Supreet Kaur

pg07supreet_k@mdi.ac.in
supreet.86@gmail.com
Management Development Institute
Robin Thomas
pg07robin_t@mdi.ac.in
Management Development Institute
 EXECUTIVE SUMMARY
With the world luxury capitals of Paris, Milan and New
York all ready to embrace our dear Mumbai into the
same category of cities, we are poised at a position
where everyone is waiting for India. Those watching
India will agree that the economy has been booming
since the past few years since liberalization and has re-
sulted in a huge number of dollar millionaires. Will In-
dia surpass its South East Asian neighbors? Is this mar-
ket sustainable? It is with this background that we look
into trends of the most visible symbol of high spending
customers: automobiles, trying to answer the ques-
tions posed from the point of view of two major stake-
holders: the consumer and the marketer

INTRODUCTION
We all know the luxury markets are taking off. In a developing country like ours, luxury brands are growing vol-
umes and there is a promise of more. India is now poised at a point where the luxury goods industries are vy-
ing for a piece of the Indian pie, a vibrant economy, burgeoning population of aspiration youth, high end retail
stores opening over the past 3 years.

India has more consumers for luxury goods than the adult population of several countries. Yet, this consumer
base accounts for under 1% of all luxury goods sales.

The car a person drives in India is said to be the most visible symbol of a person’s status in the society, and
this probably the reason why a luxury brand Indian consumer is very conscious of the car his drives, the bike
he keeps in front of his bungalow. With over 1 million consumers in this segment, a number that is predicted to
treble by the year 2010, there is a need to demystify India’s highly sophisticated, intelligent and complex lux-
ury consumer especially with regards to the automobile segment.
 THE AFFLUENT INDIAN
Rich and mass affluent customers are driving business for many industries including fashion, jewelry, automo-
biles, real estate and even banking & investments. The question here is who is the rich? The come in varied
shapes, sizes and style quotients. Garment exporters, multinational bankers, college kids earning plum salaried at
call centers, well-heeled corporate wives, and successful entrepreneurs. What they have in common is that they
have made it big. They want the world to know just how quickly and how far they have climbed the social mo-
bility ladder. Their consumption of luxury does just that, which makes these affluent masses in India an apt target
audience of luxury brand messages. Add to this the very fact that in the Indian context, the first ‘ prestige’ item
that a typical affluent household gets is a car.

The Household Income Survey by the National Council of Applied Economic

Research says that by 2010, there will be 140,000 households with an annual
income of more than Rs. 1 crore i.e. 10 million USD. There are over one million
luxury customers in India and this figure is expected to triple by 2010.
A recent report by Technopak - The Knowledge Company analyzed that there
are over 8-9 million consumers in India who can afford luxury brands but
do not purchase them as they cannot relate to them.

Today’s brand conscious Indian is driving a Porsche Cayenne SUV, his

Ermenegildo Zegna suit is made from superfine Italian wool, his wrist is adorned
with a Patek Philippe Men’s Chronograph, his shades are Tag Heuer Visions, his
crocodile leather shoes are Hugo Boss.

The Indian luxury consumer is actually a walking giant. In terms of disposable

incomes, they really have enormous surplus. They are buying into fancy cars and
indulging in lifestyle products. They are actually waiting to be upgraded to
higher lifestyle paradigms, which have only witnessed in their ever increasing
travels!

A research by the research group KSA Technopak creates a fascinating profile

for the Indian luxury consumer:
• Resides primarily in urban India
• Household has disposable income of more than Rs 8-9 lakh per annum
• Owns mostly a segment D/E car, that is, a premium/luxury salon like a
Honda Accord, Skoda Octavia etc
• Resides in 'posh' localities
• Chief wage earner is most likely male, average age 36-37, married with kids, with own business
• About 42% live in joint families or with parents
• The woman is a housewife in 65% of the cases
• Mostly post-graduate and above
• Incidence of foreign travel at 53%, 44% travelling abroad for holiday/vacation at least once a year

The new Indian luxury consumer is pursuing a lifestyle based on ostentation, impressing others with wealth
and power, owning exclusive items – and owning them first.
Before talking about marketing to these customers, or communicating luxury automobile brands to them, it is ex-
tremely important to understand them. Their age, income levels, occupation etc. helps to filter them from the
rest of the lot. It is however their behavior and psychographics that really matters in striking the right chord
with them. Where do they live, what do they wear, what are their aspirations, where do they buy, how do they
think, what matters to them, where are they seen or would like to be seen etc. is extremely important to get this
understanding right. To get a clear picture of this affluent Indian, we contacted several HNIs (identity confiden-
tial). From the in-depth interviews, the following picture emerged about this set of consumers dispersed across the
Indian geography:

• High need for distinction: They only want to be seen at certain places, using only certain brands. Not just
that, they want to be a step ahead of the crowd and look up to brands to identify the key trends for them and
help them access/buy these products before anyone else. Fashion shows are an attempt by luxury & fashion
brands to define what’s next and help the customers access it.

• High need for exclusivity : Exclusivity is a big hit with this segment. They want access to the most exclu-
sive brands and finest quality and have a passionate desire for the best things in life. They perceive price as an
indicator of exclusivity, and avoid using popular brands.

• They want to feel unique and special: Personalization of products and services helps to provide these
benefits. Brands need to recognize this hidden desire and offer them products that help them achieve it.

• They seek convenience: Affluent customers value their time as much as their money, making convenience
fundamental to success in this market.

• They are willing to pay a premium: They want the best quality, exclusivity, satisfaction and outstanding cus-
tomer service.

• High involvement buying behavior: Their purchases are a reflection of their self-concept and have
strong self-expressive benefits. They seek a high degree of engagement with the brands.

To understand the new Indian rich class, we conducted a primary

research wherein we asked people about the car they want to pur-
chase (given 10 choices). The details of the sample are as follows:

Sample 1 Sample 2

Sample size: 69 Sample size: 69

Age: 22-28 yrs Age: 50-65 yrs

Management students at People at eminent posts

MDI in corporate world

The responses of the samples were plotted as bubble graphs with

the size of the bubble indicating the number of people who re-
sponded for that particular brand.
These graphs show the difference in the definition of luxury automobile category for two generations. Given
that our selective sampling approximated the purchasing power of the two groups, it can be clearly seen that the
new emerging rich, the achievers are not averse of flaunting their wealth and identify with this segment.
 DEMSYTIFYING THE INDIAN
AUTOMOBILE LUXURY MARKET

A booming economy and a young crowd eager to flaunt its wealth have combined to fuel demand for luxury cars
in the Indian market. Although it still lags behinds Russia and China, the rate of growth of the luxury car mar-
ket in India has been much higher than the 12 5 growth of the automobile sector altogether.

Luxury cars in India is defined as a car costing more than Rs. 16 lakhs. The sales of luxury car segment has been
to the tune of 2254 till the quarter ending in June,2008. The highest ever, and it is being predicted that the total
sales will cross 10,000 this year. And this number does not include the 230 Lamborghinis and Porsches which are
not manufacture red in India but are imported as fully built units.

While India’s luxury market is still small, an estimated USD 100 mn at best, this-India-is-the-next-China
logic has been driving a steady pilgrimage of industry top brass, who come as much to pay their respects and
make a media splash as to size up the market and firm up business plans.

Mercedes had started its Indian operation way back in 1996 when the demand for luxury cars was very less. But
now the scenario has changed. Almost all the worlds top luxury car brands have an Indian presence. BMW has
recently set up its manufacturing unit in India; Audi has started its operations in Aurangabad. Rolls Royce is
about to roll out its range of cars in India by 2010.

The acquisition of marquee brands Jaguar and Land Rover by Tata Motors Ltd this year signaled India's serious
intent in the small but rapidly growing segment of luxury cars, once the exclusive preserve of royalty and busi-
ness barons. Often perceived as a status symbol, the luxury automobile sector in India is driven by a modern In-
dian generation armed with higher incomes and unafraid to flaunt their wealth.

Thus the Indian luxury car market seems to be poised for growth and may continue the explosive growth that it is
enjoying presently.

In a near-virgin market, the rewards are almost instant – research conducted by the Federation of Indian Cham-
bers of Commerce and Industry (FICCI) found that Louis Vuitton was the most prestigious accessory brand,
while Armani topped the charts in the apparel category, followed by Versace and Valentino. After all, you
can’t admire brands you don’t know about.
 CLASSIFICATION OF THE INDIAN
LUXURY CONSUMER
SRI Consulting Business Intelligence segments consumers into 3 different categories according to what luxury
means to them:

Functional – These consumers buy the luxury goods for their superior functionality and high quality. The
consumers in this segment are the largest of the three groups and they are older and wealthier. They are
willing to buy the things which will be long lasting and will have enduring value. The decisions that they
make are logical rather than emotional. They are product quality and information sensitive when consid-
ering purchase of luxury items.
Rewarding – The consumers in this segment are younger than the first group but are older than the third
one. For them luxury goods are a symbol of status, to show to the world they have arrived. They are mo-
tivated by their desire to succeed and they demonstrate by the goods that they buy. So the decision of buy-
ing a luxury item is more of emotional rather than logical. They go for the best goods available to show
that they are the best and they like the best. They buy luxury for the way it makes them seem in front of
others so rationality in the decision making is not much present. They would go more for the goods which
showcase exclusivity.
Indulgence – This is the youngest of the group and they are the smallest in number. There are slightly
more males in this segment compared to the other segments. They buy goods because they want to in-
dulge lavishly. They are ready to pay premium for the fact that the luxury item will give them a sense of
individuality and are not concerned with the problem of quality or enduring value. They buy the goods be-
cause of how it makes them feel and thus the decision to buy will be an emotional one and not a rational
one. So they respond well to the brands which showcase unique and emotional qualities.

The above segmentation was regarding the reasons for the buying of luxury cars.

According to a survey conducted by KSA Teknopak, we can categorize the consumer according to the attitude
towards luxury products:

The Arrived – This is the most affluent group and com-

prises about 49 % of the luxury consumer segment.

The Actualised Ascetic – This group comprises mainly

the self made men, professionals or the business men who
have made big in their life and are in the age group of 40s
and 50s. This is the smallest group comprising only 15% of
the market.

The Climbers – This group aspire to be in the top bracket

and will try to project a lifestyle that will gain them accep-
tance in the higher echelons of the society. These are 19%
of the group, says the study.

The Laggards – These are well heeled and highly tar-

geted customers, these group are not the biggest fans of
luxury goods. This group consists of graduates who are in
business or are management executives. This group con-
sists of 17% of the target consumer base.
 TRENDS: Past, Present and Future
In the past, prestige was due to real financial distance. At heart, luxury is about exclusivity. Today, given the
rise in purchasing power, luxury consumption is no longer reserved for the few. This is a time in history when the
affluent masses are no longer at a financial distance from luxury. But prestige and exclusivity has to be driven by
distance – except this distance is no longer financial, but intellectual and cultural.

A better way to look at the trends that exist in this market is to segregate them into categories, namely the mar-
keting mix trends (product, price, place, promotion) and consumer behavior trends.

Consumer Behavior Trends

– Cognition to emotion

The Indian consumer, today, is influenced more by the affective components than by the cognitive elements.
In the case of Mercedes Benz, the company communicates the strong relationship of the car with status, snob
value and image. In the case of Audi, the company communicates sleek design; in the case of Volvo, it is typi-
cally safety; and so on. However, it is no longer necessarily true that customers will take the cognitive route
while purchasing a luxury car. Customers may view Mercedes Benz, Audi and BMW as parity cars
(equivalents) based on cognition, and make the final choice based on the affective route.

This is where the trend takes us. The luxury brands have taken this affective route and try to evoke emotion
through style and design. A report says that Mercedes Benz sold 3000 cars in India in 2007, but is expecting a
drop in sales this year because Audi and BMW have entered the Indian market with more stylish cars and the
consumers’ feelings towards these cars are extremely positive.

– “Its mine” concept

For a consumer who chooses his house and his

workplace, the car (which is probably his most
prized possession) will not remain something he
can’t choose for long. The future trends would wit-
ness customized luxury cars entering the Indian
market.

– Splurge for ‘special’

The most important day for an Indian is his/her
marriage, a ceremony which has for long seen peo-
ple spending for the special day without hesitation.
Given that the day belongs to the bride and the
groom, people are increasingly demanding the most
-splurgeable item that there can be; a term now syn-
onymous with luxury cars. That is why, increas-
ingly rental companies are purchasing Mercedes
and its likes - because there is an increasing demand
for the same from the “marriage market”. This trend
shall continue with enhanced demand, as the de-
mand for the demand for these cars for ‘special oc-
casions’ will penetrate the middle income categories
in the country.
4P Trends

– Product
Each of the companies started off in India with only 1-2 cars. Audi started with A4, BMW with BMW 7 series
and Mercedes with E220 and D250. Mercedes started its operation in India in 1996 and then slowly BMW and
Audi came in. The cars were imported as completely built units. And the indigenisation was initially very less
to the tune of 2.5 to 3 %.
At present, the range of cars which a company provides in India is almost equal to its full global portfolio.
Also, companies started their production units in the country. Audi started its production in Aurangabad and
Mercedes has started it long ago in Pune. The company bring in the cars as knocked down units and assemble
them in India, thus saving substantially on the cost of the 110 % import duty of import of luxury cars.
Also the indigenization of the cars have increased from 2-3 % to more than 60-70 %.

– Price
The cars launched by Mercedes, BMW and Audi were in the range of 20-30 lakhs in the mid 90s, a price range
which was synonymous with extreme luxury.
Today, not only has the range expanded to approximate the global portfolios, there has been a massive play
with the floor and ceiling prices of luxury cars which is now 20 lakhs to almost a crore. The ultra luxury seg-
ment hasn’t made an inroad in India, but there have been a few sales per year where the consumers import the
car. This has prompted companies like Rolls Royce and Maybach to enter India.

– Place
In the past, the luxury car companies only had 1-2 dealers in the metros, majorly Mumbai and Delhi. Now with
the demand coming in, not only from the metros but also the smaller Tier 2 cities, the number of dealerships
have gone up substantially and the companies are trying to expand as fast as possible.
Also, since the cars were imported, the spare parts delivery wasn’t so good. The lead time required to get a
spare part was quite high. Today companies understand that the luxury consumer is a very demanding cus-
tomer and is very particular about taking care of the car.
With the expansion of the dealership network in the country, the problem of the spare part delivery gets better.
Now the companies have a chance to build customer loyalty through total customer satisfaction.

– Promotion
From what used to be a minimal level of presence in Indian Auto Expos, luxury automobile companies are in-
creasingly moving towards melding with the suave consumers:

– Studio BMW in the corporate heart of National Capital

Region with a purpose of capturing share of heart

– Participation in fashion weeks and photo exhibits e.g. -

Audi W12 Quattro presented in Lakme India Fashion
Week

– Product placement in Bollywood movies, with the recent

BMW placement in “Rock On!”

– Association with lifestyle sports e.g.– Audi organizing the

Audi Quattro cup in India, associating with golf and mo-
torsports
 MOVING FORWARD
Although the growth in the luxury automobile segment is compared to the recent Chinese markets, the forces
shaping the development are quite different in India and China. If China’s starting point was a slate wiped clean
by Mao, India’s is a chalkboard covered with myriad traditions, religious beliefs, colorful festivals, a there-but-
not-there caste system – all sewn together into a vocal democracy. If the task in China was to fill a near vacuum,
in India luxury brand have to find a way to blend in with the milieu of local traditions. For the same, we develop
a 7-point framework for seamlessly capturing India’s growing fascination with luxury consumption:

1. Respect. Connect with luxury consumers as a

selective target. Luxury brands need to respect
this point of difference in all interactions between
the brand and the consumer.

2. Segment. Acknowledge luxury consumer sub-

sets. Luxury brands need to identify, differentiate
and prioritize the most profitable subsets for tar-
geted strategies.

3. Insight. Identify what is important to the defined

target. Motivations could be based on personal
and non-personal factors.

4. Connect. Assess which brand interactions really

matter. For example, friends and family are an
important influence on luxury consumption in
India.

5. Experience. Establish emotional connectivity. Deep and meaningful relationships need to be developed in
order to win the ‘soul’ of the luxury consumer.

6. Indianness. Embrace and celebrate the ‘Indianness’ brand. India has a very powerful and unique identity, and
this needs to be leveraged within a luxury brand context.

7. Consistency. Adopt a truly holistic approach, to ensure that all brand interactions, whether advertising or
customer service, are consistent with the brand positioning.
 REFERENCES
[1] The Marketing Whitebook 2007-2008

[2] Indian Retail Review

[3] http://www.livemint.com

[4] Marketing of luxury brands in India, Ashish Mansharamani and Samit Khanna

[5] The Changing face of luxury, Patricia Graham and Marcus Matthews

[6] http://www.brandnoise.typepad.com