DEPARTMENT OF MANAGEMENT STUDIES

SCHOOL OF MANAGEMENT
PONDICHERRY UNIVERSITY

Consumer Durable Items – Demand determinants

Forecast & its Limitations
Factors of Purchase Decision

Assignment done by:

KAMALAKKANNAN G
Section – B
MBA – I year
 Conssumer Durable Items

Introduction:

This paper starts with basic definition of consumer durable item and then followed by demand
parameters of customer durable items like air conditioner and forecasting techniques employed in deducing
the demand for it. Sequentially,, determinants of the purchase of a consumer durable item by a household unit
are discussed in the second part.

India in its 62 years of journey seen manifold increase in the income of its denizens (Rs.38,084 as on
2009) and this has led to paradigm shift in the purchasing behaviour of the people here. There is a discernible
shift in the consumer’s preference in favour
favour of higher end, technologically superior branded products, the
demand being spurred by increasing consumer awareness and preference for new models.
This shift is also because of the increase in manufacture of branded products and narrowing down of pric
price
between branded and non-branded
branded goods. Competition has forced the companies to offer efficient after sales
service and support and this, in turn, has swayed customer preference for branded products.

Post liberalization
tion there has been inundation of goods transcending the borders and the customer
has a wider choice; breaking the shackles of the consumers regarding limitations of choices. Indian consumer
durables market used to be dominated by a few domestic players like
like Godrej, Allwyn, Kelvinator, and Voltas.
But post-liberalization
liberalization many foreign companies have entered into India, dethroning the Indian players and
dominating the market. The major categories in the market are CTVs, refrigerators, air
air-conditioners and
washing machines.

Air conditioner is categorized as miscellaneous items in white goods. Other major subdivisions are
Refrigerator equipment, Stoves and washing equipments.

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 Consumer Durable Items

i) DETERMINANTS OF DEMAND FOR CONSUMER DURABLE ITEMS

Rise in disposable income: The demand for consumer electronics has been rising with the increase in
disposable income coupled with more and more consumers falling under the double income families. The
growing Indian middle class is an attraction for companies who are out there to woo them.

Availability of newer variants of a product: Consumers are spoilt for choice when it comes to choosing
products. Newer variants of a product will help a company in getting the attention of consumers who look for
innovation in products.

Product pricing: The consumer durables industry is highly price sensitive, making price the determining factor
in increasing volumes, at least for lower range consumers. For middle and upper range consumers, it is the
brand name, technology and product features that are important.

Availability of financing schemes: Availability of credit and the structure of the loan determine the
affordability of the product. Sale of a particular product is determined by the cost of credit as much as the
flexibility of the scheme.

Rise in the share of organized retail: Rise in organized retail will set the growth pace of the Indian consumer
durables industry. According to a working paper released by the Indian Council for Research on International
Economic Relations (ICRIER), organized retail which constituted a mere four percent of the retail sector in FY07
is likely to grow at 45-50% per annum and quadruple its share in the total retail pie 16% by 2011-2012. The
share will grow with bigger players entering the market.

Innovative advertising and brand promotion: Sales promotion measures such as discounts, free gifts and
exchange offers help a company in distinguishing itself from others.

Festive season sales: Demand for colour TVs usually pick up during the festive seasons. As a result most
companies come out with offers during this period to cash in on the festive mood. This period will continue to
be the growth driver for consumer durable companies.

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 Consumer Durable Items

SALES FORECASTING OF CUSTOMER DURABLE ITEM

Sales forecasting starts with referring to the previous year sales performance of that particular factor.
One point to remember when sales forecasting is that if you plan to work with a bank for financing,
you will want to do multiple estimates so as to have more confidence in the sales forecast.

Sales Forecasting Method #1

For your type of business, what is the average sales volume per square foot for similar stores in similar
locations and similar size? This isn't the final answer for adequate sales forecasting, since a new business won't
hit that target for perhaps a year. But this approach is far more scientific than a general 2 percent figure based
on household incomes.

Sales Forecasting Method #2

For your specific location, how many households needing your goods live within say, one mile? How much will
they spend on these items annually, and what percentage of their spending will you get, compared to
competitors? Do the same for within five miles (with lower sales forecast figures). (Use distances that make
sense for your location.)

Sales Forecasting Method #3

If you offer say, three types of goods plus two types of extra cost services, estimate sales revenues for each of
the five product/service lines. Make an estimate of where you think you'll be in six months (such as "we should
be selling five of these items a day, plus three of these, plus two of these.") and calculate the gross sales per
day. Then multiply by 30 for the month.

USE & ABUSE OF FORECASTING

The sales forecasting done for Air-conditioner like durable material may be done with utmost sincerity
but the factor responsible for the current year may not be responsible for the subsequent years. The sales
factor emphasis due to increase in money flow this year may also be shifted due to hot summer in the next
year. Air-conditioners sales have a dependency factor of Monsoon also. Forecasting next year’s monsoon to
precise level may not be possible at this very instant.

The demand also includes the climate prevailing in the earth. Every year through global warming
there is an increase in temperature by ½ to 1 degree. This may also stimulate the demand of the product.
Though we use statistics / software products in forecasting the sales there are some glitches in measuring
some of the factors.

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 Consumer Durable Items

ii) DETERMINANTS OF THE PURCHASE OF A CONSUMER DURABLE ITEM BY HOUSEHOLD:

a) Facilitation of day to day life

In order to facilitate everyday and relying on help with mechanised electrical equipments,
which are made for the easy going on life, will tend to purchase a consumer durable items.
This is utility based buying.

b) Replacement of the existing one for trend / bad condition

This buying is of mandatory one, since usage in the earlier days might certainly make them
more aggressive in buying a new one may be for lack in working condition or for the trend
change in the current market scenario.

c) Just buying for status

Status buying doesn’t have any motive or reasons other than to posses the product for status
symbol. There may not be any necessity or usage for the product. This is not a utility based
buy.

d) For Business

Sometimes for carrying out a business in home, there is a requirement of durable items. This
is to provide the required service for home made business which is running successfully in
rural, even in urban areas of India.

e) For entertaining / securing ourselves

For getting entertained in leisure times, to make ourselves secure from the environment
which we survive are some of the reasons / determinants of going for a product by a
household unit.

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 Consumer Durable Items

CONCLUSION:

The Indian consumer remains one of the most upbeat globally. The Nielsen Global Consumer
Confidence study, conducted by Nielsen, a market research company revealed that Indians are "the most
optimistic lot globally who think that their country will be out of the economic recession in the next twelve
months."

In fact, it is widely believed that the Indian market will fuel the growth of multinational companies in the
coming years. While most leading companies are cutting costs in the US and Europe, they see India as a
strategic market, which can fuel their growth.

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