Separately, manufacturers have also shifted their attention to marketing premium products that offer better profit margins, industry experts said. Most budget models in electronics have moved to ecommerce platforms.
Online platforms have the cost structure to offer bigger discounts.
The premiumisation gradient is the most visible in personal mobility choices. Once the mainstay of the car industry, the share of small cars in the overall pie is shrinking rapidly, even as stocks of companies such as Maruti Suzuki India hit lifetime highs.
Lower priced vehicles, which earlier accounted for 85% of the market, now have a 58% share, said Shashank Srivastava, senior executive director, Maruti Suzuki.
“In recent years, several reasons – including regulatory stringency – have led to price increases at the entry level,” said Srivastava. “The income level of buyers in this segment has not gone up proportionately, thus lowering affordability and leading to a drop in sales.”
EMI Magic
This trend is evident in other pockets of the consumer economy, too. Corporates say the landscape is changing, buttressed by aspirations and lucrative finance packages for those that have the wherewithal to buy high-margin and premium products – at least when assisted by the facility of staggered payments.
“There are no profit margins in the heavily discounted low-end segments, and we find it profitable to shift the consumer by upgrading them to a higher end product through a comfortable EMI package,” said a highly placed executive at a top retail chain, on the condition of anonymity. “Consumers walk into showrooms looking for an affordable brand but are converted quickly by the lure of easy EMIs and a better product – be it a phone, laptop, AC, television, or even a car.”
This executive also said several manufacturers are supplying entry-level products only to ecommerce platforms. “Many companies have stopped production of low-end brands for offline retail and these are only sold on Amazon or Flipkart,” said the executive. “Making an upgrade affordable through EMIs has been a big leverage for companies such as Apple, which saw strong sales for each one of its models.”
Apart from lower affordability for entry-level products, the pandemic caused a hard reset of consumer purchases in favour of high-end products.