Mon, 03 Oct 2011 08:46:12 GMT

Affordability pushes premium consumer items

The penetration of premium products across the consumer durables category is growing, thanks to an erosion in price. This trend is most pronounced in segments such as television sets, air conditioners, washing machines and microwave ovens, where the price differential between high and low-end products is falling fast.

The result? Higher sales of premium products. Between January and July 2010, and January and July 2011, the percentage share of LCD (liquid crystal display)and LED (light emitting diode) TVs, as a segment, grew from 13 per cent to 27 per cent, according to companies in the sector (see chart).

This happened because the prices of these products fell 15-20 per cent in that period, says Rohit Pandit, head, home entertainment, LG Electronics India.

"Consumers are willing to invest in devices that are contemporary. If price is a barrier, there are aggressive consumer finance schemes to help support them. Panel prices have also come down substantially in the last two years. This has translated into better growth for LCDs and LEDs," he says.

In air conditioners, the price differential between split ACs, considered to be premium, and window ACs, which are mass-market, is as low as Rs 3,000-4,000. This is pushing offtake of split Acs, now 71 per cent of the overall AC market, in comparison to 69 per cent last year. Window ACs' share has fallen from 31 to 29 per cent, respectively.

In washing machines, the high-end, front loading, fully automatic products' share in sales has grown from eight per cent to 10 per cent in the past year, while semi-automatic machines are down to 63 per cent from 66 per cent, thanks to a price differential of just about Rs 5,000. This is, clearly, inducing consumers to upgrade their products.

Explains George Menezes, chief operating officer, Godrej Appliances, "As the price band between products begins to narrow, the need for better quality products begins to grow. This reflects in the choice of more premium products over entry-level or mid-market ones."

In microwave ovens, the price differential between solo, grill (also called combination) and convection models is just about Rs 2,000, according to the companies. As a result, solo ones, which are entry-level models, are down from 20 to 18 per cent of the total. Convection, at the premium end of the market, has grown from 50 to 53 per cent. Convection combines the properties of heating and browning, while solo models simply heat and grill.

Typically, 50 per cent of annual microwave sales happen during the festive period, says Menezes, with consumers purchasing it for gifting or personal consumption.

"For gifting purposes, the entry-level models are popular. For personal consumption, consumers prefer multiple features, which convection models provide," he says.

Also inducing consumers to go for higher-end products is the constant innovation visible there. Take flat panel TVs. On an average, companies in that segment launch as many as 35-40 models every year, to keep the excitement going among consumers. In the past two years alone, key players such as LG, Samsung and Sony have launched high-definition (HD) TVs, 3D TVs and Smart TVs to capitalise on the momentum in sales. "The result is that consumers want more of these products," says Raj Kumar Rishi, vice-president, audio-visual business, Samsung India.

The flat panel TV market, according to industry estimates, is slated to touch 4.5 million units at the end of this year from 2.8 million last year, a 60 per cent growth.

With every technology leap, the older models get cheaper. For instance a 26-inch LCD TV today costs Rs 21,000, from Rs 25,000 last year.

A 19-inch LCD costs Rs 11,000 from Rs 13,000 last year, while a 22-inch LCD is Rs 13,000 from Rs 15,000 last year. On LEDs, the fall in price between last year and now is roughly between Rs 3,000 and Rs 6,000 for various models.

Source: Business Standard

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