article of consumer behaviour
TRANSCRIPT
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ToMr. S. Chatterjee and Ms. Preety WadhwaEditor, BVIMR Management EdgeBharati Vidyapeeth’s Institute of Management & ResearchA-4 Paschim Vihar, New Delhi-110063 e-mail : [email protected] , [email protected]
Title: Dynamics of Consumerism and Impact on the Retail Sector in India
Authors’ names and designations:Dr S.R. Subba Rao, Visiting Professor
andMs P. Jayasree, Lecturer
Official Address: Department of Management Studies, Bhavan’s Vivekananda College, Sainikpuri, Secunderabad 500 094
Contact Address: As of Official address
Mobile Number: 9908075758
Email: [email protected]
Declaration
We, Dr S.R. Subba Rao and Ms P. Jayasree, declare that the paper titled
“Dynamics of Consumerism and Impact on the Retail Sector in India” has been
written by us and has not been published or submitted for publication anywhere
else. - Dr S.R.Subba Rao (on sabbatical at Raleigh, NC, USA)
P. Jayasree
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Dynamics of Consumerism and Impact on the Retail Sector in India
Abstract
Consumerism has been undergoing rapid changes in India. The process of consumerism mainly
involves the demand-side aspects, cosumer behaviour and the supply-side factors. The demand-
side covers the growth of the economy, income distribution pattern, consumption expenditure, and
the variables that influence the demand for goods and services. Consumer behaviour involves the
interaction of stimuli (of markets and environment), consumer characteristics, decision process of
buyer and consumer responses in terms of choices of product, brand and dealer, purchase timing
and purchase amount. The supply-side envelopes the practices followed by the producers, sellers
and allied agencies, besides environmental issues. Governmental intervention is warranted to
ensure that these factors contribute towards maximising social welfare. These factors are
interrelated. Demand-side changes could trigger supply-side responses. Consumer behaviour could
influence both demand-side and supply-side factors. Supply-side innovations, strategies and
actions could generate changes on the demand-side and in consumer behaviour. The retail sector
in India is in the modernisation phase in terms of products, formats and strategies. It is seen that
consumerism and retail sector are interrelated. The growth of consumerism is providing
opportunities for the retail sector to grow rapidly. The developments in retail sector are triggering
changes in consumerism. The paper deals with the dynamics of consumerism in terms of the
impact on the Indian retail sector in detail. It is found that the growing incomes of people and
changing fashion trends are making consumerism getting increasingly aligned towards shopping
in a relaxed environment which in turn are contributing to an accelerated growth of the retail
business and the organised retail sector in India.
1 Introduction
The world over consumerism has been changing significantly and due to globalisation the impact
is being felt in India as well. It is dynamic in nature and its process has been affecting the growth
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of retail sector in terms of size, products, formats and strategies. In fact, consumerism and retail
sector are interrelated that one affects the other. The growth of consumerism is providing
opportunities for the retail sector to grow rapidly. The developments in retail sector are triggering
changes in consumerism. These aspects are examined in this paper with reference to India. The
process of consumerism is dealt with in detail in Section 2. The growth of Indian retail sector has
been discussed in Section 3. The linkages between consumerism and retail sector have been
covered intermittently. Concluding remarks are given in the last section.
2 Consumerism
Consumerism basically refers to the acquisition of goods and services by individuals for personal
use. It is sometimes looked at along with social, environmental and political issues. The process of
consumerism involves primarily three factors. One is the demand-side aspects, the second relates
to cosumer behaviour and the third concerns supply-side phenomena. On the demand-side, the
nature and extent of consumerism depends upon the growth of the economy, distribution of
income among the people and consumption pattern backed up by the demand for goods and
services. The consumers’ behavioural characteristics include their attitude towards lifestyle and
social status, and consumption habits. The supply-side aspects cover the practices adopted by the
producers, sellers and allied players such as intermediaries and advertisers and their impact on the
society and environment. The government intervenes when social welfare and environmental
effects are involved. These three factors are also interrelated in the sense that demand-side factors
will set in motion supply-side responses. Changing trends in consumer behaviour will influence
both demand-side and supply-side factors. For instance increase in the demand for a good triggers
production activity to supply the relaltive good. Changes in the lifestyle of people and the resultant
demand for goods will make the producers and suppliers to adopt themselves accordingly on
commercial considerations. These factors are discussed below.
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2.1 Demand-side Factors
In the case of customers, the demand for goods and services depends upon multiple variables viz.,
prices and quality of goods and services and those of substitutes and complements, incomes,
tastes, preferences and expectations. The incomes of people depend upon the growth of an
economy, measured generally by the growth of gross domestic product. The rate of economic
growth is determined by the availability and use of economic resources, techniques of production
and government policies. The welfare of people or general standard of living depends upon
income distribution, growth of population and per capita income.
Table 1 shows that the Gross Domestic Product (GDP) of India at market prices (base 2004-05) was Rs. 47,671 billion in 2009-10, recording a growth of 6.8% over previous year, which was higher than the growth of 5.1% for the year earlier. Population, at 1.17 billion as at March-end 2010 had a growth of 1.39% in the year, which was marginally lower than the growth of 1.41% in the earlier year. Correspondingly, the per capita GDP has risen to Rs. 40,745 from 38,695, and the growth rates were the same as those for GDP growth. At constant (2004-05) prices, the Private Final Consumption Expenditure (PFCE) was Rs. 27,643 billion in 2009-10 with a growth of 4.1% during the year which was less than the growth of 6.8% in the earlier year. The PFCE as share of GDP was lower at 58.0% in 2009-10 as against 59.5% in the previous year. The per capita PFCE was Rs. 23,626 in 2009-10 showing a growth of 2.7% during the year and it was much lower than the growth of 5.4% in the earlier year. The higher growth of the economy and the lower growth of population have led to a rise in per capita income in 2009-10. On the other hand the consumption expenditure had a lower growth resulting in a lower PFCE, and the share of PFCE in GDP has also come down. Table 1: Gross domestic product and Consumption Expenditure, 2007-10
(at 2004-05 prices) (Rs. billion)
Note: Figures in brackets show the percentage change over previous year.QE: Quick Estimate; AE: Advance EstimateSource: Compiled from Press Information Bureau, 2010.
Item 2007-08 2008-09(QE) 2009-10 (AE)Gross domestic product (GDP) at market prices (Rs. billion)
42,479 44,654(5.1)
47,671(6.8)
Population (million) 1,138 1,154 (1.41)
1,170 (1.39)
Per capita GDP (Rs.) 37,328 38,695 (5.1)
40,745(6.8)
Private Final ConsumptionExpenditure (PFCE) (Rs. billion)
24,856 26,555 (6.8)
27,643(4.1)
PFCE as share of GDP (%) 58.5 59.5 58.0Per capita PFCE (Rs.) 21,841 23,012
(5.4)23,626(2.7)
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Consumption also depends upon the distribution of people according to income classes. Data in Table 2 show that the total number of households increased from 180.7 million to 199.2 million during 2000-01 to 2006-07, with a growth of 10.2%. The Rich are at the top with Rs.2.15 lakh or
more of annual income. The ‘Consumer class’ follows with annual income in the range Rs.45,000 to less than Rs.2.15 lakh. The Climbers, who come next have income of Rs.22,000 to less than
45,000. The come the Aspirants having income of Rs.16,000 to less than Rs.22,000. The last are the Destitutes getting annual income of less than Rs.16,000. From data in Table 2 it is seen that in the period 2000-01 to 2006-07, the Rich households increased significantly from 2 million to 6.2 million recording a growth of 210%, followed by Consuming class rising much from 54.6 million to 90.9 million, showing a growth of 66.5%. For Climbers, whose households formed the highest
number of 71.6 million in 2000-01 showed a moderate rise to 74.1 million in 2006-07, with a growth of 3.5%. The other consumer classes which are lower in the rung i.e. Aspirants and
Destitutes, had a high decline in terms of number of households indicating a higher standard of living for them. This reveals that across the income groups the affordabilily of the households in terms of consumption expenditure has increased when we go upwards. Particularly, the top three
classes (Rich, Consuming class and Climbers) facilitate a rapid growth of the organised retail market in India. Table 2: Households as per Annual Income
Consumer class (Annual income in Rs. ’000)
Number of Households (in million)2000-01 2006-07 Growth (%)
Rich (215 and more) 2.0 6.2 210.0Consuming class (45 - < 215) 54.6 90.9 66.5Climbers (22 - < 45) 71.6 74.1 3.5Aspirants (16 - < 22) 28.1 15.3 -45.6Destitutes (below 16) 23.4 12.8 -45.3Total 180.7 199.2 10.2Source: Compiled from data in www.ncaer.org
By 2025 income levels of India are envisaged to rise three-fold and the current position of the
twelfth-largest consumer market of India is expected to move up significantly to fifth-largest in
the world. Over 291 million people are likely to shift from desperate poverty to a sustainable life,
middle class people are expected to increase from the present level of 50 million to 583 million
and over 23 million will be the country's richest people. Geographically India’s growth of income
and consumption differ. The share of urban areas in the total consumer market is projected to
increase from the present level of 42% to 62% by 2025. The annual real rural income per
household is also forecast to go up from 2.8% in the last two decades to 3.6 % in the next two
(www.mckinsey.com). Middle income people, low prices, and attraction towards brands will be
the key factors for business growth.
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The world data as in 2005 show that the richest 10% of people consumed 59.0% of total private
consumption, the richer 10% consumed 17.6%, the middle 60% consumed 21.9% and the poorer
10% consumed 1.0%and the poorest 10% consumed 0.5% (World Bank Development Indicators,
2008). Thus the inequalities between the richest and the poorest are very wide. The organized
retail sector will obviously gain by focusing on the higher income people and the middle class.
The factors other than the incomes and size of households that influence consumption expenditure
are the number of working women, payment terms (cash or credit card), loan facilities and level of
education which are moving on the positive side as well for the growth of organised retailing.
2.2 Consumer Behaviour
The concept of consumer behaviour has been explained well by the black box model which shows
the interaction of stimuli, consumer characteristics, decision process and consumer responses. It
focuses on the relation between the stimuli and the response of the consumer. Companies instil
marketing stimuli and social factors generate environmental stimulus. The marketing stimuli are
product, price, place and promotion. The environmental stimuli are economic, technological,
political, cultural, demographic and natural. The consumer characteristics include attitude,
motivation, perceptions, personality, lifestyle and knowledge. The decision process of the buyer
includes problem recognition, information search, alternative evaluation, purchase decision and
post-purchase behaviour. These influence the response of the buyer in terms of choices of product,
brand and dealer, purchase timing and purchase amount. The buyer’s response is considered as the
result of a conscious and rational decision process which may not hold in reality always
(Sandhusen, 2000). While price was covered in the demand-side factors, the product, place and
promotion aspects are discussed below in the supply-side factors. Similarly, among the
environmental stimuli economic, technological and political aspects were referred in the demand-
side factors.
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In essence, the consumer behaviour is more specifically dependent upon the cultural, demographic
and natural stimuli, the characteristics of the buyer and the decision process. The cultural aspects
do figure in as per social customs (e.g. observance of festivals and conducting of functions) which
involve expenditure on various products irrespective of economic status, and social changes by
moving from lower to higher income groups.
The higher income group's lifestyles may get influenced by the endorsement of products by
celebrities and buying those products may give a vicarious feeling to them of equation with those
celebrities in the society. The lower income classes try to emulate the purchase tendencies of the
people in the immediately above income class people to get the experience of belonging to that
higher class and social status, which is referred to as the demonstration effect.
The demographics that influence consumer behaviour include variables such as age, education
level and occupation. Family influences also play a role, such as value systems (e.g. maintenance
of a particular standard of living irrespective of affordability), size of household, needs and desires
of family members, special attention paid to children (e.g. buying goods as per their demands
irrespective of utility), among others.
Data in Table 3 show the age distribution of Indian population as at March-end 2001 and 2010. In
this period those aged 20-24 years were projected to grow by 16.9% indicating a significant
increase in the demand for fashion and entertainment-oriented goods. The people aged 45 to less
than 60 years are expected to grow by 14.7% with the demand for clothing, household goods and
durable items may be expected to rise much. People aged 60 years and above are forecast to rise
by 14.3% implying an increase in the demand for leisure-prone products significantly. Growth is
notable at 8.3% for those in the age group of 35-44 years and so the demand for household
appliances and semi-luxury products could go up reasonably. Persons aged 25-34 years are
projected to increase by 5.8% and the demand for furniture, furnishings, electronic products and
others of interest could go up.
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Table 3: Population of India: Age GroupsAge Group Population as at March-end (%) Growth (%)
2001 2010Below 20 45.0 38.9 -13.620-24 8.9 10.4 16.925-34 15.5 16.4 5.835-44 12.0 13.0 8.345 - below 60 11.6 13.3 14.760 and above 7.0 8.0 14.3Total 100.0 100.0
Source: Compiled from data in http://www.reis.com
2.3 Supply-side Factors
Consumerism is a movement and includes policies seeking protection of and information for
consumers through practices such as honest packaging and advertising, guarantees for products,
and safety standards. Thus it aims at regulating the products, services, operations and standards of
producers, sellers and advertisers to safeguard the interests of buyers (www.consumerism_
answers.com).
Nature and quantity of goods and services produced will involve use of resources (i.e. factors of
production) which will have alternative uses. The producers have a moral responsibility for using
the resources productively and for social good. Such a use should not be detrimental to the
interests of consumers and the society at large, with no wastages. Ideally, production activity
should meet the needs of majority of the people in the country, though in a market economy this is
difficult to be satisfied due to commercial considerations of producers. Generally the buyers and
sellers interact in transactions. There are also online trading and mail orders where the buyers and
sellers do not see each other giving scope for exploitation and manipulation of consumers by the
producers and sellers.
The nature of production and distribution methods used (e.g. labour-intensive vs capital-intensive)
will have an impact on productivity as also the environment through pollution and waste materials.
The resources which may be needed for mass production of goods and services for the lower strata
of the society may get diverted for the use of the richer people of the country (e.g. use of steel to
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produce utensils for mass consumption vs for production of parts of luxury cars). If production
methods and technologies used result in polluting the environment, health hazards and social ills
occur affecting the poor more adversely than the rich as the latter can protect themselves from the
impact while the former may get exposed to the hazards.
Advertisements may influence people in making purchase decisions and the claims or promises of
manufacturers or sellers of products may be misleading or true only under special circumstances
or conditions. They may also blur the distinction between necessities and luxuries. Some luxurious
or costly products (e.g. colour television, DVD, music system, cell phone) are projected as
necessities by producers and marketers through persistent promotion and advertisements.
Though it is the responsibility of the government to regulate and monetor the use of good practices
by producers, sellers and other related agencies such as advertisers to protect the interests of
consumers and the environment, the implementation process is beset with issues of availability of
adequate funds, sincerity and honesty of the supervisory authority and operational problems.
Ethics, corporate social responsibility and market forces such as competition may serve the
purpose to a great extent. The consumer movement, as per Asher (1998), should ensure enhancing
competitiveness instead of striving for government intervention as competition increases self-
regulation through quality standards and service, codes of conduct and consumer charters. He
stressed that the the consumer movement should ultimately achieve and maximize welfare of
consumers from the marketplace.
Besides being accountable for ensuring quality of products, the manufacturers and sellers should
control information about customers acquired by them in the process of their activities. Sellers
collect confidential information from customers relating to personal, financial and family
(including children) and store in computers. Privacy has to be maintained regarding the same.
Financial data of customers can be misused to decipher bank account or credit card details and
frauds may be committed through shopping or withdrawing money from bank accounts. This is
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facilitated by recourse to internet. The data may be sold for a price to companies or marketing and
other agencies who may use it for business purposes which will be annoying the persons being
contacted by these companies or agencies. There are customer grievance cells in some companies
that deal with complaints but the overall effectiveness of such machinery is vital.
3 Indian Retail Sector
The retail sector in India has undergone rapid changes since its evolution in unorganised form.
The current scenario has many retail formats ranging from small corner stores serving the
neighbourhood to huge malls providing to customers the shopping experiences of international
standards.
Total retail sales have increased from Rs. 10,591 billion in 2003-04 to Rs. 14,574 billion in 2006-07 recording a compounded annual growth rate (CAGR) of 11.2%. Out of this, the organised retail
sales have gone up from Rs. 350 billion to Rs. 598 billion showing a CAGR of 19.5% and the share of this segment in the total retail sales has gone up from 3.3% to 4.1% in the same period
(Table 4). This reveals the continued growth of the organised retail sector at a higher pace compared to that
of the total retail sector.
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Table 4: Segment-wise Sales of Indian Retail Sector, 2003-07 (Rs. billion)
Segment 2003-04 2004-05 2005-06 2006-07 CAGR 2004-07 (%)
Indian Retail* 1. Food & Grocery 7,028
(66.4)7,064 (62.5)
7,418 (61.7)
8,680 (59.6)
7.3
2. Beverages 212 (2.0)
309 (2.7)
373 (3.1)
518 (3.6)
34.7
3. Clothing & Footwear 777 (7.3)
993 (8.8)
1,036 (8.6)
1,356 (9.3)
20.4
4. Furniture, furnishing, appliances and services
512 (4.8)
656 (5.8)
746 (6.2)
986 (6.8)
24.4
5. Non-institutional health care 950 (9.0)
972 (8.6)
1,022 (8.5)
1,159 (8.0)
6.9
6. Sports goods, entertainment, equipment and books
212 (2.0)
272 (2.4)
308 (2.6)
395 (2.7)
23.0
7. Personal care 371 (3.5)
433 (3.8)
465 (3.9)
617 (4.2)
18.5
8. Jewellery, watches etc. 530 (5.0)
610 (5.4)
655 (5.4)
863 (5.9)
17.7
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Total Retail 10,591 11,308 12,023 14,574 11.2Organised Retail** 1. Food & Grocery 39
(0.5) 44 (0.6)
50 (0.6)
61 (0.7)
16.5
2. Beverages 11 (5.0)
12 (3.8)
13 (3.6)
16 (3.1)
14.7
3. Clothing & Footwear 168 (21.6)
189(19.0)
212(20.4)
251(18.5)
14.3
4. Furniture, furnishing, appliances and services
67 (13.0)
75(11.4)
85(11.3)
101(10.2)
14.8
5. Non-institutional health care 14 (1.5)
16 (1.7)
19 (1.9)
24 (2.1)
20.0
6. Sports goods, entertainment, equipment and books
25 (11.6)
33 (12.1)
44 (14.4)
63 (16.0)
37.0
7. Personal care 11 (2.8)
15 (3.5)
22 (4.7)
33 (5.4)
46.9
8. Jewellery, watches etc. 18 (3.3)
24 (4.0)
33 (5.1)
49 (5.6)
40.5
Total organised Retail 350 (3.3)
408 (3.6)
479 (4.0)
598 (4.1)
19.5
** Figures in brackets relate to per cent share of organised retail in total retail. Source: Compiled from data in (1) www.mospi.gov.in, Central Statistical Organisation, National Sample Survey Organisation, Government of India, and (2) www.technopak.com
In the third quarter of 2010 the total retail sales are estimated at Rs. 16.3 trillion (US$353 billion)
and are projected to reach Rs. 25 trillion (US$543.2 billion) by 2014. The driving forces of growth
are considered as robust economic growth, increase in population, and rising incomes of people
(which were discussed in Section 2), and increase in the infrastructure for the organised retail
sector. (Business Monitor International, 2010)
The organised retail sector has been growing in India with domestic and foreign players in the
field. The major domestic retailers include Pantaloons, Shoppers’ Stop, Reliance Retail, More,
Foodworld and others with heavy investments in infrastructure. They operate through different
formats such as supermarkets, department stores, hypermarkets and malls, selling various
categories of products.
As per Indian government’s policy, Foreign Direct Investment (FDI) is allowed fully under the
automatic route in cash-and-carry retailing in which goods are sold to retailers at wholesale prices,
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and up to 51% for single brand retailing. For instance, AG Metro has stores with cash-and-carry
business. Wal-Mart has entered into a joint venture arrangement with Bharti group for retail sales
with back-end operations of the former. Some foreign chains have franchise agreements in India
such as McDonald’s and Marks & Spencer. Their impact on the traditional retailers is debated
intensely at the government and political level with divided opinions. However, the big retailers
source their supplies from the manufacturers or distributors and some of them (e.g. Reliance
Fresh, ITC e-choupal) claim to get their food products directly from the farmers or food
processors reducing the number of intermediaries or eliminating them in the process.
While examining the trends in the segments of products sold in the retial stores, one may group
the same into basic items and lifestyle products. The former include grocery, clothing, footwear,
accessories, home needs, personal care and consumer durables. The latter comprise products
which are normally in the reach of high income people such as car, computer/laptop, high-end
furniture etc. For some items such as mobile phones the line of demarcation is thin, though they
include a range of products starting from low-end to high-priced items.
Data on retail sales, segment-wise, are given in Table 4. In the total retail sales, the share of food
& grocery segment has declined significantly from 66.4% to 59.6% during 2003-04 to 2006.07.
As this covers necessaries, this trend is in line with the Engel’s law which states that the
proportion of income spent on food decreases as income increases, other factors remaining
constant. The share of clothing & footwear segment has increased notably from 7.3% to 9.3% in
the above period. The rise could be due to greater use of clothing & footwear including lifestyle
products. Next in share comes the segment of non-insitutional health care which has fallen
marginally from 9% to 8% in this period. This may include basic products to some extent. The
share of furniture, furnishing, appliances and services segment has gone up notably from 4.8% to
6.8% in the years under review, reflecting perhaps the use of lifestyle items. The segment
jewellery, watches etc., which comes under lifestyle products, has shown an increasing share from
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5.0% to 5.9% in these years. The share of personal care segment has risen from 3.5% to 4.2% in
the years referred indicating better lifestyle. Beverages segment has an increasing share from
2.0% to 3.6% in the years referred indicating higer demand towards the relative products. Sports
goods, entertainment, equipment and books segment has a growing share from 2.0% to 2.7% in
these years which may include lifestyle items.
During the period 2003-07 (Table 4) the share of the organised retail sector in the total retail sales
was significant but declined in the case of clothing & footwear (from 21.6% to 18.5%), furniture,
furnishing, appliances and services (from 13.0% to 10.2%), but showed an increase in the case of
sports goods, entertainment, equipment and books (from 11.6% to 16.0%). The share was on the
lower side but has gone up in respect of jewellery, watches etc. (from 3.3% to 5.6%), personal
care (from 2.8% to 5.4%) and non-institutional health care (from 1.5% to 2.1%). The share was
low and has fallen for beverages (from 5.0% to 3.1%). The share was insignificant for food &
grocery (0.5% to 0.7%).
The average Indian has spent on 8 categories of products in 1991 which increased to 17 in 2007
including mobile phones, gifts and durables items (www.icmrindia.org). As disposable income
rises, people spend more on branded goods, switch to processed foods, and the amount spent on
food, beverages, and transport and communication goes up (though the share of the amount spent
on basic necessities may fall as mentioned earlier). Middle income people may lean partly towards
lifestyle products for better social status. The rich class prefer luxury goods and brands. The super
rich class lean towards ultra luxury goods. Those aged 20-35 years are likely to spend more on
trendy items be it clothes, footwear and electronic products, while the higher aged people may be
more choosy about the same. Retail chains provide opportunities to customers to examine the
products before taking purchase decisions, spend time leisurely in an attractive and comfortable
ambience and shopping environment.
4 Conclusion
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In India, incomes and fashion trends are growing. The distinction between luxury goods and
necessities is getting reduced. Leisure time is spent on entertainment. Expenses on personal care
and home decor are on the rise. Advertisements in media have been used extensively to woo
customers towards various products. Availability of imported brands has been increasingly
becoming liberal. Shopping with family and friends has become a source of spending leisure time.
Middle income people form a vital segment for business growth of retail chains due to the
availability of products at affordable prices. With all these, consumerism has been growing,
resulting in a rapid growth of retail business the organised retail sector.
References
Asher, Allan. (1998). Going Global: A New Paradigm for Consumer Protection. The Journal of Consumer Affairs, Winter.
Business Monitor International (2010). Retail Report, Third Quarter.
Press Information Bureau (2010), Government of India, Press note, February 8.
Sandhusen, Richard L. (2000). Marketing, Third edition, Barrons Edu, pp. 218-219.
World Bank (2008). Devevelopment Indicators.
www.consumerism_answers.com www.icmrindia.org/casestudies/catalogue/Business%20Reports/BREP047.htm
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