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No entrepreneur is paying attention to the sure-fire formula for success

For almost all manufacturers and marketers of consumer durables, this is proving to be a long hot summer. The 150 to 200-million-strong, purchasing power-laden Indian middle class market -- larger it was said than that of Britain and France combined -- which had stimulated great euphoria in corporate boardrooms around the world, is proving to be obstinately dormant, if it isn't a mirage.

Particularly badly hit are a host of multinational big names which have seen their projections run awry forcing their much-fancied professionals to redo their sums.

According to a recent report in the Economic Times, the Japanese transnational Sony Corporation has had to postpone its modest sales 1995-96 target of 120,000 colour television sets to 1996-97; Daewoo Motors has had to cut production by 30 per cent, Honda Motors managers admit that they overestimated the demand for their Honda City saloon car scheduled to be launched later this year; Nokia and Motorola have deferred plans to set up cellular phone assembly lines in India due to low demand; LG Electronics and Daewoo Electronics have down-sized their initial estimates of the size of the Indian market; and Pepsi and Coke managers are discovering that the market for soft drinks is expanding ever so slowly....

The underlying cause of this general malaise which has grounded some of the most high-flying marketing professionals in the world are many. Political uncertainty, poor infrastructure performance, high interest rates, etc. But the fault is not entirely in the stars of managers in Indian industry. One of the major causes of the undoing of the big names of the consumer durables industry is that their highly-rated management professionals have ignored the ground reality that India's middle class market is very price sensitive.

Encouraged perhaps by the traditional practices of managers in Indian industry who routinely adopt cost-plus pricing formulae to chalk up impressive profit margins, MNC markets have followed suit in the erroneous belief that the middle class consumer is willing to pay high premia for foreign brands which implicitly guarantee quality.

Yet it doesn't require extraordinary perspicacity to understand that high unit prices limit effective demand which in turn restricts production volumes within the firm. Moreover when limited aggregate demand has to be shared by several firms in a given market segment, it becomes impossible for any of them to attain economies of scale.

Given the low purchasing power of the general populace, the appropriate response of consumer durables industry managers should have been the very reverse of cost-plus pricing. That is, low retail prices which would stimulate effective demand, mass production and the economies of scale. The watchword of the consumer durables industry should be rigid control of costs and overheads to deliver affordably priced products and services to the price-sensitive Indian middle class.

India's late starter motor car industry highlights the lazy cost-plus bent of managers in Indian industry. Almost all the entrants into this industry are producing vehicles for the upper end of the market -- motor cars in the Rs 400,000-plus price range. Even Maruti Udyog which manufacturers the so-called people's car can't keep the price below Rs 200,000 -- hardly a people's price in a nation where the per capita annual income is less than $ 400 (Rs 14,000)!

It is quite depressing that the Indian industry hasn't flowered a single entrepreneur who has set himself the task of manufacturing a motor car at say Rs 75,000 to 100,000 and who is hell-bent upon gearing his production facilities to make it happen. Manufacturing products at prices which suit the domestic marketplace and facilitate the economies of scale is the essence of the science of business management. It was the response to this challenge which stimulated Japanese car manufacturers to design affordable compact motor cars and manufacture them on a mass scale which metamorphosed them into world beaters.

Consumer durables industry managers could also learn a useful lesson from manufacturers and marketers in the large unorganised or informal sector who are very price conscious. In particular small-scale and cottage industry units within this sector produce very high quality goods. Indian handlooms and handicrafts, for example, are of remarkably high quality. But unfortunately unorganised sector managers tend to lack marketing skills. Mere production of high quality and sensitively priced goods is only half the job done. Cost-effective marketing -- the Achilles heels of Indian industry -- is the other half.

There is also vital connection between price sensitivity and science and technology. Price sensitivity would stimulate research and innovation within industry. To recite the example of the Rs 75,000 to 100,000 people's car proposed above, the engineering of such a vehicle which would stimulate mass production running into millions of units annually, could also capture large market shares in nations of the African continent and East Asia if not in the developed nations. That's the sure-fire formula for building a sub-continent-sized nation's industrial base: it must be built upon the foundations of mass domestic demand.

Unfortunately virtually every consumer durables MNC is out to grab a major share of the elusive premium price market. Little wonder they are finding the going tough.