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

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

Abstract
The paper examines the current trend and growth of the retail industry in India. The focus is more
on the organized retail and its performance. It also looks at the luxury goods market, and how the
goods sold are different for men and women. Considering the increasing numbers of HNWIs in
India, this market is poised to grow at a phenomenal rate.

The key drivers of this growth are evaluated and discussed, with pointers on how some of the
luxury goods are being sold. The authors then try to draw lessons for marketers of luxury goods
in India, in light of the cultural difference in the Indian sub–continent.

Keywords : Retail, Luxury Goods, HNWI, Luxury Brands


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

The Indian Retail market stands at Rs. 13,30,000 crores of which the Organized Retail market is
just Rs. 78,300 crores. This shows that organized retail is still in a nascent stage in India. The
silver lining, however, is that this organized segment grew at 42.4% in 2007 and is expected to

maintain an even faster growth in the following 3 years. This would mean that organized retail is
likely to touch Rs. 2,30,000 crores by 2010 (at constant prices), which would constitute roughly
13% of the total retail in India.



1
India Retail Report - 2008
Table 1 – Growth of Indian Retail
Growth of Indian Retail
0
5000
10000
15000
20000
2004 2005 2006 2007 2008 2009 2010
Year
Value (INR Billions)
Organised Retail
Retail Market

Source : India Retail Report – 2008

India has more than 15 million retail outlets, of which a major number is the small ‘kirana’ store,
that we are all familiar with. Yet there seems to be no major conflict between these two formats,
as the Indian economy is seen as consumption–driven. In fact, over the last decade or so, retail
industry has undergone a transformation, especially in understanding the right scalable and
profitable models that will work in Indian conditions.

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

Organized v/s Total Retail in India
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Fo
o
d
&
Gro
cer
y
Cl
o
th
in
g / F
a
shio
n
A
cce
ssorie
s
OO
H

Fo
od
Leisu
re
Ent
e
r
t
a
i
n
m
ent
Jewellery
W
a
tch
e
s
Fo
o
twea
r
Hea
lth

& Beau
t
y ca

r
e
Pharmaceuticals
Consu
mer D
urables
Mo
b
il
e
s
&
Accesso
r
ie
s
Furnit
u
r
e
Category
Percentage
Indian Retail
Organised Retail

Source : India Retail Report – 2008


LUXURY GOODS MARKET IN INDIA
India has more consumers for luxury goods than the adult population of several countries. A

recent study
2
, on the luxury goods sector shows that, there could well be more than 1 million
consumers. The projections are that it will treble by 2010.

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

The Luxury Goods market can be divided into
• Luxury Goods
• Luxury & Premium Goods

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

2
KSA Techopak, India Luxury Trends 2006
forecasts made by KSA Technopak (Table 5).

Table 3 – Growth of HNWI Population
Growth of HNWI Population
22.7%
20.3%
19.1%
18.9%
16.8%
16.0%
15.3%15.3%

15.1%
14.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Indi
a
China
Brazil
S
Kore
a
I
nd
on
es
i
a
Slov
a
kia
Singapo
r
e
UAE
Che
c

h R
e
public
Russia
HNWI population Growth (in %)

Source : Capgemini Lorenz curve Analysis, 2008

Table 4 - HNWI Population Growth

Growth
(in %)
Population (in
millions) – 2007

Population (in
millions) – 2010
Population (in
millions) - 2015
India 22.7%

123

227

515

China 20.3%

415

723

1513

Brazil 19.1%

143

242

486

S Korea 18.9%

118

198

396

Indonesia 16.8%

23

37

68

Slovakia 16.0%

4

6

11

Singapore 15.3%

77

118

209

UAE 15.3%

78

120

211

Czech
Republic 15.1%

17

26

45

Russia 14.4%

136

204

349


Source : Marketing Whitebook, 2007 - 2008



Table 5 – HNWI Market Growth
HNWI Market Growth
2
4
8
18
35
56
0
10
20
30
40
50
60

2007 2012 * 2017 *
Luxury Luxury & Premium

Source : KSA Technopak

The personal spending (Table 6) in the luxury goods market is close to INR 63,655 crores (US$
14,804 millions) with a per capita household spend of INR 397,822 (US$ 9,252). A detailed look
at the spending shows that almost 72.7% is spent on the top 5 categories is shown in Table 7.

Table 6– Personal Luxury spending (2004 – 2005)
Personal Luxury spending
0.27
0.16
0.13
0.08
0.08
0.06
0.06
0.04
0.02
0.02
0.01
0.01
0.06
0 0.05 0.1 0.15 0.2 0.25 0.3
Jewellery
Designer wear
Digital Accessories
Timewear
Cosmetic & Skin care

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


Table 7 – Personal Luxury spending (2004 – 2005)
Category

Amount

(INR crores)
Amount

(US$ millions)
%age of total

Jewellery 17,576

4,088

27.61

Designer wear 10,183

2,368

15.99

Digital accessories 8,244

1,917

12.95

Timewear 5,386

1,253

8.46

Cosmetic & Skin care 4,897

1,139

7.69


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

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

Amount

(INR crores)
Amount

(US$ millions)
%age of total


Mobiles, PDAs & iPODs 5,285

1,229

23.19

Designer wear 5,148

1,197

22.59

Wines & Liquor 3,707

862

16.27

Timewear 3,218

748

14.12

Footwear 2,420

563

10.62



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

Amount

(INR crores)
Amount

(US$ millions)
%age of total

Jewellery 17,576

4088

43.14

Designer wear 5,035

1171

12.36

Cosmetic & Skin care 4,897

1139

12.02

Mobile 2,959

688

7.26

Timewear 2,168

504

5.32


Source : Marketing Whitebook 2007 - 2008

For most part, the immediate priorities for many consumers for luxury goods fall into the
categories of
• Housing
• Travel
• Education
• Higher–end automobiles

• Entertainment electronics
• Home Lifestyle improvement products

Over the next 2–3 years, the market for luxury goods is likely to boom in the categories of
• Men's clothing
• Women's jewellery
• Women's accessories (including handbags and footwear)
• Watches
• Gourmet food and wines.

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

The key driver in this change has been India's demographic makeup, as the nation's booming
economy rapidly adds to the near–critical mass of newly affluent consumers. The average salary
of Indians has grown 14% (those of IT professionals have grown by 18%), which is probably the
highest wage growth in Asia.
3
There are now about 1.6 million Indian households that spend an
average of $9,000 (Rs. 4,50,000) a year on luxury goods, according to The Knowledge Company,
a management-consulting firm in New Delhi. Mr. Thakran of LVMH says "With multi-income
families and increasing international exposure through travel and the Internet, the attitude is
changing from the traditional [emphasis on] savings to a spending approach”. There are strong
indications that the expense basket is shifting from necessity to lifestyle products. Priya Sunder
4

says “Younger Indians from wealthier families increasingly match (and sometimes even eclipse)
the purchasing power of their European and American counterparts".

3
A study done by Hewitt Associates
4
Priya Sunder is Director of PeakAlpha, a Bangalore–based financial–planning company that advises IT
professionals on their investments

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


The luxury goods market seems to have its consumers divided into 4 categories as shown in the
diagram below.
1. Luxuriented
2. New Rich
3. Getting There
4. Mid Affluents

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


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

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

MARKETING LUXURY GOODS – A DIFFERENT BALL GAME
Marketing of luxury goods requires the same 4Ps of marketing mix. But their focus is different.
We are all familiar with stated, unstated and hidden needs of a customer. In case of luxury goods,
these needs have to be relooked at from a different perspective. Some live cases will help to
understand how the companies have applied the 4Ps to the marketing mix, in a unique way.

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

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

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

 Bespoke Production
Bespoke (or custom made products) have always symbolized the epitome of luxury. It is

quite common that a designer who has been successful in capturing the heart of a buyer
is asked to make another bespoke piece. One such one–off piece was designed by Ravi
Chawla
5
. He designed a 7 foot high idol of Srinathji, which was the result of several visits
to the temple at Udaipur, thousands of hours of exquisite craftsmanship and the best of
materials which gave the luxury look to the idol. The result – a proud owner family and a
blank cheque.

In case of bespoke products, Milton Pedraza
6
says “Exclusivity and uniqueness matter
enormously to the wealthy. When luxury brands are widely available, sooner or later, they
lose their cachet of exclusivity”.

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

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

 UB City, Bangalore
There are just 2 luxury malls in India – Bangalore and Delhi. Bangalore boasts of a
destination called UB City and Delhi has The Emporio Mall. The kind of outlets that they
have would give the impression that the shopper was very much in Dubai, Singapore or
Paris. Global brands such as Louis Vuitton, Gucci, Fendi, Dunhill, Rolex, Omega,
Tiffany’s, Kimaya, Tod’s, Versace, Ferragamo, Paul Smith and Jimmy Choo are having a

presence at these places.


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

5
Ravi Chawla is creator of Ravissant, India’s oldest luxury retail brand
6
Chief Executive of NY based Luxury Institute
several years before pay–off can really begin. Tarun Joshi
7
says that “In the first 3 years, any
sales you make are good”. CBRE
8
says that buying to luxury goods is done in a very different
way as compared to other goods. It puts the need for luxury high streets and luxury malls as a
pre–requisite for luxury goods market to grow in India. There is a need for buyers of luxury goods
to be not located in places where there are offices, even though many of the top executives of
MNCs may be buyers of such goods, mainly because luxury shopping is never done after office
hours. The ambience must give the feeling of opulence.

Some of these lessons can be summed up as follows :
1. Luxury Goods brands must be “expansive” – it should be full of innovation
opportunities for the marketer and in terms of satisfying the divergent needs of the
luxury consumer
2. Luxury brands must tell a story – a story of either heritage or performance or other
aspects that goes on to build the aura of a brand over time. The story must accentuate
the identity of the brand.

3. Luxury brands must be relevant to the consumers’ needs – especially the mindset of the
luxury class. It is imperative that the brand satisfies those needs, whether it be
recognition or functional use.
4. Brand must align with consumers’ values – luxury items must project a form of
expression or identification for the luxury consumer.
5. Luxury brands must perform – whichever category the brand belongs to, a performance
assurance is a must for the brand if it wishes to be in the evoked set of luxury
consumers, considering the price being paid for luxury.
6. Luxury brands must reflect Affluence – Customer will switch to whichever brand that
accentuates his affluence.
7. Luxury brand must reflect “Nothing but the Best” – Because the buyer considers himself
as the Best. They want the best, be it in whichever category because it helps them relate
to the feeling of being the best in their fields, thus completing their sense of
accomplishment.
8. Luxury brands must bring the world to the fingertips of its customers – Customers seek
the “I’ve Made It” feeling which can only be achieved if a consumer has access to the
luxury products before anyone else. Others having access to those luxury goods, makes
it a me–too product.

7
Managing Director, Brandhouse Retail
8
CB Richard Ellis
9. Luxury brands in India must include “Ethnic Chic” – A fusion of local and global goods
through a blend with Indian culture, helps build a connect with his roots while at the same
time making efforts to achieve grandeur.
10. Luxury brand Customers are very demanding – Any attempt to show the customer that
he is too demanding will immediately lead to the customer looking at other brands. His
ego must not be scrapped.

If luxury goods can be marketed in India, with the above pointers in mind, it is likely to result in a
huge demand being created for luxury goods. The authors are sure that this idea will definitely
appeal to all manufacturers and marketers of luxury goods.






Authors :
1. Prof. Sunil Pevekar
Marketing Professor
IBS, Bangalore
Ph : +91-9845697246
email :

2. Ms. Manasi Lothe
Final Year Student (2007 – 2009)
IBS, Bangalore