impact how Indians shop
Government vision jolts the economy
Two opposite forces—globalization and localization—influenced how Indians shopped. To accelerate transition to a digital global economy, the Indian government implemented demonetization, cutting off the dependence on cash transactions. At the same time, Indian consumers continued gravitating toward local brands.
Demonetization came abruptly. During the evening of November 8, 2016, the same day Americans elected Donald Trump, Prime Minister Narendra Modi informed Indians that the government would immediately remove from circulation key denominations of bank notes, making them worthless unless exchanged for new currency.
The goals of demonetization were to reduce corruption, increase taxable revenue, and shift India from reliance on cash to a digital-payment society. In the early days of demonetization, people waited in long queues at banks that had limited supplies of the new money. Some who chose not to declare a stash of black-market cash lost considerable wealth. Others found ways to redeem ill-gotten gains.
Many complained about demonetization and criticized it for being poorly planned and widening the digital divide between the poor and the middle class. But there was limited public unrest. And just a few months later, when Modi’s ruling BJP party won an overwhelming election victory in Uttar Pradesh, India’s largest state, it seemed as if Indians had accepted demonetization as foul-tasting medicine that could improve their lives.
Young people adapted quickly. Women initially changed their shopping patterns and moved from traditional stores to modern outlets that accepted credit cards. The rapid rise in mobile payments, with apps like Paytm, suggested that India was rapidly transitioning to a digital economy and fulfilling the government’s vision of a financial revolution.
Brands and categories
Financial services brands may be the biggest winners. Now that consumers have deposited their cash savings in bank accounts, the financial services brands have an opportunity to educate them about investments and other financial products. Telecom providers face a great opportunity, because better infrastructure is needed to make the vision of digital India a reality.
FMCG in India is strongly impacted by rural demand, which is driven by the agricultural economy, whether farmers raise a healthy crop and sell it to wholesalers. Demonetization happened between crop cycles, which minimized the impact. Some disruption occurred among wholesalers whose ability to purchase crops was limited by the reduction of cash in the supply chain.
Prior to demonetization, an official channel existed side-by-side with an underground cash-only channel, where prices were lower because transactions did not include tax payments. Categories that depended more on the underground channel may feel the impact of rising prices. The real estate market slowed after demonetization because of its dependence on cash. Auto sales decreased initially, but soon began to recover.
A few months prior to demonetization, on August 15, India celebrated its 70th anniversary as an independent state. Centuries of existing within the strictures of the Mughal or British rule has produced a nation of smart and practical consumers, open to global brands but increasingly receptive to an expanding offering of local products and services.
Consumers and shopping
Among the local choices were more ayurvedic-influenced brands, like Pantanjali. The rise of ayurvedic-based brands reflects a desire for the familiar. The Maggie noodle brand regained popularity after experiencing a food safety episode a few years ago, for example. The brand appeals to Indians because it is familiar and seems Indian. In fact, it is a Hindustan Unilever brand.
The interest in Indian brands also may be related to the rise of Hindu nationalism, a form of populism that resembles Brexit and President Trump’s “America First” pronouncements, but is expressed with Indian particularity. For Indian consumers, whether a brand is global or local usually is less important than whether it delivers a true value.
Typically, members of India’s urban middle class buy premium products if justified by functionality and value, but not simply for the badge. In the smartphone category, for example, Apple and Samsung face formidable completion from Chinese brands like Huawei, and the local Indian brands, including Lava and Micromax.
Some suggest that demonetization will slow India’s robust annual GDP growth to below 7 percent. With slower growth, brands would feel more pressured to develop disruptive strategies and stimulate consumer spending with innovative offerings. The strong interest in local Indian brands will likely continue, but for Indian consumers the key determinant for choosing a brand will be that it meets their needs at the right price.
Brand Building Action Plans
1. Be authentic
With the proliferation of “fake news” and “alt facts,” authenticity will distinguish brands and help ensure long-term success. Millennials are especially sensitive to the need for honest information.
2. Be relevant
Make the brand relevant by connecting with consumer sentiment, which post-demonetization includes a high level of uncertainty. Offer products and services that create the perception of a great value.
3. Be personal
People increasingly rely on social media as their primary source of news and other information. Brands must learn to communicate with individuals in a personalized way that enables them to enter the daily conversation.
4. Be prepared
Be prepared for disruption. The possibility of disruption is certain. Less certain is how disruption will happen, in what categories, and to what brands. Now that consumers are more sophisticated and exposed to greater choice, they seek value and are most likely to respond to brands they perceive as best in class.