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India: supply meets demand but imperfectly

At the Microsoft ISV Days conference on Thursday, Manoj Menon of Frost & Sullivan provided an insightful analysis of current computing trends in India. One particular chart of his particularly caught my attention and I reproduce it below.   His point was that most products and services are developed in India for the “mass market” while the market is actually segmented into niches with disparate expectations.    Most products end up not meeting anybody’s expectations.

This is an interesting thesis which I have experienced but not been able to articulate as well.  Some examples will help to demonstrate this.

  • Telecom:   India’s nearly 500M+ subscribers are primarily prepaid plan users who routinely churn between operators as prices spiral downwards (as do the operator’s earnings).   Infrastructure is vastly overburdened in urban areas and offers minimal coverage in rural areas: quality of service is abysmal with dropped calls and inadequate call capacity being the most widely experienced problems.
    • More than half their customers are focused purely on price and are happy to put up with the inconveniences.   For this segment the price cannot be low enough and will forever be unsatisfied.
    • The most profitable customers are those that run up high bills using data services and many minutes of usage.  Most of them will gladly pay even more to get better service than they do now but the operators are just not in a position to offer them better service.  Both niches remain unsatisfied.
  • Satellite and cable television: A similar story has unfolded in the world of television viewership.  As India has leaped to over 120M households watching cable/DTH television, the number of channels has proliferated to over 400 (at least those tracked for viewership ratings which in turn attract advertising budgets).     The channels are crammed with advertising, more so than in the west.    Overlay ads on video are common so about half the screen delivers content;as are  6 second spots (yes) during live cricket matches,  three rows of tickers with text ads are all common.  ARPUs are about $2 to $3 but again there are two niche segments here:
    • One cares about price and little else.  They are happy to get 200 channels for $3 and that includes premium content from HBO (which is ad-supported in this country).  They continue to complain about the high price of content.
    • The other niche, is willing to pay $30+ a  month and get an experience comparable to the west, with less clutter.  However, the mass market offering is such that they have to put up with the same sub-optimal experience at a lower ARPU even if they are willing to pay more.

The story repeats itself over and over again but what is common to these situations is the large investments in shared infrastructure required to launch these products and services.   Although both sectors have demonstrated profits, I do not personally like these businesses since there are so many discontented customers.

In other industries,  brands have been able to target their niches better.

  • Coffee houses:  It is possible to get a good cup of local coffee for Rs 5 (10 US cents) and get a decent cappuccino for Rs 100 (US$2.50).  But they meet divergent needs of two different sets of coffee seekers.  And yet there is not enough access to good, consistent coffee across a large network for the discerning drinker in either segment.  [ I am sure some of you are thinking of Cafe Coffee Day; their scale is commendable and they serve a good purpose but their coffee is consistently awful. ]
  • Travel:  In a surging India, the airlines and road/rail networks have grown to service the needs of two separate sets of travelers; as have coach/business classes for further segmentation within each of these groups.  Carriers and classes of service have helped address many of these.

The message for entrepreneurs is to look for niches – one large enough to address profitably with minimal investment.  What you do not want to do is cater to the middle, which in some cases may be completely devoid of customers.  The message is not new – this is Marketing 101 – but in a large but  economically polarized society like India this gets all the more poignant.

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  1. Mohan Atreya
    June 19, 2010 at 10:54 pm

    Fantastic way to articulate this very obvious dichotomy in the Indian market. There should be a way to serve the $$$ niche. A wicked problem indeed :)

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