” India is on the threshold of a digital revolution”. Driven by cheaper mobile handsets and the spread of wireless data networks, the number of Internet users in India is expected to nearly triple from 125 million in 2011 to 330 million by 2016. And although online purchases are just a small portion of commercial activity today, the numbers obscure a critical fact: the Internet’s influence on buying decisions is growing rapidly. This influence affects up to five times more purchases than those actually made online. Online activities such as product research and price comparisons are shaping the preferences of Indian consumers, affecting what they buy and why. Digital influence is expected to greatly accelerate over the next five years. What’s more, digitally influenced consumers earn higher incomes, are disproportionately represented in key product categories, and spend more money on products than their less-connected peers.
How can companies capitalize on this explosion of high-value online consumers? And given the prevalence of mobile-only access, what new models of connection and engagement will be required? To find out, The Boston Consulting Group and Customer Insight surveyed 25,000 Indian consumers aged 18 to 55 living in 26 locations—the biggest metropolitan areas and a mix of tier 1, tier 2, and tier 3 cities. Our goal was to understand the nature and extent of digital influence on buying decisions. To this end, we explored how consumers use the Internet during the product purchase cycle. We then examined specific behaviors of the digitally influenced users.
Our analysis assessed the use of digital technology across TEN touch-points within the THREE stages of the purchase-cycle :
- Pre-purchase. Product research, price research, search for store locations, and search for discounts or coupons
- Purchase. Online ordering and online payment
- Post-purchase. Troubleshooting, customer service, accessory purchase, and posting product reviews or comments
We explored the prevalence of digital touch points in 101 product categories, assigning each category a Digital Intensity Index score (DII) on the basis of the extent to which digitally influenced consumers use the Internet in each of the ten touch points of the purchase cycle. (See “What’s Your Product’s Digital-Intensity-Index Score?”).
We also looked at how satisfied digitally influenced users are with their online experiences and the importance of digital media relative to other channels during the purchasing process. The survey’s insights can help guide companies as they develop strategies for reaching and engaging India’s growing base of online consumers.
The Size of the Prize :
Estimates of total online purchases in India today range from $6 billion to $10 billion—not that impressive given the size of India’s population and how quickly consumer spending is growing overall. But those estimates fail to capture the full impact of digital technology on purchasing decisions. Of India’s 90 million urban Internet users, 40 percent report that their online activities influence what they buy. Put in terms of financial impact, this digital influence affects $30 billion of consumer spending in India today, as much as five times that of e-commerce alone. With growing access and use, this digital impact is expected to grow five-fold to $150 billion by 2016—more than the combined revenues of the major retail chains (estimated at $106 billion) and 20 percent of the total retail market (estimated at $799 billion). (See Exhibit 1.)
India’s Internet penetration is expected to reach 330 million users by 2016. A number of factors will drive this growth. For one thing, mobile phones, which many Indian consumers use, are becoming more affordable. Internet penetration has reached small towns and rural areas, so online access is more widely available. An increasingly youthful population and rising incomes will also drive growth. Finally, government interventions and structural changes such as better broadband and wire-line access will improve penetration. As a result, the Internet is projected to reach small towns and the low rungs of the economic ladder more quickly than retail chains will, bridging geographic barriers and feeding the growing appetite for consumer goods among “ Aspirer” (annual income of $7,500 to $18,400) and “next billion” (annual income of $3,300 to $7,400) households.
As Internet access increases, so does digital influence and its impact on purchase decisions—a pattern that repeats itself across product categories, age groups, and demographics. Contrary to popular belief, digitally influenced Indian consumers are not just young, affluent city dwellers. In fact, digital influence isn’t a function of demographics at all, but of “digital age”—the number of years a person has been online. Consumers who have spent more time on the Internet are more comfortable, engage with a greater range of product categories, and are more likely to perform commercial activities—including purchasing—online. As penetration and consumer spending increase, India’s Internet economy—just 4.1 percent of GDP in 2010—is expected to reach 5.6 percent by 2016.
Our research also showed that consumers who use the Internet to make buying decisions spend more than their less-connected peers. For instance, digitally influenced consumers are only 16 percent of mobile-phone buyers, but they account for 24 percent of spending in that category, buying products that, on average, are 46 percent more expensive.