Do designer lines in bed linen, Zen-inspired skincare salons and 42" LCD television sets seem unlikely Quests in a market where the bottom of the pyramid is the Holy Grail? Not according to a growing tribe of companies that is rejigging portfolios to appeal to better-off customers.
Dutch electronics major Philips now sells its top-of-the-line televisions and music systems in India. Titan Industries launched Swiss watch brand Xylys at price points that are three times higher than the average Titan watch. Bombay Dyeing signed on wunderkind designer Sabyasachi Mukherjee for an exclusive line of bed and bath linen.
Remember, these are all companies that have built their fortunes and reputations as solidly middle-class brands. So why are they now spreading the net higher up? the strategist analyses why companies prefer class to mass.
We want more
Gunjan Srivastava says aspirations in India today are growing faster than incomes. As the race for bigger, better and more expensive heats up, consumers are no longer satisfied with plain vanilla products.
Which is why Srivastava, the director for consumer electronics at Philips, has started filling showrooms with wide-screen, flat televisions, moving the regular 21" and 25" sets further inside. "Even about three years ago, we had very few takers at higher price points.
Today, selling sets at Rs 2.5 lakh (Rs 250,000) apiece is not that difficult," he says.
It's not hard to see why. As Harish Bhat, COO, watches, Titan, puts it, "A booming economy has left people feeling wealthy, optimistic and indulgent."
The Bangalore-based firm was quick to seize the opportunity: in March 2006, it launched Xylys, which retails at Rs 10,000-33,000 and competes against global brands such as Tissot.
Abheek Singhi, partner at The Boston Consulting Group, offers another pointer to the growing popularity of premium products. Two years ago, less than 2,000 side-by-side refrigerators were sold all over India; that number is likely to go up four times this year. And the fridges don't come cheap: they sell at between Rs 50,000 and Rs 1 lakh (Rs 100,000).
Perhaps 8,000 refrigerators in a country of a billion people doesn't seem much. And even the number of rich households -- 1.2 million -- isn't that impressive at first glance.
But what's good news for marketers is that it is growing very, very fast: in a May 2007 report, consultancy firm McKinsey estimated that the numbers of the rich will multiply about eight times by 2025. Meanwhile, their income will grow 11 times to account for 24 per cent of the country's total income.
While a huge portion of this income group is likely to be used to best-in-class products and services, most of which is imported, there will be significant number of new entrants, who will want better lifestyles, but won't be willing to pay the earth (or at least, dollars) for the privilege.
Says Ernst & Young Partner Ashok Rajgopal, "Customers in the premium segment can be very demanding. It's probably easier to crack the luxury segment than the premium space."
Luxury brands, explains Rajgopal, are aspirational enough for the manufacturer to command a premium price. Brands in the premium space, which is a notch below, have slightly less aspirational value and, therefore, other brand attributes such as design, customer experience and after-sales service become more relevant. That makes it selling premium products even more challenging.
Bells and whistles
A BoozAllenHamilton report on superpremium products lists four ways in which the brands build strong relations with key customers: product differentiation, communication, tangibility of the retail experience (a premium experience at the point of sale) and pricing (for premium brands, 75-100 per cent more than the category average).
Mahindra & Mahindra's marketing of the Scorpio followed those steps closely. When it introduced the SUV in 2002, M&M consciously labelled the Scorpio as a "car-plus" in the upscale C segment -- in one stroke, it differentiated itself from the other offerings in that category and also turned the "utility vehicle" tag into its USP.
"Consumers are extremely brand conscious and want the brand to reflect their lifestyles. So marketers need to create aspirational imagery around the brand," says Arun Nayer, vice president, automotive marketing, M&M.
Accordingly, the ad campaigns for the Scorpio are typically shot abroad, for instance, Romania, and feature beautiful models and helicopters and other pointers to an exclusive, eminently desirable lifestyle.
For its part, Titan has been equally careful about building the right image for Xylys, whose brand ambassadors include Carlos Moya and Saira Mohan.
"We are extremely conscious about the kind of image we project," agrees Bhat. "We want to be both contemporary and classy. Our research shows that today's buyer is contemporary and doesn't necessarily want heritage."
If Titan wants to be seen as exclusive and up to date, so does Bombay Dyeing. Last year, it launched the first Sabyasachi Signature Line of bed and bath linen, pricing it at Rs 1,000 more than the most expensive linen in its existing range. Now, the textile company is planning the second season, which will be even more expensive.
"Even a couple of years ago, you wouldn't have thought anyone would pay Rs 999 for a towel. But with people travelling overseas, aspirations and demands are higher today," says Arun Bhawsingka, head, domestic business, Bombay Dyeing.
Spoil them silly
Marico understands that. After decades of being known as the Parachute coconut oil company, three years ago, Marico took everyone by surprise when it rolled out the upmarket Kaya chain of skin clinics.
"It made sense because looking good has become a must-do activity, especially for professionals who travel a lot. And people are willing to spend Rs 1,000 and more for a session," points out Rakesh Pandey, CEO, Kaya Skin Clinic.
But, while they are willing to spend, high-end customers can also be terribly demanding. The premium feel then has to extend beyond the brand -- the packaging, the experience at the point of sale, the communication, all have to seamlessly take forward the brand promise. "Customer experience should probably be top priority for a marketer, ahead of even product quality," declares E&Y's Rajgopal.
While premium brands can give full rein to their desire to create the right ambience at exclusive stores, it's slightly more difficult within multi-brand outlets. Still, they do manage.
Boston Consulting Group Partner Abheek Singhi points out that side-by-side refrigerators typically occupy a third of the available space at most showrooms, although they probably contribute less than 10 per cent of the dealer's revenues.
"Obviously, the company wants to create a special buying experience and it must be compensating the dealer for the space," he adds. Titan has created Xylys zones in multi-brand stores, apart from 130 Xylys outlets across the country.
Philips, too, has set up 40 exclusive "Arena" showrooms to showcase its high-end TVs and music systems, while Bombay Dyeing ensures the Sabyasachi line is available only at some company-owned showroom and select franchises, to retain its exclusive tag.
Retail ambience is even more important at Kaya, given that its brand is a service that has to be consumed at the point-of-sale. So its clinics consciously portray a sophisticated, spa-like environment. Professionally decorated interiors, designer uniforms for the staff, colour-coordinated accessories and a signature "Kaya drink" created by celebrity chef Karen Anand -- the not-for-everyone message is subtle, but unmistakable.
The premium nature of the service is further underlined by the 150 trained dermatologists on the roll who help provide personalised services.
The gentle push
It's not enough to create the brand and the environment. Reaching out to the right audiences is equally important. Most premium brands are advertised mostly on English language channels with marketers taking great pains to research their options.
Titan and Kaya stay with English niche channels such as National Geographic and the History Channel, while M&M casts its net wider, advertising on news and business channels such as NDTV Profit and CNBC-TV 18.
But effective premium product communication is more about word of mouth -- the recommendations of other premium customers -- than conventional advertising. Below-the-line activity is, therefore, a significant part of marketing budgets.
While Kaya organises workshops and events on skincare for its 200,000-strong customer network, Titan produces glossy, coffee-table books on Xylys, which it gifts to potential customers.
There's a critical difference between luxury and premium customers -- the access to ready cash. Premium customers may want the best and the most exclusive, but they can't always buy it outright. So much as they do for customers down the income scale, premium brand marketers now offer easy finance schemes that help convert shoppers into buyers.
"When you don't have to put down a lakh immediately, but only a much smaller amount, you are more inclined to advance the purchase decision," points out Srivastava. Adds M&M's Nayer, "At an entry-level, the Scorpio is priced at Rs 7 lakh (Rs 700,000). But 90 per cent of the sales are financed and that's a great enabler."
Premium is profitable
That doesn't mean premium customers aren't paying ones. Kaya's Pandey says that in a steady state operating margins could be as high as 20-22 per cent. He is confident that the brand will continue to have pricing power.
Nayer confirms that profit margins for bigger and more expensive cars are better than those for smaller cars. And Srivastava adds, "Profit margins at the top are definitely better than those for the mass products."
Adds BCG's Singhi, "The margin for a high-end plasma TV can be up to 1,000 basis points more than that for a lower value product." Clearly, once the volumes start coming in, premium products do bring in premium profits. Will volumes come through? Everyone's hopeful.
As Nayer points out, "In addition to those who already have a lifestyle, there's another universe of 'wannabes' waiting to get there." That should be reason enough to keep going. If your bread and butter will come from the bottom of the pyramid, the upper levels may well provide you money for jam.
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