SOURCE: The Boston Consulting Group

The Boston Consulting Group

November 26, 2012 08:50 ET

The Global Consumer Economy Will Converge on "Paisa Vasool" -- The Indian Concept of "I Got the Perfect Mix of Value and Luxury Features"

Boston Consulting Group Research Shows That Businesses Will Need to Shift to Delivering Extreme Value -- Not Just in Emerging Markets but Also High-End Markets Like New York, London and Paris as Consumers Grow Even More Intelligently Frugal Than They Were in Depths of Financial Crisis

BOSTON, MA--(Marketwire - Nov 26, 2012) - Holiday shopping retail winners will be those that deliver value and best features in one prized package, according to research from The Boston Consulting Group (BCG). "Cheap" or "Expensive" are no longer the watch words of success.

"U.S. and other developed market consumers are stressed to the limit. The majority are stating an intent to cut back their spending," said Michael Silverstein, BCG senior partner and co-author of The $10 Trillion Dollar Prize: Captivating the Newly Affluent in China and India (Harvard Business Review Press, October 2012). "You need to pry their money from their wallets with the best match of features and economy."

It is true in the emerging growth economies of China and India. Chinese and Indian consumers want a complete range of products and benefits packaged at a price point that sizzles with value. When Indian consumers experience the perfect mix of quality and value, they will often say "paisa vasool," "I got my money's worth." It is the highest praise, and, globally, it will become more relevant: Around the world, consumers' budgets are squeezed -- and they are growing more skeptical of promotional sales and worried about the future, according to BCG data.

"'Paisa vasool' can become the global watchword to creating greater value, offering more features for less money and attracting consumers who become your advocate," said Silverstein. "It is a concept that grows out of the natural frugality that characterizes many Indians and Chinese who grew up with little and often heard stories from elders of deprivation. They try to stretch incomes as far as possible -- and are quick to complain about and discredit a merchandiser for poor value, low quality or misrepresentation. They're also quick to endorse products and merchandisers that inspire 'paisa vasool.'"

Reality of Sluggish Recovery in West Ups Demand for New Kind of Low-Priced Goods

He added, "This may have been an emerging market concept, but 'paisa vasool' is demanded in New York, London, Paris and nearly everywhere else in the West. Low-priced goods with deep, rich features will become the fastest-growing segments of all markets as consumers everywhere struggle to make ends meet. Our consumer research suggests that the true tragedy of the financial crisis -- and the likelihood that there is not going to be a strong recovery anytime soon -- is finally dawning on consumers and altering spending patterns."

According to a recent BCG survey fielded in conjunction with The $10 Trillion Prize, 91 percent of consumers in the U.S. and U.K. said they are planning to spend less or not increase spending in the next year. (In contrast, 40 percent of Chinese consumers said they will spend more.) Fewer than a quarter of Americans and U.K. residents said they believe their children will have a better life than they did, and only 27 percent of Americans and 21 percent of U.K. residents believe there will be a full economic recovery.

Paisa Vasool Examples

The recipe for consumer business success is extreme value. There are, according to BCG, "paisa vasool" success stories in China and India that translate to or can be instructive for Western markets…

  • In India, Godrej Group has a powdered hair dye packaged in three-gram containers that sell for 15 cents. The company sells the product in 1.1 million retail outlets and has 65 percent share of the hair dye market.
  • In China, Coca-Cola sells the "RMB 1 Coke" in smaller, lower-tier cities. Coca Cola is now the largest beverage maker in China and has a 25 percent market share.
  • Tingyi's Master Kong instant noodles deliver the Chinese market a superb combination of price and quality -- great taste, a variety of flavors (customized by regional preference) at a low price, 40 cents (versus 65 cents charged by a competitor).
  • India-based Mahindra & Mahindra's SUV for the global market, the Scorpio, costs half as much as competitors but offers a full range of features and styling.

"Paisa vasool" can apply across all consumer needs and categories. Examples in Western markets include: the Toyota Corolla (going back to the early 1970s), Hyundai, Swatch, Costco, Family Dollar, Ikea and McDonalds.

Paisa Vasool Strategy: No Mean Feat

"A 'paisa vasool' strategy is much more complicated to develop and execute than it seems. It requires a combination strategy -- one that delivers the right manufacturing capabilities, a retail network with broad distribution, innovation in ingredients, creative packaging that yields gross margins and the ability to move fast," Silverstein said.

The "magic" of "paisa vasool" involves, among many other things…

  • Having a set of high-velocity stock-keeping units that earn a disproportionate share of category profitability.
  • "Screaming" value and defined benefits at the point of sale.
  • Leveraging local suppliers when searching raw materials.
  • Driving five percent or more productivity improvements at the product level every year.
  • Stripping out all unnecessary packaging materials.
  • Reaching even the most remote markets.

"'Paisa vasool' is the hottest spot in consumer markets because it thrives in the 'more want and have less' reality," Mr. Silverstein said.

For more information, please go to http://www.bcgperspectives.com/10trillionprize.

To arrange a conversation with one of the authors and/or receive a copy of "The $10 Trillion Prize: Captivating the Newly Affluent in China and India," contact Frank Lentini of Sommerfield Communications at (617) 939-9094 / Lentini@sommerfield.com.

About The Boston Consulting Group

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