate Methodology"). Cash

flow/leverage is assessed on a scale of

(1) minimal,

(2) modest,

(3) intermediate,

(4) significant,

(5) aggressive, and

(6) highly leveraged, by aggregating the assessments of a range of credit ratios, predominantly

cash flow based.

Core ratios.

For each company, we calculate two core debt payback ratios, funds from operations (FFO) to debt

and debt to EBITDA, in accordance with our ratios and adjustments criteria.

Supplemental ratios

1. In addition to our analysis of a company's core ratios, we also consider supplemental ratios in

order to develop a fuller understanding of a company's credit risk profile and refine our cash

flow analysis. We view free operating cash flow (FOCF) to debt as the preferred supplemental

ratio. Working capital and capital spending cycles can significantly shape patterns of cash flow

generation for consumer durables companies. In the early stages of a downturn, capital released

from working capital has historically helped companies achieve FOCF to debt ratios that are
 stronger than FFO to debt, and we may adjust the cash flow and leverage assessment

accordingly. Conversely, during a business upturn, increased working capital needs can

depress the FOCF to debt ratio, suggesting a lower cash flow assessment than the core ratios,

but we may choose not to use the supplementary ratio adjustment (negative) if the core ratios

are on an improving trend. For companies that return a large portion of their FOCF to

shareholders through dividends, we may consider discretionary cash flow (DCF) to debt as the

most relevant supplemental ratio.

2. If the preliminary cash flow leverage assessment indicated by the core ratios is significant or

weaker, then two coverage ratios, FFO plus interest to cash interest and EBITDA to interest,

will be given greater importance as supplemental ratios. These ratios become more important

ratios in our analysis of companies with highly seasonal businesses and resultant significant

intrayear swings in working capital investment needs, such as lawn and garden equipment

companies. The seasonal companies typically borrow to fund their increased working capital

investment and the interest coverage ratios capture all annual interest costs.

Volatility adjustment

In accordance with our global corporate criteria, we may adjust our cash flow leverage assessment

based on the volatility adjustment. Given the inherent cyclicality in consumer durables, these ratios

can change moderately over the course of an economic cycle. Cash flow volatility varies by company

and subsector. We typically classify furniture manufacturers as either "volatile" or "highly volatile,"

depending on historical performance within various subsectors, and we generally classify high-growth

companies as "highly volatile."

Part III--Rating Modifiers

Diversification/portfolio effect
In assessing the diversification/portfolio effect of a consumer durables companies, our analysis uses

the same methodology as with other corporate issuers (see "Corporate Methodology").

Capital structure

In assessing the capital structure of a consumer durables company, our analysis uses the same

methodology as with other corporate issuers.

Liquidity

In assessing the liquidity of a consumer durable company, our analysis uses the same methodology as

with other corporate issuers.

Financial policy

In assessing financial policy on a consumer durables company, our analysis uses the same

methodology as with other corporate issuers.

Management and governance

In assessing management and governance on a consumer durables company, our analysis uses the

same methodology as with other corporate issuers.

Comparable ratings analysis

In assessing the comparable ratings analysis on a consumer durables company, our analysis uses the

same methodology as with other corporate issuers.

 Advantage India at a Glance

General
 A stable Government with second stage reforms in place
 Well established corporate ethics
 Major tax reforms including implementation of VAT
Strengths: Indian consumer durable Sector
 Well-established distribution network extending to rural areas
 Strong brands in the consumer durable sector
 Low cost operations
Opportunities
 Large domestic market
 Export potential
 Increasing income levels will result in faster revenue growth
Market
 India has the largest young population with over 890 million people below 45 years of age
 600 million-plus consumers by year 2010
 550 million-plus people under the age of 20 by year 2015
 70 million-plus people earn over Rs.8,00,000 ($18,000) a year - number to rise to 140 million
by year 2011
Consumer Spending Pattern
 In India the Total Consumer Spend was Rs.20,00,000 crore ($445 billion) in the year 2005
 Size of Retail market Rs.10,50,000 crore ($233 billion);
 Organised Retail sector is worth Rs.35,000 crore ($8 billion)
 Leading retailers' sales growth (2005): 50-100%
 India is the fourth largest economy in terms of purchasing power
 A consumer market of 1.02 billion
 A growing middle class of over 400 million with increasing purchasing power

Segmenting Consumer Markets

Markets can be segmented in many ways. Segmentation variables are the criteria that are used for

dividing a market into segments. The chosen criteria should be good predictors of differences in buyer

behavior. There are three broad groups of consumer segmentation criteria: Behavioral,

Psychographic and Profile variables.

Behavioral variables such as benefits sought from the product, and buying patterns such as frequency

and volume of purchase may be considered the fundamental basis.

Psychographic variables are used when purchasing behavior correlates with the personality or

lifestyle of consumers. Consumers with different personalities or lifestyles have varying product

preferences and may respond differently to marketing mix offerings.

Profiling is not essentially a criteria for segmentation. After finding these differences, marketers need

to describe the people who exhibit them. Profile variables such as socio-economic group or geographic

locations are valuable in describing the customers of the identified segment. For instance, a marketer

may want to find out whether there are groups of people who value low calories in soft drinks. After

tracing such people the marketer attempts to profile them in terms of their age, socio-economic

groupings. The objective of profiling is to identify and locate the customers so that they can be

approached by marketers.
But in practice segmentation may not follow this logical sequence. Often profile variables will be

identified first and then the segments so described will be examined to see if they show different

behavioral responses. For instance, different age or income groups may be examined to see if they

show different attitudes and requirements.

Behavioral Segmentation

Benefits sought People may seek different benefits from a product. Benefits sought in the fruit drink

market are extra energy, vitamins, being natural, low calories, low price. There are brands targeting

each segment. Benefit segmentation provides an understanding on why people buy in a market and

aids in identification of opportunities, as some of the benefits that customers seek may not be provided

by the existing companies.

Benefit segmentation is fundamental because the objective of marketing is to provide customers with

benefits which they value. Profile analysis can then be performed to identify types of people (age,

gender) in each benefit segment so that targeting becomes easier.

This is the most fundamental form of segmentation in marketing, which is used by almost every

company in practice. For example, toothpaste brands are sold on the basis of the benefits offered by

them such as whitening of teeth, prevention of cavities or fresh breath. Similarly, cosmetics are sold on

the basis of benefits provided such as wrinkle reduction, prevention of aging, etc.

Purchase Occasion

Products like tires may be purchased as a result of an emergency or as a routine unpressurized

buy. Price sensitivity is likely to be lower when products are bought in emergency situations.

Some products may be bought as gifts or self purchases. Gift markets are concentrated during a

festival period, while the advertising budget for these will be concentrated in the pre-festival period.

Package designs may differ during this period, and special offers may also be made.

Apparel brands are segmented on the basis of the occasion of usage. There are different collections for

weddings, formal occasions, parties and for regular wear.

Purchase Behavior

Differences in purchase behavior can be based on the time of purchase relative to the launch of the

product or on patterns of purchase. When a new product is launched, a key task is to identify the

innovator segment of the market. These people allow communication to be specifically targeted at

them. Innovators are more likely to be willing to buy products soon after the launch. Other segments

of the market may need more time to assess the benefits and delay purchase until after the innovators

have taken the early risks of purchase.

New products launched by companies are generally aimed at the most enthusiastic customers. For

instance, the new age smart phones are targeted at tech savvy, upper class, busy executives.

Brand Loyalty

The degree of brand loyalty can be the basis for segmenting customers. Some buyers are totally brand

loyal, buying only one brand in a product group. Most buyers switch brands. Some may buy one

particular brand on most occasions but also buy two or three other brands. Others might show no

loyalty to any individual brand but switch brands on the basis of special offers to buy, because they are

variety seekers who look to buy a different brand each time.

By profiling the characteristics of each group a company can target each segment accordingly. By

knowing the type of person (for instance, by age, socio-economic group) who is brand loyal, a

company can channel persuasive appeals to defend this segment. By knowing the characteristics and

shopping habits of offer seekers, sales promotions can be correctly targeted. In consumer durables

market, customers can be divided into first time buyers, replacement buyers and switchers from other

brands.

Retail stores would be the best example of loyalty based segmentation. Several retail stores have

initiated the concept of loyalty cards. These cards give additional discounts and offers to regular

customers. Airlines also indulge in loyalty based segmentation, wherein frequent flyer miles and other

such offers are given to loyal customers.

Usage

Consumers can be segmented on the basis of heavy users, light users and non-users of a product

category. Profiling of heavy users allows this group to receive most marketing attention because

creating brand loyalty among these people will pay heavy dividends. Attacking the heavy user

segment (20% customers consuming 80% of the product) can have drawbacks if all competitors are

following this strategy. Analyzing the light and non-user category provides insights that permit

development of appeals that are not mimicked by competition as they will concentrate on the heavy

users.

For instance, not all loyal customers ore heavy users of a product. Not all customers who are loyal to a

particular retail store would spend as much money. So a store can segment customers on the basis of

loyalty and spend, instead of loyalty alone. Nokia has also segmented its market on the basis of usage

of a mobile by a customer. For instance, its E-series is for the busy business executive who always

wants to stay connected and updated, while the N-series is for the heavy music listener and tech geek.

Perception and Beliefs

Perceptions and beliefs are strongly linked to behavior. Consumers are grouped by identifying these

people who view the products in a market in a similar way (perceptual segmentation) and have similar

beliefs (belief segmentation). For instance, when it was launched, a product such as iPOD by Apple

made more sense to consumers who were passionate about music and also held extremely positive

perceptions about the use of technology.

In the early 1990s, several Indian consumers held negative perceptions about microwaves. It was

believed that Indian food rich in oil and spices could not be cooked in microwaves, and the waves

emanating inside were harmful to health. Another segment that was more open to adapting

microwaves consisted of those consumers who were well aware about the functioning of the

microwave, and were health conscious. They also sought the convenience of cooking faster, and

cooking other types of cuisines. For these purposes, a microwave was found to be suitable by them.

Therefore, marketers initially focused on the second segment.

Psychographic Segmentation

Lifestyle

A company groups people according to their way of living as reflected in their activities, interests and

opinions. The company identifies groups of people with similar patterns of living. The question that

arises in this type of segmentation is whether general lifestyle patterns are predictive of purchasing

behavior in specific markets. The company will relate a brand to a particular lifestyle.

Several ready-to-cook and fast food brands treat dual income families as their primary target group,

based on their busy lifestyle, and the fact that the lady of the house does not have the time to cook

food. Even appliance and consumer durable brands treat this target segment as an important one, as

this group’s disposable income is high.

Personality

In some product categories, there is relationship between brand personality and the personality of the

buyer. Buyer and brand personalities are likely to match where brand choice is a direct manifestation

of personal values, but for most FMCG goods, people buy a repertoire of goods. Personality and

lifestyle segmentation will work best when brand choice is a reflection of self expression, i.e., the

brand becomes a badge which makes public an aspect of personality. Successful personality based

segmentation is found in categories such as cosmetics, alcoholic drinks and cigarettes.

Automobile brands segment their markers on the basis of the income of the customer and his

personality. Research reveals that customers consider the car to be an extension of their individual

personalities. Therefore, automobile brands use the car to convey the desired personality of the

individual such as adventurous, caring, and tough.

Profile Segmentation

Even if behavior and/or psychographic segmentation has distinguished between buyer preferences,

there is need to analyze the resulting segments in terms of profile variables such as age and socio-

economic groups. The segments emerging from behavioral and psychographic segmentation will have
to be profiled in terms of age, occupation, socio-economic status, place of residence, gender etc.

Profiling will help companies in identifying the segments and focusing their attention on them.

Demographic Variables

Age – Age is used to segment many consumer markets, like food and clothing.

Gender – Differing tastes and customs between men and women are reflected in specialist products

aimed at these market segments.

Lifecycle – Disposable income and purchase requirement vary according to lifecycle stage (young

singles versus married). Young couples without children may be a prime target for consumer durables.

The use of lifecycle analysis gives a better precision in segmenting markets than age because family

responsibilities and presence of children have a greater bearing on what people buy than age.

Socio-Economic Variables

Social class as a predictor of buyer behavior has been open to question. Many people who hold similar

occupations have dissimilar lifestyles and purchasing patterns.

Educational qualification and income are also used as variables for segmentation.

Geographic Variables

A marketer can use pure geographic segmentation or a hybrid of geographic and demographic

variables to segment the market.

Geographic segmentation is useful when there are geographic locational differences in consumption

patterns and preferences. Variations in food preferences may form the basis of geographic

segmentation.

SWOT ANALYSIS
 STRENGTHS

Low cost and cheap labor.

Increase in the export levels.
Large pool of engineers.
Increasing Demand for european quality
Investment by foreign car manufacturers.

WEAKNESSES

Low labor productivity.

High interest rate and overhead level.
Low investment in R&D area.
Local demand is still towards low cost vehicles due to comparatively low income levels.

Opportunities

Growing population in the country.

Focus from the government in improving the road infrastructure.
Rising living standards & increase in income level.
Rising rural demand for utility vehicles.
Keeping a vehicle is becoming status symbol.
Women drivers have increased.

Threats

Less skilled labor.

Lack of technologies for indian companies.
Increase in the import tariff and technology cost.
Smaller players that do not fulfill international standards.

Impact of Covid-19 on Consumer Durables Industry

The COVID-19 or the novel coronavirus disease began in December 2019 and by March 2020, the
World Health Organisation (WHO) officially classified the disease as a pandemic1. Since then it has
escalated into a global health and an unprecedented economic crisis. Both the public and private
sectors have struggled to manage the impact of the pandemic on trade both at home and at global
scale. Many organisations across industries such as tech, auto and transportation saw ripple effect of
supply chain disruption on day to day operations and earnings while many industries such as retail and
banking, responded quickly by pivoting to digital channels to maintain their connect with customers.
Regardless of industry and category, the profound effect of the pandemic on consumer behaviour
could be felt. Consumers quickly changed their spending portfolio increasing the spending initially to
stockpile essentials and then drastically reducing spend in several other categories such as public
transportation, restaurants, etc. This has left organisations across industries, geographies, sizes
wondering how to respond to the shifting consumer sentiment and whether this behaviour is transitory
or the new normal. Hence, understanding this behavioural shift has become all too important for
businesses. And, it begins with listening closely to the market and the consumer conversations before
making any design changes to strategy, product, service or experiences. KPMG in India’s design
thinking practice is engaged in making efforts to evangelise design led thinking and support
organisations in their journey to design human centric experiences. In today’s context, this means
empathising with the customer to understand how their needs have changed. In this point of view, it is
our sincere effort to provide you with a picture of behavioural trends that have the potential to last
medium to long term. The report aims to introduce what we believe to be the ten key behavioural
shifts and examine its implications across the key sector of consumer markets sector (FMCG,
durables, retail). We hope you find the contents of this point of view insightful and this helps you
observe your customers closely to capture their changing motivations and needs. We would welcome
the opportunity to discuss how you can capture these insights for customers specific to your
organisation or your industry to build a resilient business aligned to the post-COVID-19 world.
Shifts in consumer behaviour as a result of COVID-19
One may have heard of a famous saying “Never let a crisis go waste”. An interesting truth about
crises is that it propels us to examine the social fabric of our society, reveal structural weaknesses in
our systems and can rip apart the definition of normalcy. A brief look back at some of the defining
crises in the recent modern times can help understand how societies respond to events of disruption.
It can reveal what truly matters to a population and how their lives change. Taking a sampling of such
events/ crises8 that induced or triggered a shift in the mindsets and/or behaviours of Indian society,
culminating into a form of change implemented by governments, businesses and eventually
becoming the new normal - provides us a better understanding of shifting behaviours in our current
context. Each of these events and several others in history have led to some change in human
behaviour and governments/businesses have had to respond with a lasting change
(policy/service/experience change). Given the scale of the current pandemic, one can safely say that it
will have a far-reaching consequence on humanity, more severe than other events. While some of the
current behaviours may seem to be more immediate natural fight or flight response to this shock, many
of them would have seeds of permanence that will define our lives during and post COVID-19.
Governments and businesses will have to adapt to this collective shift in society and respond with
policies, products, services, experiences that will be reflective of the priorities of the new post
COVID-19 world. It is therefore only befitting that governments around the world are putting together
some of the largest economic stimulus packages in the history. So, what are these behaviours emerging
as a result of COVID-19? Which ones will be temporary and which ones are more likely to stay? What
should businesses focus on and where do they start to prepare for during and after COVID-19 times?
KEY GROWTH DRIVERS FOR INDIAN CONSUMER DURABLES
Rise in disposable income: The demand for consumer electronics has been rising with the

increase in disposable income coupled with more and more consumers falling under the double

income families. The growing Indian middle class is an attraction for companies who are out there to

woo them.

Availability of newer variants of a product : Consumers are spoilt for choice when it comes to

choosing products. Newer variants of a product will help a company in getting the attention of

consumers who look for innovation in products.

Product pricing: The consumer durables industry is highly price sensitive, making price

the determining factor in increasing volumes, at least for lower range consumers. For middle and

upper range consumers, it is the brand name, technology and product features that are important.

Availability of financing schemes: Availability of credit and the structure of the loan determine

the affordability of the product. Sale of a particular product is determined by the cost of credit as much

as the flexibility of the scheme.

Rise in the share of organized retail: Rise in organized retail will set the growth pace of the

Indian consumer durables industry. According to a working paper released by the Indian Council for

Research on International Economic Relations (ICRIER), organized retail which constituted a mere

four percent of the retail sector in FY07 is likely to grow at 45-50% per annum and quadruple its share

in the total retail pie 16% by 2011-2012. The share will grow with bigger players entering the market.

Innovative advertising and brand promotion:

Sales promotion measures such as discounts, free gifts and exchange offers help a company in

distinguishing itself from others.

Festive season sales: Demand for colour TVs usually pick up during the festive seasons. As a

result most companies come out with offers during this period to cash in on the festive mood. This

period will continue to be the growth driver for consumer durable companies.

MAJOR HURDLES AND CHALLENGES PLAGUING THE INDIAN

 CONSUMER DURABLES SECTOR

Threat from new entrants, especially global companies: The domestic consumer durables

sector faces threat from newer companies, especially from global ones who have technologically

advanced products to offer.

Rivalry and competition: Presence of a large number of players in the domestic consumer

durables industry leads to competition and rivalry among companies. Threat from rivalry and

competition poses a threat to domestic companies.

Potential markets remaining yet untapped: A large segment of the domestic market, mostly

the rural market is yet to be tapped. Tapping this yet untapped and unorganised market is a major

challenge for the Indian consumer durables sector.

Threat from substitute products/services: The domestic consumer durables industry is plagued

by threats from substitute products. Easy accessibility to theatres/multiplexes, especially in urban areas

has turned off the viewership from TV to a large extent. With the advent of a horde of FM radio

stations, radio sets have now substituted TVs.

Customer power with respect to availability of choice: The availability of a wide product line

on account of most products being homogeneous, poses a threat for companies operating in the

consumer durables sector. Customers have the choice of both domestically produced and imported

goods, with similar features.

OPPORTUNITIES AND CHALLENGES

THE CHALLENGES

Heavy taxation in the country is one of the challenges for the players. At its present structure the total

tax incidence in India even now stands at around 25-30 per cent, whereas the corresponding tariffs in

other Asian countries are between 7 and 17 per cent.  About 65 per cent of Indian population that lives

in its villages still remains relevant for some consumer durables companies. This India, at least a large

proportion of its constituents, still buys black and white TVs and doesn't know what flat screens

are.  Also, foraying into these rural markets has a considerable cost component attached to it.

Companies not only have to set up the basic infrastructure in terms of office space, manpower, but also

spend on transportation for moving inventory. Even LG and Samsung, which are touted as having the

largest distribution network in the country, have a direct presence only in 15,000 to 18,000 of the

around 40,000 retail outlets (for consumer durables) in the country.  Poor infrastructure is another

reason that seems to have held back the industry. Regular power  supply is imperative for any

consumer electronics product. But that remains a major hiccup in India.

THE OPPORTUNITIES

The rising rate of growth of GDP, rising purchasing power of people with higher propensity to

consume with preference for sophisticated brands would provide constant impetus to growth of white

goods industry segment.

Penetration of consumer durables would be deeper in rural India if banks and financial

institutions come out with liberal incentive schemes for the white goods industry segment, growth in

disposable income, improving lifestyles, power availability, low running cost, and rise in temperatures.

While the consumer durables market is facing a slowdown due to saturation in the urban market, rural

consumers should be provided with easily payable consumer finance schemes and basic services, after

sales services to suit the infrastructure and the existing amenities like electricity, voltage etc.

 
Currently, rural consumers purchase their durables from the nearest towns, leading to

increased expenses due to transportation. Purchase necessarily done only during the harvest, festive

and wedding seasons — April to June and October to November in North India and October to

February in the South, believed to be months `good for buying’, should be converted to routine

regular feature from the seasonal character. Rural India that accounts for nearly 70% of the total

number of households, has a 2% penetration in case of refrigerators and 0.5% for washing machines,

offers plenty of scope and opportunities for the white goods industry.

 The urban consumer durable market for products including TV is growing annually by 7 to 10

% whereas the rural market is zooming ahead at around 25 % annually. According to survey made

by industry, the rural market is growing faster than the urban India now. The urban market is

a replacement and up gradation market now. The increasing popularity of easily available

consumer loans and the expansion of hire purchase schemes will give a moral boost to the price-

sensitive consumers. The attractive schemes of financial institutions and commercial banks are

increasingly becoming suitable for the consumer. Consumer goods companies are themselves coming

out with attractive financing schemes to consumers through their extensive dealer network. This has a

direct bearing on future demand.

Opportunities for design
FMCG (food and beverages, beauty health and personal care, services)
The heightened awareness and concern over health and food safety have given an opportunity to
strengthen India’s food, quality, safety system. It will involve all value chain participants and
stakeholders including regulators, distributors, policy makers, agri-markets, consumers to embed food
hygiene practices from farm to fork. These practices will appear in the form of policy changes,
consumer communication, packaging preferences, etc.
Consumer expectations for on-time and faster delivery are here to stay and likely to grow. This
presents a big opportunity for logistics to take centre stage. Organisations must focus on reducing last
mile delivery costs, embedding disruptive autonomous delivery technologies, consolidating deliveries
to manage high volumes, managing reverse logistics and strengthening distribution networks to
continue last mile delivery.
To enhance digital experience of the future and enable it to blend with the physical experience,
business would need to think about making the experience more authentic, more human. This would
mean bringing elements of tactile experience (touch, see, feel, smell, taste) as well as making digital
interactions more authentic by including multilingual capabilities for wider customer reach and
acceptance.
Consumer Durables (white goods, kitchen appliances, computers cameras cellphones, home
furnishing, entertainment)
The pandemic has accelerated consumer motivation to consider more resource efficient, sustainable
and long-lasting products that will help mitigate future crises. This presents an opportunity for
businesses to incorporate elements of green technology, innovate on efficiency and durable life of
products, sustainable packaging and ESG (environmental, social, governance) factors.
Customers have traditionally preferred in-store experience for durables category, hence simply going
digital will not necessarily enable customers to shift. It will have to be paired with bringing touch and
feel factor, service element, teleconsultation /demonstrations, easy payment/EMI options, easy
policies, etc. to help customers make the transition slowly.
Imposition of restrictions on Chinese products and change in policies will lead to supply chain
disruption increasing cost for domestic firms. The government will likely aid and ease the adverse
impact of this move and provide measures to encourage domestic manufacturing. The opportunity for
business is to consider building an alternative supply chain that is resilient and self-reliant.

Retail (apparel, footwear, jewellery, etc.)

While the window-shopping mall experience may not return immediately but it has always been more
than shopping experience, it has been a form of socialising and recreation for customers. Hence,
customers will continue to seek the quintessential physical retail experience while also engaging in
shopping from the convenience of their home. Physical retail will evolve but not disappear and online
channel will only grow, retailers that can have and provide a consistent experience across all touch
points will survive.
To evolve traditional retail into touchless retail, retailers will have the opportunity to implement AR/
VR technologies for concepts such as virtual trial, contextual marketing, virtual tours, experience new
products without being at the store and create a hyper personalised experience to redefine every retail
touch point that exists today.
The strong social solidarity towards local communities, migrant population, craftsmen and artisans
have customer seeking and connecting with home grown products and services. This is a huge
opportunity for businesses to source and build locally and take on international peers. While it will be
an uphill battle, the customer sentiment is likely to remain unchanged for at least the short-medium
term making it imperative for businesses to become local.

CONCLUSION
Consumer durable industry grows leaps and bounds due to the significant growth of standard of life of
people. As the obstacle of industrial licensing is removed there is a healthy competition for the
production of durable goods which is turn improved the quality of consumer durable goods. Hence,
Indian consumer durable industry produces goods which on par with foreign goods.
The consumer durables industry in India is set for sustained growth over the long term, fuelled by
favourable consumer demographics, overall growth in services and industrial sectors and infrastructure
development in suburban and rural areas. Several Indian and MNC players are looking to strengthen
their presence in India to leverage this opportunity. Success in the long-term will require firms to
develop a wide and robust distribution network, differentiate their products in areas of relevance to the
consumer and innovate in the areas of promotion, product financing, etc. The product and approach to
market need to be customised to suit the unique needs of the Indian market.
From the consumer durable market analysis it can be concluded that this sector has huge potentialities
to grow in near future in India. Further, the present government’s initiative “Make in India’ could act
as a greatest opportunity to this sector. It is concluded that the determinants like income, the number of
durables possessed, level of education of household head have significant positive effect on the
demand for most of the major durables. Income is one of the important determinants which has
significant positive effect on the demand for the major durables. The level of education of the
household head has positive significant effect on the demand for major durables Similarly, the number
of durables possessed by a household also has positive effect on the demand for durable goods.