  | Issue: | Asia-Pacific III 2014 |
| Article no.: | 12 | |
| Topic: | Fish where the fish are | |
| Author: | Lifeng Liu & Bhasker Canagaradjou | |
| Title: | CEO, Asia Pacific / Associate Director | |
| Organisation: | IPSOS | |
| PDF size: | 429KB |
About author
Lifeng Liu, CEO, Ipsos Asia Pacific
Lifeng LIU, has 20 years’ experience in market research and management. Lifeng was the founder and President of Feng & Associates Marketing Services Ltd, which became the largest local survey-based research company in China and acquired by Ipsos group in 2002, and CEO of Ipsos in China then later Greater China, a position he was appointed in 2007. During his series assignments, Ipsos has become the largest survey-based company in China since 2008. Lifeng was promoted to AP CEO in 2011 and later assumed the concurrent position as Chairman of Ipsos China in 2013.
Earlier in his career, Lifeng hold posts in All China Marketing Research Ltd., and China Statistics Information and Consulting Center, serving as Department Manager and Executive respectively.
Lifeng received a Master Degree in Business Administration from China Europe International Business School and a Bachelor Degree from Beijing Technology and Business University. Afterwards, he gained a PhD from Peking University with majoring in new media communication.
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Bhasker Canagaradjou, Associate Director, Ipsos
Bhasker is based in Mumbai and heads the Ipsos Business Consulting practice for the India operations. He brings over 12 years of experience in the Corporate Planning and Business Consulting domain. Bhasker has featured in Indian business news dailies for his point of view on the industry outlook and trends.
Prior to Ipsos, Bhasker was Business Unit head – Business Research and Consulting at Aranca, KPO and prior to that, was associated with Schneider Electric, Grenoble managing their R&D outsourcing business to India and China.
Bhasker holds Masters in Finance from Pondicherry University, India and MBA in Global Management from ESC Grenoble, France.
Article abstract
For operators, the greatest challenge moving forward would be when voice services start to migrate to data networks. Examples of these threats are the Viber, Skype type services. Currently, the quality of voice over data is still patchy and the consumer trade-off of cost & quality still is toward the latter. But, the trend can be seen in international telephony where voice over data adoption is increasing due to the high premium of international voice services.
Full Article
India’s handset market – a wealth of opportunity
India is home to one of the fastest growing mobile phone markets in terms of penetration thanks to tectonic shifts which have taken place over the past decade. Mobile subscribers grew from 2 two million in 2000 to 840 million in 2013. Cellular Operators Association of India (COAI) forecasts the handset market will reach 1.24 billion – one mobile phone for every person living in the country – within 2015.
Back in the early 2000s, mobile phones were typically only found in key urban centres and primary cities due to the low number of models in the market, high handset costs, expensive tariffs and limited network coverage.
The situation has changed recently with the entry of global brands and the emergence of home-grown manufacturers in the handset market. Wider availability of more affordable handsets, including smartphones, and significantly lower call rates has catalysed growth in the market, most notably in rural areas. Competition within the crowded market is intense with more than 50 device manufacturers now selling their products. Most of these companies focus on low cost feature phones.
While feature phones have dominated the market for some time, their position is being eroded by the emergence of better value smartphones, a trend which is seeing a greater number of manufacturers focus on producing more sophisticated devices.
Figure 1: India’s handset market
Smartphone segment
Smartphones penetration in India’s mass market has accelerated with uptake rising from 2.5 million handsets in 2009 to about 27 million in 2012. Smartphone sales grew 35 per cent in 2012 when they accounted for 10-12 per cent of the total handset market. This share is expected to rise to half of the market’s total expected sales of 156 million units by 2017.
There is a high uptake for smartphones in the northern states of India which include Delhi, Haryana, Punjab and they have an smartphone penetration rate of 11%, whereas the western region which comprises of the financial capital of India i.e. Mumbai and the growing cities of Pune and Ahmedabad has an incidence of 8%, the southern and eastern region have an incidence of 6% each.
Figure 2: Smartphone growth
The growth has also witnessed the rise of domestic mobile players, with diversified product lines and the introduction of a wider range of models with price points targeting different market segments. Domestic firms such as Micromax, Karbon, Lava and Intex have launched handsets costing half the price of a Samsung, Sony or HTC model. As a result they have significantly increased their share of the handset market.
The key challenge for any mobile phone manufacture in India is handling the language diversity across the sub-continent (there are 22 official languages in 11 different scripts). Unlike other large markets like US or China which are linguistically homogeneous, this is a very large barrier for users to adopt or use mobile features or applications. Despite India’s reputation as an Anglophone nation, only a tenth of its 1.2 billion people count English as their first, second or third language. Additionally, one out of four Indians cannot read or write. This has led to domestic phone companies, operators and application providers to offer local language support.
In light of the growth in the market coupled with the changes in product lines, there have been notable changes in the retail environment as well.
Figure 3: Mobile Retail market
Handset and SIM card sales still account for the majority of the mobile retail business, but recent demand for more diverse products and services has seen retailers offer more accessories, handset covers and after sales options.
Significant increases in data usage have generated new business opportunities beyond traditional voice services for telecom operators who now provide prepaid and post-paid mobile internet services that can be combined with voice packages or sold as standalone products. Operators such as Tata docomo, Airtel, Reliance and Vodafone have their own data cards.
SMS revenues have been seriously dented due the advent of mobile messaging services like WhatsApp and WeChat. But, operators have seen this being compensated by increased data revenues due to penetration of smartphones and 3G network coverage. Also, the key strategy for operators to keep SMS going would be focus on B2B or G2C (government to consumer).
Value-added services have taken the Indian mobile market by storm, with demand for new applications increasing almost on a daily basis. Traditional retailers have tried to meet consumer demand by providing value added services at the store level.
The provision of such services at store level marks a significant change within the mobile retail market. Devices are now available from high-street stores and supermarkets to small general shops in the suburbs. As a result, organised retailers only account for one-tenth of the mobile market. Large-format electronics chain stores such as Croma, Reliance Digital and Lotus, control one quarter of the segment with the rest occupied by smaller chains like Mobile Store, Univercell and Spice Hotspot.
This segment is forecast to grow by 10-15 per cent over the next four to five years.
Figure 4: India’s organised and unorganised retail markets
Large-format retailers (LFR)
Large format stores are typically sized between 600-1,000m2. They carry a large product portfolio comprising of all types of consumer durables such as televisions, refrigerators, washing machines and air conditioners.
Figure 5: Sales dynamics in large format retail stores
Smartphones account for 80-90 per cent of mobile handset sales at large-format retailers where the average price of a mobile device ranges from US$160 to US$250.
Chain Stores
These retailers focus solely on handsets and mobile phone related products and services. They have recently expanded their footprint from primary cities into secondary and tertiary cities in response to customer demand. This segment includes both small- and large-format stores which have average areas of 20m2 and 120m2, respectively.
Figure 6: Sales dynamics in chain stores
Smartphones account for about 80 per cent of handset sales in these stores, which also sell a wide range of high-margin mobile accessories.
Traditional channels
Traditional channels dominate the mobile retail market. However, this dominance is being eroded as organised chains expand their presence across the country.
Figure 7 Sales dynamics in traditional retail stores
These channels, which have traditionally focused on cheaper feature phones and smartphones, only account for one-quarter of the segment’s handset sales. Traditional retailers also try to push sales of high-margin accessories to generate more income.
The way ahead
India is a retail market on the rise.
Organised players, comprising both large format stores and chain retailers, will expand their presence from metro areas and primary cities into secondary and tertiary cities across the country. Regional chain stores, having consolidated and stabilised their position in local markets, will drive their business by expanding into other states.
Unorganised stores will continue to play a key role in the market, which is still dominated by low-cost handsets. The low cost models would contribute to more than 70% of the sales in the unorganized stores whereas phones that cost more than US$ 160 would contribute to more than 65% of sales in the organized space. Indian brands targeting mass-market consumers are focussing on this channel. Prepaid mobile users will continue to dominate the market with mobile top-ups being a key driver of this segment. Average top-up values remain very low and are available through unorganised stores. Due to market dynamics it will be difficult for organised operators to gain control of the prepaid SIM card and top-up business.
Online handset sales have picked up recently thanks to the expanding presence of companies such as Flipkart selling these products at discounted prices. Going forward the online channel is expected to further strengthen and be one of the most preferred channel for purchasing smartphones and tablets for urban customers.
The feature phone market is expected to decline gradually with smartphones being made available at a price below US$ 100; this is expected to increase the smartphone penetration in India in the coming years and is expected to account for almost 50% of the total handset market in the next 4four to -five5 years. With major smartphone brands like Samsung, Micromax set to launch more models in this low cost range, the market is expected to boom in the future.
Mobile apps are becoming a key mechanism for driving non-voice revenue. Samsung App Store and Google Play Store are already competing within this space. Samsung India is also developing market-specific apps and content. Vodafone India revised its revenue-sharing policy in favour of app developers and content providers to encourage increased market-specific app development within India. WhatsApp is the number one application in India with a reach of 76 per cent of the total app market. In this context, application-focused stores are now being planned to tap this growing market.
For operators, the greatest challenge moving forward would be when voice services start to migrate to data networks. Examples of these threats are the Viber, Skype type services. Currently, the quality of voice over data is still patchy and the consumer trade-off of cost & quality still is toward the latter. But, the trend can be seen in international telephony where voice over data adoption is increasing due to the high premium of international voice services.
So all up, plenty of opportunities existing with the growth planes expected in India. There is no doubt plenty of fish available so fish where the fish are – there to take advantage of providing the appropriate products and retail strategy are in-line with the market!
