Indian Shoppers - Value Seekers &/or Price Sensitive ? Lessons from Telecom for FMCG !

Are Indian Consumers Price Sensitive or Value Seekers?

India’s market presents a complex landscape where consumer behaviour oscillates between price sensitivity and value-seeking. As per a Deloitte study in 2023, 45% of Indian Shoppers are Price Sensitive, 35% are Value Seekers and 20% are Environment Conscious.

This duality is particularly evident in the Fast-Moving Consumer Goods (FMCG) and Telecom industries. I have tried to examine these behaviours in depth and outline key learnings that the FMCG sector can draw from the strategies employed by the Indian telecom industry, which incidentally saw one of the toughest battles, where Jio played cost and value leadership strategy, which seemingly eroded industry profitability. However, as it’s shaping out, Airtel continues to prosper and thrive and so is Jio.

The Complex Nature of FMCG Consumption in India

The FMCG sector in India, projected to reach USD 220 billion by 2025, serves a vast and varied consumer base. Consumer behaviour is shaped by factors such as income levels, economic trends, and changing lifestyle preferences.

Economic and Demographic Realities of India:

• Economic Disparities: The World Bank states that around 60% of India’s population earns less than Rs 500 (5.5 USD) a day, resulting in different shopping patterns. While lower-income groups are highly price-sensitive, higher-income groups seek more value-based purchases.

• Urban and Rural Dynamics: Rural areas contribute over 45% of the FMCG market share, showing a high degree of price sensitivity. However, with annual rural spending power increasing at 10%, these consumers are gradually moving toward branded, value-driven products.

Changing Indian Consumer Preferences:

1. Health and Wellness: The COVID-19 pandemic accelerated demand for products that align with health and hygiene. According to Nielsen, premium health-focused products saw a 25% increase in sales from 2022 to 2023.

2. Sustainability: Deloitte’s 2023 survey found that 35% of consumers are willing to pay up to 10% more for FMCG products with sustainable packaging, especially in urban areas. This is more pronounced amongst the Zen Z and Millennials, who are thankfully, more conscious of the environment than the previous generations.

Insights from the Indian Telecom Industry: The telecom sector, serving over 1.1 billion subscribers, has faced significant price wars yet found ways to incorporate value-seeking strategies.

Forces and trends shaping up Telecom in India

1. Price Wars and Jio’s Entry: The launch of Reliance Jio in 2016 triggered a major price war, cutting data costs by 95% between 2016 and 2020 (TRAI). This dramatically shifted consumer expectations around pricing.

2. ARPU Trends: Despite competition, Airtel’s ARPU rose from INR 183 in 2022 to INR 200 in 2023, indicating that consumers are willing to pay for added value.

3. Data Consumption: Average monthly data usage per user increased from 14.6 GB in 2020 to 19.5 GB in 2023 (TRAI), highlighting a shift toward higher value consumption.

4. Value-Added Services (VAS): Bundled Offerings: Ernst & Young’s 2023 survey noted that 40% of urban consumers are willing to pay more for telecom plans that include OTT services and better network quality.

5. VAS : Network Quality: According to an Opensignal report, 50% of consumers rated network reliability as important as cost. This allowed brands like Airtel to maintain loyalty despite slightly higher prices.

 What Can the Indian FMCG Sector Learn from Telecom?

1. Emphasize Value-Added Offerings:  Just as telecom providers introduced bundled services to enhance perceived value, FMCG companies can create value-added product bundles or subscriptions. For example, a personal care brand could offer bundled packs with added benefits such as new variants or complementary items. I recently saw a LinkedIn post from one of my ex-colleagues who is a serial entrepreneur now. His organization is generating trials and adoption by underwriting the user experience and charging nearly nothing if the consumer doesn’t get the desired results.

2. Segmented Marketing Strategies: The telecom industry uses segmented pricing and targeted marketing to cater to different customer bases. Some FMCG companies have successfully established a portfolio for different demographics, yet FMCG is nowehere close to the super segmented and curated marketing strategies which Telecom does. With the tools to understand and reach Consumer and Shopper cohorts better its high time FMCG builds this muscle. FMCG companies could adopt a telecom approach by developing tiered product lines: Basic Lines: Targeted at cost-sensitive consumers with essential features.Premium Lines: Focused on value-seeking customers who prioritize quality, sustainability, or unique benefits.

3. Invest in Quality and Innovation: Telecom companies like Airtel have retained high-ARPU users by investing in consistent service and network quality. FMCG brands can mirror this by investing in product innovation and consistency. For example, upgrading formulas or using higher-quality ingredients can create trust and justify premium pricing. Recently came across an advert from Two Brothers Organic Farms, explaining why their Khapli wheat Atta is priced almost 2X of what is available from other brands in the market

4. Leverage Digital Channels for Direct Engagement: Telecom brands effectively use apps and digital platforms to engage customers with personalized offers and updates. FMCG companies can employ similar digital strategies to build stronger relationships, offer exclusive online deals, and gather real-time consumer feedback to adjust marketing tactics quickly.

5. Subscription Models:  Telecom companies benefit from recurring revenue through subscription plans. FMCG brands can offer subscription-based services, such as home delivery of essential products at discounted rates. This would appeal to value-seekers who prioritize convenience and savings over time.

6. Focus on Customer Experience and Service:  Good customer service has helped telecom brands like Jio and Airtel maintain a loyal consumer base. FMCG brands should consider enhancing post-purchase services, such as direct consumer engagement via social media or quick response systems for complaints and feedback.

Some examples to learn from:

• Reliance Jio’s OTT Integration: Jio shifted from just being a price disruptor to a value provider by offering JioFiber bundles with OTT subscriptions. This shows that consumers are willing to upgrade when they see clear benefits.

• Airtel’s Premium Strategy: Airtel focused on delivering superior service quality while adding perks such as Amazon Prime and Disney+ Hotstar subscriptions to attract consumers willing to pay more for added value.

Challenges and Considerations

While FMCG brands can draw from these telecom strategies, they must adapt them to fit the distinct characteristics of the FMCG market:

• Higher Purchase Frequency: Unlike telecom services, FMCG purchases are more frequent, requiring more agile pricing and promotional strategies.

• Lower Switching Costs: Consumers can switch FMCG brands more easily than telecom providers, meaning brands need to work harder to maintain loyalty.

• Supply Chain Constraints: Implementing value-based pricing and offering bundled products may require adjustments in the supply chain and cost management.

The Indian FMCG sector can learn valuable lessons from the telecom industry’s blend of price competition and value-driven strategies. By emphasizing product quality, investing in innovation, leveraging digital channels, and creating subscription models, FMCG brands can cater to both price-sensitive and value-seeking consumers. This dual approach will help brands build resilience and capture a larger share of the dynamic Indian market.

 More Readings and References

1. Nielsen India Consumer Report 2023

2. Kantar Worldpanel: Indian FMCG Consumer Insights 2023

3. TRAI Annual Report 2023

4. Ernst & Young (EY) India Telecom Consumer Survey, 2023

5. Deloitte India: “Consumer Preferences Survey” 2023

6. Opensignal Report on Telecom Network Quality 2023

7. Economic Times, Livemint, and Financial Express articles

8. Hindustan Unilever Annual Financial Report 2023

9. McKinsey & Company: “India Consumer Pulse” Report