Income-Based Segmentation Can Customise Demand: Consumer Behaviour Expert Rama Bijapurkar

India’s consumption story, at a very broad level, is shaped by the rural-urban divide. The definition of the middle class itself is continuously evolving, adding to the complexity of the discourse. These factors influence companies’ decisions regarding market entry, product development, and service provision. 

Conversely, the income aspect also provides interesting dynamics to consumption. Many people work in the unorganised sector, leading to inconsistent income streams. Consequently, assuming stable income levels when targeting this demographic may prove futile. For retail businesses to create value-added consumption demand, sufficient data on people’s incomes becomes important. “When we start getting people-oriented and segmenting people based on income and occupations and start looking at how to cut people differently so that we can create different products for different people,” Rama Bijapurkar, author, and expert on consumer behaviour told The Core.

It's essential to examine the driving forces behind India's consumption patterns, including its desires and aspirations. It is also crucial to assess existing methods of measurement, pinpointing areas where current approaches may fail and identifying opportunities for improvement. This would involve taking a critical look at not only government data but also data in a broader sense. 

“Policy determines who's growing and who's not growing. Occupation determines it. So it can't be a GDP number in isolation. And so every time we talk about economics, let's talk about what happens to people. Right now, no one's interested in income data,” Bijapurkar said.

In The Core: Weekend Edition financial journalist Govindraj Ethiraj speaks with Bijapurkar to understand the changing consumer patterns in India. 

Edited excerpts:

 
Let's talk about consumption. And let's start with the title of your book itself, where you talk about Lilliput Land and you've said how small is driving India's mega consumption story. What does that mean? 

Well, first of all, thank you. It's called Lilliput Land because of the simple fact that we are a large economy with lots of small consumers or modest-income people who earn and spend a little bit each. We are below 100 in per capita income, but we're in the top five, heading to three on the total. And we're served by small suppliers. And we'll talk about what happened to the large businesses and everybody's yoked together now with billions of small digital transactions. And so to me, the Lilliput, which is from Gulliver's Travels, is a large army of small people who together can be giant slayers in its very simplest form. That's a story that appeals to me, that if we are the future of the world, then we are the future of a large army of formidable small suppliers, small buyers, and digital transactions. And that's why I call it Lilliput Land. And I don't see this changing. We haven't seen consolidation, despite betting on it over the last 30 years. I mean, we haven't become consolidated and large and scale. If anything, we are fragmenting. 

I've also talked about how the new digital business models actually exploit this and harness all the small together, and that is the future of India. It's a little bit of this: that, the mega is big. But please note that it is a lot of micros. It's little drops of water, little grains of sand. That's the thought behind the title. 

Let's pick on the consumption side now, and we'll focus on maybe the biggest conundrum of all, where or what is middle-class India?

I have lost a lot of friends by arguing this and the middle class right now. But I think that we want a large middle class because that's what we put out to people to be able to get foreign investment. And the growing middle class is like a bait for the whole thing. And so we say, everybody between X income and Y income. And if you look at the X and the Y income bands that people generally use for the middle class, it will cover my driver with a maid who works in my house as much as it will cover someone from a junior executive, from maybe not my graduating class at Ahmedabad, but certainly from most other places. 

Then I went back to saying, why do we look at the middle class at all? A middle class is supposed to be a group of people who can power the country and shape society, shape consumption, and shape the economy because they have surplus incomes, they are better educated, they invest those incomes in terms of making their children have social mobility to go to the next stage of life. And they are resilient most of all. This is our definition of between X income and Y income. If you don't apply any of these filters, we can have 400 million, 500 million, 300 million, or any number. 

But if you applied these indicators, and I have written about this in the book as well, how many people’s income collapsed post-Covid? There has to be some resilience, you have to have some predictability of income. That's the most important thing. You can be self-employed, but there has to be predictability of income, and there have to be some skills, not just own account workers doing stuff. If you take all that, then it is the top 20% with difficulty that qualify for much of this. I would say the middle-class definition and compared to the global middle class, we're nowhere. 

If you look at the top 10 or 20% of us, we're very close to the poverty line of America. I mean, I think there are global comparisons, the World Bank does have comparisons as well. And I've shown that there are ways to compare if you want to compare, but different people look at middle classes for very different reasons. I think we should now look in terms of how we build if our middle class, such as small as it is, our genuine middle class, has powered us thus far, then if you take all of middle India sitting in the middle between income X and Y with none of these other characteristics if we can create, do better for them and give them the resilience and give them what it takes to invest back in their lives and their children's lives, then how much better can we be? So I would say let's apply these criteria because that's why we're looking at the middle class. 

That's a policymaker's view. What would be a marketer's view? 

A marketer's view would also be this. You want predictable income. Today, look, I've had at least five TV channels saying: “Oh, whatever happened to consumption? Where did the middle class go? Why did this collapse? Why that that collapsed?” I mean, a lot of them had no predictable income, no particular jobs to the marketers. 

I'm saying call everybody middle class. I'm an academic. I'm saying let's give everybody an A. Now let's get down to the fact that the incomes are as low as they are or as high as they are. There is a group with steady incomes. There's a group with itinerant incomes. The strategy, so what of this is that you have to have many horses in a multi-pronged race because somebody's going to be up, somebody's going to be down. And also if you're an insurance company and you only want to sell insurance to people with predictable incomes and formal jobs, you're addressing a very small part of people who need that. I'm saying forget the labels, and start looking at incomes, looking at occupations. We hate discussing occupation. And occupation is our little secret.

Why would you say that? 

Because partly every time I put out occupation data it's met with thundering silence. And because in many companies when I sit and look at it, they define it as salaried. Now, a regular salary, if you leave aside a lot of our domestics who never got a regular salary when Covid happened, and know what we call great for the watchmen and the security and the liftmen and the Swiggy boys and people like that, actually all of them are more own account workers. There are large swaths of the consumer base that are locked out by way of occupation, which is why we have a lot of these discussions on where consumption goes. 

One-third of India is dependent on casual labour. When the construction industry has a bad time, these guys will have a bad time. And so you then sit as a stock market analyst and say Hindustan Unilever results are x or y or z. It doesn't make sense. I think the point is, can we just embrace it for what it is? And then you start looking at how you want to hedge your risks, what costs you want to put in, and invest for the long term. 

And what's changed in this? Or are you saying that this has been the same all through? 

For example, as I also say in my book, people who are coming out of the agricultural labour workers, when they come to the city have been replaced by the Swiggy boys. I mean, I don't see a fundamental difference other than the fact that one speaks a little more English, maybe as a result of being in the city. You have a bike and you're less dependent on the monsoon, but you are more dependent on whether there's a cricket match or not a cricket match, and so on. 

I think what's changed is the digital world, which allows a lot of these people to function more efficiently than they used to function before. But otherwise, our occupation profile is not great. What's changed is a lot of aspiration—I can, I will, I want my own business. The vegetable seller says: Aap WhatsApp Pe, panch baje se subah tak bhej do – broccoli, all the high-end vegetables that you want, and thyme and rosemary–mein jaake khareed laungaa (send the list of all kinds of vegetables you want on WhatsApp, I’ll go and buy it for you). He's seeing it as a way of increasing his income without actually stocking the damn thing, using WhatsApp. And we can't dismiss that. That is the mother of all digital, as we know. I think that's what's changed. 

I'm going to come back to middle-class India in a bit. Let's look at the rural-urban matrix. What is truly rural in that sense, at least from a consumption point of view? Also, 70% to 80% of poor people live in rural India. How are people either interpreting or not interpreting this intersection? 

Many narratives. One lot believes that all of rural India is poor. When rural India starts doing well and consuming more motorcycles or smartphones or whatever, everybody's saying, oh, wow, India's got richer. I think that's wrong. There's a fallacy there. Then some people are saying that I will focus on peri-urban, and semi-urban, because also our urban-rural definitions, as it's been written about, are a little bit dodgy and need to be changed. Many people are saying, let's look at peri-urban, semi-urban, urban (which is that twilight zone between the urban and the rural). And let's look at that. And that is our primary focus, and we will drive rural from there, which is the second way in which people are looking at it. And then there are others, like Hindustan Unilever and Jio who are saying, the world is my oyster. I want every single person. And so they are going down to the smallest villages. 

Hindustan Unilever was the first one to do a census of all the villages many, many years ago, well before there was any official data and maps and all the good stuff we have. Now, they're going down and plotting and trying to serve those retailers better. I think those are the sort of three things. The fact that rural India does well is often because half of the rich people are in rural India.

And do they consume similarly between, let's say, the rich and rural?

I think that's what's changed over time. Dipankar Gupta many years ago wrote a thing called the ‘new villager.’ And he said we have to reprogram our heads of who the new villager is. Now, with road connectivity being really good and with everybody watching the same stuff mentally, and physically, and the census towns, I remember doing a study once for a fertilizer company that wanted to get into retail. And I went to this village in Andhra Pradesh, and I kept asking her questions, and she said, do you think I'm in the dark ages? She said, there's this nearby town. There's a supermarket there. I give my husband a list, and he brings it back, and he says, my children, they have five meals that I pack for them in the morning. They go by tempo to the nearest town. And so I'm not a villager. I think these village and village roads are often better now, as we know than non village road and Marine Drive roads. I think the coalescing is coming much closer together. 

Okay, so there is a coalescing in the income bracket, for sure..

And in the mind space. 

And in the mind space. What does not coalesce? 

Well, the incomes are overlapping, but there are a large lot of people in rural India who do not have opportunities. Also, if urban income starts here, rural income starts here. If you only want that part of urban income, then you don't want large swaths of rural income. I think what's changed is income. I think occupation people believe, and that's, I think the myth of urbanisation for us— that people believe that if you're moving to cities, then you live in nicer houses, you have better infrastructure, you have more value-added jobs. That is not true because the average migrant worker lives worse than he does in the village. 

The only difference is that if you segment people based on chutzpah, for lack of a better word, or gumption. If you have the gumption in a city, you can walk five dogs in the morning, five dogs in the evening, groom them in the afternoon, and still make a lot of money. If you learn how to do particular kinds of blinds and so on… You can attach yourself to a furnishing shop and you can do that. You can attach yourself to an Urban Company and you can get to places. If you have the gumption, there are more opportunities in the cities. But now, even now, a lot of stuff is coming up in the peri-urban village area. 

In the last few years, if we look at the sales numbers of large consumer product companies, do you feel that marketers have perhaps either wrongly interpreted or overinterpreted these consumption numbers when it comes to gauging demand?

I think barring a handful of companies, most companies do not want all of India. They want the lovely GDP (gross domestic product), but they only want the silver that has a bubble. 

They've arrived there because they've made mistakes elsewhere or do you feel they've been sharp enough to?

I think if you look at the history, no CEO wants to tie up his bonus to a low-margin, high-volume business. I mean, the world is full of people who've been sacked for it. It’s more risky. Secondly, if you remember India Inc, a lot of the big players went off overseas to invest overseas. Now you go overseas while talking about in Davos, the largest, with the largest population, the youngest population, et cetera, et cetera. And guess what? I'm not investing for this. I'm going abroad. Then the going abroad picnic kind of finished.

In mid-2000 I think. 

And then everybody came back and said, let's start looking at this. In the meantime, the creamy layer got a little more creamy. I think that's a fact. I call it the ‘why kiss the frog and wait for him to become a prince when you can kiss the prince directly’ mentality. And even for the top end, we've actually not invested big. We're running out of capacity even for the top end. I think if you had more high-end beauty salons, more yacht parking spaces, more travel experiences, I mean, in peak time, you cannot get space, we can't enter our airports, we're already running out. So we're suddenly finding that the top-end demand is also humongous. And as a result of which, I think there is no need or motivation to go below. It is the battle for dreams in a sense. Why should you even bother with the mass of India? Companies are asking that which is why they've left the space wide open to small, going back to Lilliput Land…small ka raj hai  because the big guys don't want that space.

So, you know, when it comes to behaviour, one of the things I noticed, let's say, motorcycles, someone who has just a motorcycle may actually buy a good one and someone who's well to do but has a car, which they use for status will buy a cheaper motorcycle. 

Exactly. 

And this is something that people, I'm sure those who are in the thick of it know, but maybe others don't get. 

Look at this whole premiumisation, I mean. I've been invited to three shows to talk about premiumisation. Premiumisation can happen in a company's portfolio because the rich are buying and the poor are not, in which case it leads to one area of panic. 

Premiumisation can happen because you're saying, hey, I want to sell higher priced, higher quality products occasionally to the poor, to the middle income, but definitely to the rich, who I believe is underserved. And so I'm taking my portfolio and value-upping it. But you have to watch that carefully to see that it doesn't peter out. 

Premiumisation can also happen because low-end consumers are saying, I want to do better. Now this catch-all phrase of premiumisation, and there's confusion, has all these three added to it. Today, the lower income is not saying I want to do much better, but it is a fact that all of India, rich or poor, wants to do plus one. It's stretch for more rather than settling for less. We don't count secondhand vehicles. I would rather stretch for a second hand in my price value, in my benefit and price equation, and provide the value that I want than settle for a lower level brand new. That's the way people process value. 

In auto, for example, car makers should never use car sales as a gauge of the economy because who's buying cars? If you look at penetration, yeah, it's the top 10%. And then it's all the loans that are given. The sort of ponzi scheme we saw where loans were being given so that everybody could buy an Uber. And then suddenly the banks wake up when NPAs (non-performing assets) go up and then they discover prudence and then suddenly they knock it off. The volatility you see is often not even the economy. It is behaviour from the supply side, behaviour from the banker side. And so the gauge is from the supply side. I'm probably going to kill myself and commit harakiri with this. But I think that there's a small lot that's hijacking the debate. 

And these small lots are you mean in policy or in... 

No, I mean the equity market researchers. The equity market researchers and everybody follows the equity market research and those who are limiting themselves to what the top end is saying. You don't get a look below the listed and except for a few of the top end and also depends on where you're coming from. If Hindustan Lever has done such a damn good job and now its incremental growth is coming from addressing the bottom, then they're going to be more vulnerable to bad times than other people are. 

You talked about value and the value-conscious Indian buyer. Where do we stand today? Is there a formula for sort of understanding what is a value? 

I think there is. Firstly, I think we have to understand what the word value means. And different people mean it differently. The way I'm defining value is that there is benefit, there is perceived benefit, and there is perceived cost, which is beyond price. It's the cost of EMIs (equated monthly instalments) it's the cost of the risk of EMIs, and it's the usage cost. If you buy an air conditioner, the air conditioner is cheap but you have to pay your electricity bill. So if you look at benefits and if you look at cost and you say, paisa vasool hua, ki nahi vasool hua (is it worth the money)—-that is the processing. Now Indian consumers are very good at doing this processing. 

It's not Sasta Sundar Tikawu (cheap and long-lasting), which used to be perhaps the old version of value. But now I think even if you look at smartphones, I notice that even in these times when everything is supposed to have evaporated at the middle end and lower end, smartphones are still doing well because a smartphone is a utility tool. It's processed as a utility tool. I think value processing is what we're not understanding. We're just damning the consumer and saying, you're very value-conscious. But of course, we're value conscious, which means that our processing of Paisa vasool ya Paisa nahi vasool (worth the money or not),  has more hard, tangible, pragmatic factors, which is why I'll buy the lookalike sneaker, but I will not buy the brand. That doesn't mean brands don't matter. It means the status aspects of brands may or may not matter at this point. I think we have to get with the programme of processing, and understanding our consumers. 

Yeah. And I think the way you're saying it, it splits into. I mean, it's almost like you're saying it's a quadrant.

Somebody I know in the low middle bought a brand new two-wheeler in black. And I said, why did you pay a premium and do that? And he said four more years and it will still be current, but if I settle now, then I'll have to replace it two years later. He's trading off uncertainties. It's very sophisticated. This is why we embrace digital because it's status blind service. Whereas if you're rich, you don't embrace digital as much. It's like, do it for me, you have a relationship manager. 

Speaking about digital, you've come down, if I can use that term, on digital marketing and what people call performance marketing or the anonymization of the consumer. Why is that? 

A couple of things. One, when people tell me about the pin codes that they sell to, I begin to worry. Because if you're running a business where your customer is a pin code and you have no idea what the human being behind that pin code is. But you could have five rich people. And someone told me that two very expensive pieces of lingerie were bought with that particular pin code. And I was thinking, what kind of person would buy that kind of lingerie in that pin code? And would there be more such people and more such pin codes? And I think it stops the thought of the who. The minute you stop the thought of the who, then what is the value I'm adding to whom? I mean, the dharma of all business is to add value to someone and extract value from someone.

And the other thing I think I said about this whole performance marketing stuff is that it's an observe-and-do. And I wanted to know what was the learning in the do learn, do cycle about the people you're trying to serve. It's a people orientation that I've come down hard on or the lack of it. 

Let me move on to supply, since supply and demand, it's almost like a central theme in your book. And you've always said that supply lags demand. Companies or firms become big and want to become big because they want to achieve economies of scale and therefore derive profit. A lot of arguments that you're making in the Land of Lilliput, a large company has limited play, or there cannot be too many large companies because you cannot standardise beyond a point, or it's tough to standardise beyond a point. Does that mean that there's no space for large companies and standardised products because that's the only thing that they can do?

I don't think I'm saying that in the context of Lilliput, and obviously, it is up for discussion. I think that what is happening when I'm saying supply lags demand is that I'm saying the consumer is ready, willing, and waiting. We have so many things that we need and want, the rich and the poor.

But on the other hand, what we are getting is a lot less in terms of problem-solving. And I'm also saying that we're a consumption economy. We're a consumption-driven economy in terms of GDP numbers. But are we a consumption-consumer-oriented economy? I mean, how many problems are we solving for? I think the large companies, there is room for large companies that can create blockbusters that serve needs. 

We don't have that. And when we don't have that, what has happened to supply? So the small supply. If you look at the Chinese goods we've been buying. I mean, a lot of them are. Oh my God, really? I mean, including the little fan that you hold in front of your face that cools you down, which is needed if you're traveling in a crowded bus. 

Yeah. And it only cost, let's say Rs 50. 

And all the other stuff. I mean, I once told my maid to buy everything she found on the train and bring it home. And I looked at the whole lot of them and I looked at the prices and I was like, why aren't we doing any of these? 

My point is that large companies don't care enough and they should. This is why I love Amazon because they're aggregating all the small people. And finally, some mops work, there are mop heads that can be replaced. Some buckets work. There is stuff that works. I'm saying, who is going to serve this consumer? 

Let's talk about income. Incomes in India are, again, there's a top part where incomes have grown and grown phenomenally. There's the middle part where it's been a little more stable, and there's the bottom part, which I guess happens in most countries where things have not grown. How are you seeing the discussion on incomes and why do you feel that there is not sufficient discussion on it?

Firstly, there are not sufficient data on income. Every time I see with attribution to some big think tank or consulting house or other pundit academic institution putting out income numbers, I think, have you done a survey? Do you know what the cost of that survey is? I haven't seen the survey being done. I'm seeing a lot of analogous schools. And I've come down hard and always have, on this analogy school of where you have per capita income on one side and consumption of everything on the other. I mean, we never drink Coke even if we wanted to, except now we know that most people prefer water because we don't have enough loos outside. It's not an analogy. It is today we would rather send our kids to a better academic institution than buy a new something else for the household. So those are our priorities. That's the way we are. And it relates to the state of our public goods and so on. 

I think the income measurement is not there right now. We've seen the Household Consumption Expenditure Survey, but it's an expenditure study. The gap between income and expenditure is surplus income. And that's where a lot of companies would want to be. And secondly, where there is income data, a lot of companies are choosing not to buy it. There are one or two or three standard items of income data and it's there as chart number two or three or four in a presentation, after which it's largely ignored. 

And the other thing is how we look at income in silos. Every time you are talking about income, income comes. Consumption comes because people have income and you will have income because there is investment and the economy is growing. If all of India Inc. for argument, is on an investment strike, which it did some time ago, then you will not have the economy moving. And if you don't have it moving, you will not have more money. Will consumption save the day? 

If you don't have the wheels of the economy turning, how can consumption save you? Just because C plus I plus G is equal to GDP makes no sense to me. I feel that you can't have an income discussion without an occupation discussion. We don't see occupation-based segmentation too much. 

And you would want to see more of it.

I want to see more of it. I mean, if you're a bank, you're a financial institution, I think you should be looking at how people earn money is as important as how much money you think they earn. I feel that we don't have income data. We don't have enough discussion around income data and also how different parts move. I've said it depends on the policy. If you remember the glory years of 2004-2013,  the lower income grew at a higher rate than the higher income. After 2008, the lower rural who had nothing in the stock market did better than a lot of people who put a lot of their savings in there and saw it dwindle. Policy determines who's growing and who's not growing. Occupation determines it. So it can't be a GDP number in isolation. And so every time we talk about economics, let's talk about what happens to people. Right now, no one's interested in income data. 

And why is that? That's a very strong statement to make. 

No one's interested in data. If you try and sell income data today, it's going to be a hard sell. I think the reason for that is that right now people are still serving the rich end. The rich end, the metros by distribution, where it goes. I don't think even if it weren't for the Reserve Bank of India, we would not have universal bank accounts. You've forced people to not talk about cost-income ratios. And you've said, I don't care how it is, you are going to have to serve everybody. At this point, then some ways were found, the banking correspondents, the rural banks, and the digital banks, to be able to take care of this. When I say no one's interested in income data, I think the knowledge of more precise income data is not going to make much of a difference to strategy today. It's only when we start getting people-oriented and segmenting people based on income and occupations and start looking at how to cut people differently so that we can create different products for different people. It's only then that there will be a value-added to that people-level data. 

What, in your mind are the couple of things that we get right on measurement and what are the things that we're getting wrong?
 
I think the data of household census or whatever the United States puts out, I mean, you're getting a fairly accurate reading of what is happening on that. I think off late we are seeing better. For example, the employment-unemployment survey that the NSS has put out, and the multi-indicator survey that they talked about are nice. We'd like to see it come more often. 

The other thing that we don't have is a single indicator view. You have an occupation in one place, you have income in one place, and you have a census in another place. But the combination of income X occupation X education X ownership of durables X  all that that is available very patchily in bits and pieces, and where it is available privately, they are catering obviously to the target audience that the paying business wants. 

You used an example to say that there are 4.4 million houses that have a car and air conditioner a washing machine and a laptop. But if you take two two-wheelers plus refrigerators plus colour televisions, that becomes 114,000,000 households and that's 37% as opposed to 1.4% for the other thing. What is this telling us? 

It tells you that we're not as rich as we think we are, and we're not as poor as we think we are either. We're not as rich as we think we are because you would expect a rich home to have all the fundamentals, there are very few homes that have it. The other thing that it also tells you is that a price drop plus an income rise together will give you a fairly significant amount. The two-wheeler guys have worked very hard. And the two-wheeler is also a productivity tool. Where you are adding value to the consumer, where you are, a refrigerator also is a productivity tool. The play of supply and demand is telling you that this is India's rich. It's the middle, it's a middling rich. We're like a Cola-lite as far as rich is concerned. But where you're demonstrating value, it happens. I mean, look at UPI. You demonstrate, of course, that it's nice that it's free, but you demonstrate value, the world will use it. That's the story of India.