Paisa Vasool

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Paisa Vasool

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    In This Article
    • Indian and Chinese consumers want the complete range of product features and benefits at a price point that sizzles with value.

    • The concept of paisa vasool, or “money’s worth,” is critical in these markets—the consumer wants more now for less and makes every purchase carefully, with angst and premeditation.

    • Companies that have found ways to build a paisa vasool mindset into their product-development strategies are implementing that approach globally.

    • Consumer endorsement with paisa vasool translates into loyal consumers who sell your product for you.


    Projections by The Boston Consulting Group indicate that the consumer markets of China and India will triple over the current decade, amounting to a combined $10 trillion annually by the year 2020. But how can companies participate in this once-in-a-lifetime growth opportunity? The inside track to achieving success in China and India—and, as a consequence, in the rest of the world—entails captivating, and therefore winning, the hearts and minds of the new consumers. To do so, companies need to understand and address the concept of value in these distinct markets and, more specifically, the concept of paisa vasool.

    The $10 Trillion Prize

    A series of Perspectives looks at what the growth of consumer spending in China and India means for business and society.

    When Indian consumers experience the perfect mix of quality and value, they will often say “Paisa vasool”—loosely, “I got my money’s worth.” It is the highest praise. Around the world, consumers are budget squeezed—skeptical of merchandisers and worried about the future. Paisa vasool can become the watchword to creating greater value, offering more features for less money, and attracting consumers who become your advocate. Paisa vasool implies high quality, a complete package that delivers value for money. We first heard it used in a market on the streets of Delhi. Since then, we have seen it regularly applied in China and India. It is part of a natural frugality that characterizes many Indians and Chinese. They grew up with little and often heard stories from their parents about deprivation—and, as a result, they try to stretch their incomes as far as possible. They are also quick to complain about and discredit a merchandiser for poor value, low quality, or misrepresentation.

    Indian and Chinese consumers want the complete range of product benefits packaged at a price point that sizzles with value. As Pawan Goenka, president of Mahindra & Mahindra’s automotive and farm equipment business, told us, “The Indian consumer will not be like any consumer. They want Western technologies and features and Indian cost.” Goenka knows. He was the leader of a project to build India’s first SUV for the global market—the Scorpio—a vehicle that costs half as much as its competitors and delivers a full range of features and styling. This SUV is now a key export item for Mahindra & Mahindra, sold in a number of countries.

    How Paisa Vasool Comes to Life in the Market

    If you travel in India, you quickly discover that many consumer goods are still exchanged in street markets and bazaars, which cover almost all categories of goods. You are warned not to pay the asking price, because buyer and seller lose face if the exchange of goods takes place at the first bid. From an early age, children learn that they offer only what they can afford and only what they think an item will sell for. They are urged to “spend money wisely, learn to bargain, and never be embarrassed about offering a lower price.”

    Although paisa vasool is an Indian phrase, the underlying concept is flourishing in China, too. Western-style chain stores may be much more prevalent in China than in India—we estimate that “organized trade,” the regional and national chain stores, will account for nearly half of consumer transactions in China in 2013—yet Chinese consumers continue to use the simple stalls of local merchants for fresh vegetables, meat, local delicacies, inexpensive clothing, shoes, medicines, and home decorative goods.

    Companies that have found ways to build a paisa vasool approach into their strategy are among the most successful in China and India. One way to pursue this strategy is to introduce low entry pricing, which will vary by product category. In China and India, such pricing puts most foods and personal-care products under 10 rupees or RMB 6 (less than $1). This is the loose change that the new consumers carry in their pockets when they go to market stalls and other traditional retailers. Yet when added together across millions of consumers, it can create fortunes.

    In India, for instance, Godrej Group has a powdered hair dye packaged in 3-gram containers that sell for 7 rupees ($0.15). The company markets this product in 1.1 million retail outlets and enjoys a 65 percent share of the hair dye market. Likewise, in China, Coca-Cola has created the “RMB 1 Coke” in some of the smaller, lower-tier cities. The company is now the largest beverage manufacturer in China, with a 25 percent share of the market.

    On the face of it, such a strategy sounds too easy: repackaging products into small, low-priced units and making them affordable for millions of customers. But it is much more complicated than it seems. It requires a combination strategy: one that provides the right manufacturing capabilities, a retail network with broad distribution, innovation in ingredients, creative packaging that delivers gross margins, and the ability to move fast. It requires talent, imagination, and a readiness to eliminate all costs that add no value for consumers.

    BCG’s Paisa Vasool Checklist: Make Entry-Level-Priced Products Your Mantra

    A three-step combination strategy can help your company develop the art of manufacturing paisa vasool products.

    Step 1: The Consumer Product Offering

    In the lab, engineers need to design a simplified port-folio that provides features at what we call the “magic” price point. This is the “design to price point” approach.

    • Do we understand the needs and desired product attributes for each consumer segment?

    • Have we removed all costs that consumers do not value?

    • Are we providing tested, superior value?

    • Do our products have an affordable price point?

    • Do we have a set of high-velocity stock-keeping units (SKUs) that earn a disproportionate share of category profitability?

    • Have we provided our retail partners a visually stunning way of displaying the goods?

    • Do we have pathways for consumers to trade up?

    • Do we scream value and defined benefits at the point of sale?

    Step 2: The Supply Chain

    In the production process, companies need to develop capital-light, low-cost, localized sources for their products. There is no room for frills in the supply chain.

    • Have we leveraged local suppliers when searching for raw materials?

    • Are we lowering transportation costs by using distributed manufacturing?

    • Are we lowering labor costs by outsourcing the manufacturing process?

    • Are we driving 5 percent or more productivity improvements at the product level every year?

    • Have we stripped out all unnecessary packaging materials, concentrated our raw materials, and provided innovation in resealability?

    Step 3: The Go-to-Market Approach

    In taking their products to the consumer, companies need to find distribution channels in rural and other remote markets, use in-store branding, and achieve a dominant store position.

    • Do we have a target list of engaged, loyal distributors that will muscle up our physical count of distribution?

    • Do we track and police distribution, share of shelf, and velocity?

    • Have we optimized the frequency of store visits by our promotional team to help the retailer drive visibility, consumer frequency, new usage, and trial?

    • Are we reaching even the most remote markets?

    Taking Paisa Vasool to the Rest of the World

    Low-priced goods with deep, rich features will become the fastest-growing segments of all markets as consumers everywhere struggle to make ends meet. Paisa vasool might be an Indian concept, but it will soon be demanded in New York, London, and Paris as well as in rural India and China.

    Our research suggests that consumers in the United States and Europe are feeling even more cautious about the future than they were during the depths of the financial crisis. In our annual survey of 24,000 consumers from around the world, more than 90 percent of respondents said that they would maintain or reduce—but not increase—their spending in 2012. It is as if the true tragedy of the crisis—and the likelihood that there is not going to be a strong recovery anytime soon—is finally dawning on consumers and altering their spending patterns.

    Moreover, “value for money” is the characteristic that has seen the sharpest increase over the past two years. In the United States, nearly 60 percent of respondents to our 2011 survey reported that it was more important than in 2009. By contrast, “luxury” and “status” saw a sharp decline in the ranking of important factors for shoppers. These hard-up consumers, many of whom are traditionally classified as middle class, have become the “squeezed middle”: they still have a taste for Italian coffee and organic products, but they no longer have the disposable income to devote to luxury to the degree that they did in the halcyon days. And then there are the traditional poor, who still exist in surprising numbers, even in the West. The United States has 38 million people living below the U.S. poverty line—12 percent of the population. Likewise, Japan has 20 million and Germany 9 million living below their national poverty lines.

    Beyond the battles in the backyard, the next big battlegrounds will be in Africa, Latin America, and parts of Southeast Asia. For these territories, a paisa vasool approach will be a necessity—and, done right, a very profitable one. A third of the world’s population—2.6 billion people—live in cities located in emerging markets. By 2030, this number will have risen by 1.3 billion—a 50 percent increase—whereas cities in developed markets will add only another 100 million new residents.

    The growing population of affluent consumers in other emerging markets will demand—and be ready to pay for—bigger houses, better infrastructure, and new products and amenities that are familiar to consumers in the United States and Europe. Companies that have competed in China and India will be well prepared to meet these new demands.

    They will also be well prepared to meet the threat presented by a host of new rivals. Companies will face competition not only from established Chinese and Indian companies that are fast developing their global footprint but also from tough new global challengers headquartered in these countries and run by executives who have grown up with paisa vasool concepts.

    In sum, paisa vasool describes a strategy that will rapidly spread far beyond the borders of India. In the wake of the global economic downturn, consumers in all emerging markets—and consumers in the United States and Europe as well—are bargain hunting. This means that companies must provide a unique value proposition: products that are both affordable and high-quality. Done right, this strategy can lock in consumers around the world for years of loyal purchases, recommendations to friends to “try” your products, and absolute increases in consumption.

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    • Senior Partner & Managing Director
    • Hong Kong

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