Free Press Journal

WHAT MAKES PEOPLE BUY Sentiment vs lure

KUMAR RAJAGOPALAN AND VIDYA HARIHARAN

One of the things which you notice when you view business newscasts about the US is the attention they pay to that phenomenon called ” consumer confidence”. Any market is a cyclical being and se

ntiment is the single factor that determines the depth and breadth of each cycle. In the context of retail, consumer sentiment or consumer confidence is that ephemeral something that helps retailers clock the extra 15 to 20% extra sales – and this even on days where the daily sales target is a stretch target.

The US and other markets specialise in creating objective metrics around consumer confidence. But closer home – there are a number of indicators of the ” state of the market” so to speak.

For example, a stock broker friend of ours says that he can regularly tell whats going to happen on Mahurat trading by the number and intensity of firecrackers that are let off on Diwali night. Similarly, in 2009 when the US was going through the worst of the recession ( at least we hope that was the worst of it!) – India had not really seen too much impact ( inflation was still benign in those days). However, the one sector which was impacted was the IT / ITES sector – not just because about 40% of the sectors turnover comes from the US – but because most of the front line employees of these companies spend 50% to 60% of their time interacting with counterparts from the US. That means that the negative sentiment that a recession brings in that market did trickle into India in no time. Its impact was unmistakable. Well before any of the Indian companies actually announced plans for a layoff – the staff were anticipating lay offs. Many of these retrenchments were at the operating level – these were 23 to 27- yearolds who had never seen any kind of negative development vis- à- vis the job market and the impact was telling. Overnight – the crowds from the various coffee shops, restaurants, pubs in Bangalore dried up.

The Leela Galleria ( which is the commercial annexe of the Leela Palace Hotel) was a case in point. There is a coffee shop on the ground floor, facing the lawns – beautiful ambience and usually buzzing with activity. In the space of the last five months of 2009 – that coffee shop went utterly silent. Most of the other stores ( selling souvenirs and Kashmiri wares such as gems and pashminas) got to the point where they would switch on lights only when a customer walked in – in a bid to save on electricity costs.

The flip side of the coin was that this phase did not last long. By February of 2010, the buzz was back – note though that the US economy and the Indian stock markets both had not recovered. But the fear factor had faded. Theres probably another factor at play here – sentiment is fleeting and cyclical. After all, one cannot spend months in a state of fear and suspended animation.

In most cases, people took a good hard look at their finances and then went out and spent what they thought they could afford.

Another dimension to this was the behaviour around sales. Data suggests that the number of sales have increased in the last two years – one of the reasons is simply that consumers want are shopping for deals when times are tough. At the same time, once you have traded up your consumption pattern in terms of brands or quality, its difficult to trade down again. Therefore the usual response is to wait for good deals and then spend.

Retailers are well aware of this phenomenon and have responded by increasing the frequency of sales.

There is one more dimension to sentiment.

While we as consumers love the lure of the deal – the one time when we will buy full price without qualms is during the festival season.

Whether it is Lakshmi Poojan, Dhanteras, Onam – these are the occasions when we are willing to buy because ( you guessed it!) sentiment demands it! For example – we donalt39t complete our Diwali shopping during the August end of season sales do we? Yet we buy the same items – new clothes, new consumer

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