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Forecast: deep discounts

Source : BUSINESS_STANDARD
Last Updated: Sat, Aug 18, 2012 18:41 hrs
A woman walks past a store with signs offering discounts with the use of credit cards in Buenos Aires

The season of festivals is here. It starts with Onam in Kerala, travels to the eastern states for Durga Puja and ends with Diwali over large parts of the country. This is the time farmers harvest their crops, and therefore have money in their pockets to make discretionary purchases: automobiles, consumer electronics, mobile phones, et cetera. Salaried people in towns and cities get bonuses from their employers.

This is, therefore, the time of the year when companies see a spurt in sales. So they launch new products and new advertising campaigns, and come out with attractive purchase schemes and freebies.

The mood this year, however, straddles the border between sombre and cautiously optimistic. That's because the monsoon rains have been deficient over large tracts of the country. This could reduce rural disposable incomes. On the positive side, the rainfall deficit has gone down from 30 per cent in the end of June to 21 per cent in the end of July and 16 per cent now. Urban markets are reeling under the slowdown in manufacturing and services.

Here's a look at how consumer electronics, automobile and information technology companies are preparing for the festival season.

Consumer electronics: banking on discounts
Consumer goods are stepping into the festival season this year with mixed feelings. "Onam sales are kicking off right now. We'll get a sense of how things are closer to the festival," says L K Gupta, chief marketing officer, LG Electronics. Clearly, he is not certain if buyers will throng the company's stores in the weeks ahead. On the other hand, growth in consumer durables output for the month of April, May and June 2012 was 5 per cent, 9.3 per cent and 9.1 per cent, respectively, and has been better when compared to 3.8 per cent, 5.1 per cent and 1.6 per cent in the corresponding months last year. The industry expects to grow up to 15 per cent this festive season if the momentum continues.

"You have to give consumers a reason to shop. When the propensity to spend is low, a booster dose works," says a Samsung spokesperson. In other words, discounts and freebies will be the mantra for the consumer electronics companies. An indication of the power of discounts to push sales in a slow market came in the Independence Day sales: the six days leading up to August 15 saw most retailers post their highest-ever weekly sales because of discounts that ranged from 40 per cent to 50 per cent.

"Expect the discounts and offers to be very deep this year," says Arvind Singhal, chairman, Technopak Advisors, a New Delhi-based retail consultancy. Deeper discounts mean lower profits. But companies seem to be happy to sacrifice profits to hang on to sales and market shares - profits will return when the market turns buoyant.

So, in spite of weak consumer sentiment, no company wants to go slow on new launches and promotions. What matters in the business, especially when the markets go weak, is brand perception (does it have the latest technology?) and visibility. So, there is no scope to cut corners here. "Expect big launches and advertising campaigns this year too," says Anirudh Dhoot, director, Videocon Industries. "Whatever the climate, you have to put your best foot forward."

Videocon has set the ball rolling with the launch of its premium LED TV range and will start a heavy-duty marketing campaign later this month. The festival season last year had begun on a lacklustre note, but sales picked up in the last 15 days when companies stepped up their marketing and advertising campaigns. Companies are hopeful the trick will work this year, too.

Cars: new launches to the rescue

Car and SUV sales have grown 10 per cent in the four months from April to July, 2012. That's impressive. But probe deeper and an alarming set of numbers comes to light. If SUVs are taken out, car sales have grown 5.5 per cent during the four-month period. The 10 per cent growth comes on a very small base of last year; thus, sale is down from 180,000-200,000 a month in 2010-11 to 143,000 in July this year. As the market has moved rapidly towards diesel engines, car makers are saddled with idle capacity in petrol vehicles. Forty per cent of Maruti Suzuki's petrol capacity, for example, is currently unused. There are, as a result, heavy discounts on cars that run on petrol. This has put profit margins under pressure - Maruti Suzuki's net was down 23 per cent in the June-ended quarter.

It is with this baggage that car makers are entering the festive season. They have no option but to dole out insurance benefits, exchange bonus, cash discounts and freebies ranging from LED TVs to air-conditioners to sell their petrol variants. Hyundai and Honda are offering cash benefits of up to Rs 40,000. The schemes are likely to be extended.

Car makers will also speed up launches to generate excitement and bring back consumers. Among the cars set to be unveiled this

October are the Chevrolet Sail (hatchback and sedan), Maruti Suzuki Alto, Skoda Fabia

Scout, Renault Scala, Tata Safari Storme, Nissan Evalia, Mahindra & Mahindra mini-Xylo,

Ashok Leyland Stile, Mercedes-Benz B Class Sports Tourer.

Car sales grow 15-20 per cent during the festive season and thus help car companies rationalise inventories. P Balendran, vice-president (corporate affairs), General Motors India, is cautious this year. "Given the market conditions, we are not expecting more than 5-10 per cent incremental sales during the festive season." The company is offering cash benefits of up to Rs 1 lakh across its range of products. Sriram Padmanabhan, general manager (marketing), Ford India, is more optimistic: he hopes aggressive marketing will help sales will grow 20-25 per cent this season.

IT: tough choice
For companies that sell information technology and communication hardware, this season will be a tough challenge. The depreciation in the rupee vis-a-vis the dollar (30 per cent in the last one year) has made components expensive, yet they need to play the price card to tackle the weak consumer sentiment.

"The industry is already facing severe cost pressure from components and a depreciating rupee which impacts the ability to lower prices for new technology products," says Princy Bhatnagar, vice-president and head (consumer computing), HCL Infosystems. Bhatnagar adds that volumes this season may stay at last year's level, though the average selling price or product mix may change.

To ensure volumes, companies like HCL Infosystems have expanded their distribution network and stocked the stores with products. Still others are following a differentiated product strategy: keep the top-end products for metros and push entry-level products in Tier II and III cities.

And the price tags will be aggressive. "Last year we announced the BlackBerry PlayBook offer, wherein a BlackBerry Curve 8520 smartphone was offered free on purchase of a BlackBerry PlayBook tablet. We also received phenomenal success on the BlackBerry PlayBook discount offer during December 2011," says Varghese M Thomas, director (corporate communications, India & SAARC), Research In Motion, the maker of the BlackBerry smartphones. This could well be the company's strategy in this festive season. Offers such as apps for free, free talktime and accessories at low rates have helped the company in the past, and could therefore be a key marketing initiative this season.

S Rajendran, chief marketing officer, Acer India, says that with 30 new products in his company's Aspire Notebook product portfolio, it has enough firepower to address all segments of the market. "Indian consumers' buying behaviour has undergone a substantial change over the past few quarters and has become extremely discerning while opting for premium computing products," he says.

Salil Kapoor, the COO of DishTV, says that although investor confidence has taken a beating, spending has not gone down. "We are targeting to grow by 20-25 per cent vis-a-vis last year." He expects Dish+, an inexpensive set-top box with a recorder, to drive sales. In hard times, consumers look for value for money. People like Kapoor know that all too well.



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