The Wal-Mart factor!

The last time I professed to have any understanding of stock markets

was around the time I had acquired my MBA degree (in 1982) with a
major in finance and marketing.

Since then, it has been one long struggle to understand the rationale
of the extreme upward or downward movement of the market indices
or the logic and methodology used by various stock market analysts
and punters posing as investors.

Currently, I feel totally at a loss to understand the rationale behind the

rise in the stock prices of a very wide array of public companies --
many of them in the textile sector (please note: textile companies i.e.
fibre, yarn and fabric companies and not clothing manufacturing
companies since hardly any are listed on the stock exchanges) with
many of them gaining as much as 50 per cent to 60 per cent in value
in just the last one week or so.

The apparent trigger for this rise is the reported statement in some
sections of the media that Wal-Mart is looking at increasing its
sourcing from India to as much as $ 10 billion in the next few years.

There is, of course, no confirmation or any official statement to this

effect from the purported buyer i.e. Wal-Mart, but this has not
detracted the analysts to predict windfall for almost every listed
company in India that can supposedly supply to Wal-Mart.

Of course, most of these armchair analysts have perhaps never ever

been inside a Wal-Mart super centre in their lives or else they could
put a 'buy' on almost every listed consumer products business in India,
since Wal-Mart now retails almost every consumer product category
one can think of.

Respectable business magazines have already added the Wal-Mart

factor in the plethora of 'feel-good' stories being churned out in every
issue with one such publication somehow managing to get the inside
information that Wal-Mart is likely to source up to $20 billion of
merchandise from India and Mexico (I wonder what the connection is
between these two potential supplier countries!).

On the textile sector in particular, many of these analysts have

recently discovered that textile quota's are likely to go away at the end
of 2004 and it seems that most believe that India then will have the
entire international textile and clothing market available to itself.

What completes my amazement is the fact in the same media, almost

every day reports are coming out about the very hostile welcome India
(and some Indian businesses) is giving to one of the largest retailers in
the world: Metro of Germany who have recently opened a centre in
India and have already been slapped with all kinds of litigation and
agitations beside overt and covert lobbying against their functioning in
India.

Metro, incidentally, is also one of the largest buyers in the world with
global sourcing volume estimated in excess of $ 30 billion! The
Government of India clearly discourages operation of international
retailers in India and yet it expects the same international retailers to
plan for multi-billion dollar sourcing volumes from India!

Some points may be relevant here. Firstly, to export in tens of billions

of dollars to a single (or a few customers), we must have a wide range
of product categories that can be produced at the right quality and the
right prices for the export markets.

Wal-Mart, Metro, Carrefour, Tesco and other global retailers have

exceptional buying experience and leverage: they buy large volumes
of high quality merchandise with exacting delivery standards at
extremely competitive prices.

Secondly, they buy 'floor ready' merchandise and not 'raw material'.
Thirdly, they buy from a relatively small number of suppliers implying
that each of the suppliers must be a reasonably large company by
international standards and not the puny Indian 'small' or 'medium'
scale.

Finally, while becoming a supplier to many such retailers will

guarantee big jumps in the top-line revenues of such supplying
companies, making profit from such demanding customers would
require exceptional manufacturing efficiencies and outstanding
customer relationship management efforts.

Many of the currently listed companies who have seen their stock
prices shoot up on the Wal-Mart factor are not exactly known for either
of these skills.

Hence, let the magnitude of the Wal-Mart (and other large global
mega retailers) sourcing opportunity spur India to first make the
requisite investment in efficient high volume supply businesses (like
China has done in the last 10 years) and only then may we celebrate!
This article examines the effect of demographical element in consumer buying behavior. T
sector chosen for the purpose is Indian life Insurance Industry. Indian life Insurance indust
being in nascent stage has been found very sensitive to myriads of issue particularly wh
we talk of buying pattern. Consumer choice of one product over other products has been t
issue of concern for many of the researcher and for the organization, who has alrea
putted lot of hard work in developing the product. Earlier research studies have shown t
effect of various factors on the purchase decision. The important amongst them is t
demographic element. This study tries to bring out this importance on the purchase patte
in the life Insurance produc

Introduction

Insurance has got its origin from the concept of Indemnity. Indemnity against the los
which has occurred due to some unavoidable circumstances. To some, the concept
insurance has got its origin related to the uncertainty in the life. Uncertainty has been t
integral part of everyone's life, be the uncertainty in terms of money, uncertainty in terms
life etc. Through out the tenure every other individual's effort is directed towards avoidi
this uncertainty. The concept of insurance has got its origin from this very effort of avoidi
the uncertainty. Though it is not possible to avoid the uncertainty, it is highly possible
compensate the loss, which has occurred due to happening of this uncertainty. Th
compensation of unavoidable circumstances (uncertainty), which has occurred, is known
Insurance. It is the pooling of funds by many to compensate the loss of few, whereby ma
individuals pool themselves together to create a fund in order to compensate the loss th
has occurred to the few.

Insurance as we know today can be traced to the Great Fire of London which, in 1666 A
destroyed 13200 houses. In the aftermath of this disaster, Nicholas Barbon opened an offi
to insure buildings. In 1680, he established England's first fire insurance company, "The F
Office", to insure brick and frame homes. Gradually the concept of insurance came to
understood as a contract that offered the purchaser protection against the financial loss d
to specific incident. Since the risk of financial loss was to be spread amongst the large gro
of people, the extent of financial loss, In the event of mishap occurred, became le
devastating to the individual.

Though the concept of insurance is old as history of mankind, back to some 6000 years,
got its presence registered in India somewhere in 1818 with opening up of Oriental L
Insurance Company in Calcutta by Europeans. During those years Indians were consider
as substandard and they were forced to give high premium on account of their low profi
However with the continuous effort of few eminent people Indians were later considered
of equal status and they were charged the normal rate, at par with the Europeans. This w
majorly due to the establishment of first Indian life Insurance company, Bombay Mutual L
Assurance society in the year 1870. Later on the development of Indian life insuran
industry was more fired by the patriotic sentiments and gave rise to number of Indian l
insurance companies viz. United India in Madras, National Indian and National Insurance
Calcutta and the Co-operative Assurance at Lahore were amongst those company which w
formed to treat the Indian populace at par. With increase in the pressure from Indi
intellect, to give the Indian Insurance industry a organized structure, Government of Ind
was forced to pass Life insurance Companies act, 1912 and Provident Fund act. But this w
not the end to the suffering of Indian populace that even this act recognized the demarcati
between the Europeans and Indian while charging the premium. Then came the act of 19
which not only governed the Life Insurance Industry but also had its spread to the Non l
Insurance Industry. With the increase in atrocities from all these companies, the demand
amend the prevailing act of 1938 assumed velocity. Thus in the year 1956 the act w
passed as Life Insurance Corporation act, 1956 on 19th June, 1956 which called f
nationalization of all the Insurance company working in India under one name as L
insurance corporation of India (hereafter LIC). Thus LIC was formed on 1st September 195
with an objective to spread life insurance especially in rural areas as a mean to provide t
protection cover to the life of Indian populace and as tool to help them in the time
financial need at a reasonable cost. Till 1999 LIC was the only life insurance player in Indi
Life Insurance field, when government of India decided to amend the then prevailing a
prohibiting the private life insurance player to enter the Indian market. It was Insuran
Regulatory Authority, 1999 (IRA) that gave the freedom the private players to play in t
field. But the basic motive for introducing such an act was not fulfilled as the amended a
was meant for only regulation purpose only and not as a development tool and hence the a
was further modified to add the element of development to the concept and thus came t
current prevailing act i.e. Insurance Regulatory and Development Authority (IRDA), 1999.
was further amended to incorporate the element of competitiveness. Thus Government
India via IRDA permitted the private Life Insurance player also to enter the Indian field; a
made some provision for foreign insurance companies that if they want to enter the Indi
market they can do so but to the extent of 26 % of share only with any of Indian partner.

Today almost 15 private life insurance companies are working India, some in wholly own
format and some as a joint venture with foreign company or with Indian company. Togeth
they hold the market share of approx. 24 % in life insurance market. Still LIC holds t
kingship with almost 76 % of market share. That's the good news for the LIC people on o
part but on another aspect if we deal that shows the pace at which the private life insuran
companies are moving, they are defiantly going to give the tough fight to LIC.

The leadership lies not in getting the maximum out of market share but it is the
somewhere in understanding the reason for the choice of one product over another one.

The Purchase Decision

The purchase decision in general is prompt by number of factors viz. Psycho graphic
Economical, Social, Politico legal and Demographical. The list is not exhaustive but it
sufficient to have the deep understanding of the factors influencing the decision.

Psycho graphical Factors are those factors that includes the behavioral aspect of t
individual viz. lifestyle, living standard. Here purchase decision in influenced by those issu
that affect the lifestyle of the consumer or in the other that reflects the status. For e.g
purchase decision related to buying of car and that to Mercedes Benz. Talking specifically
the insurance sector, here customer will buy only that policy that has got high premium
that type of policy which company is promoting to limited high-income level group only. F
e.g. "Classic Life premier" policy of Birla Sun life insurance is meant for only those individu
who can pay at least Rs. 25000/- per annum.

Economical factors affect the purchase decision by influencing the issues pertaining
money and income level of the individual. Consumer will buy only that product which will n
have any negative effect on his pocket. For e.g. decision to buy an insurance policy
influenced by the deepness in the pock

Social factor affect the purchase decision by influencing the issues pertaining to social belie
and morals.

Politico legal is the macro level environment. It effects in a way, say IRDA has restricted t
sale of Key Man Insurance policy through Term Plan only.

Demographical factor is that factor which has got the maximum of its effect in the purcha
decision of the product and specially if that product is life insurance product. It is so becau
these factors incorporate other above said factors and includes those factors that c
influence the buying decision to maximum extent viz. Occupational factor (service/busines
Age factor, Gender, Marital status factor and Income level etc. It cannot be denied th
buying decision of the individual who is unmarried and is into business, having the incom
level of the range Rs. 2.4 lakh per annum, is into the age group of say 25 years will have t
entirely different approach towards purchase of the life insurance policy with the individu
who is into service and is married, is into the age group of, say 35, and is earning R
30000/- per month.

Keeping the above phenomena under consideration a study was conducted to know exac
to what extent Demographical factor has got its influence in purchase decision of the l
insurance product.

The Study

This study, which was conducted in the city of Bhilai (Chhattisgarh), covered almost 10
individual of different strata. The duration of the study was almost 7 months. The meth
which we used to collect the information was through questionnaire and personnel interview

The data so collected was grouped according to the company of the consumer's choice fro
where they have purchased the product and further it was analysed that what was t
demographic profile of that consumer and result was thus generalized.

The study covered 1000 individuals, of which 51.3 % were found insured and 48.7
uninsured. Of the total insured 58% were from 21-40 age group and 34 % were from a
group 41-60. It was 78 % of the male who was there in the total insured and rest 22% we
female. Occupation wise 50 % of the total insured were into service and 25 % into busines
Thus the overall penetration of companies in to the psyche of consumer buying preferen
(based on the customer's purchase of a company's life insurance policy) is given in the gra
as under:

From the above graph it is clear that when it comes to preference of the life insurance poli
of particular company it is LIC, which has got the maximum preference over other produc
as per the respondents. But the picture may take the different shape if we analyze it fro
the different perspective, i.e. demographical perspective. This is to be note that out of to
surveyed (1000), 51.3% were found insured and out of this 51.3%, 72.9% were from LI
4.09% were from HDFC, 3.9% were from SBI, 4.48% Bajaj Allianz, 7.79% ICICI Prudenti
2.53 % Birla Sun life, 0.58% Om Kotak Mahindra, 1.56% Max New York, 0.78 ING Vyasy
1.36% Tata AIG.

Consider the graphs below: (figures given in percentage)

 Figure [a]: Preference of MALE towards compa
Figure [b]: Preference of FEMALE towards compa
Figure [c]: Preference of SERVICE class people towards the compa
Figure [d] : Preference of BUSINESS class people towards the compa
Figure [e]: Preference of MARRIED towards the company

To study the demographical pattern of customers in the insurance industry the mo

important thing which is to be considered here is that customer try to segregate the l
insurance companies not on the basis of brand of the company (in most of the case it h
been found), but they demarcate it on the basis of ownership of the company, whether it
government owned or privately owned company.

Considering Figure [a], which is for the preference of male for any of the company, it w
found that 75% of the male has got the preference for LIC rather than any other l
insurance company; whereas is we consider Figure [b] the preference graph is showing t
different trend as here only 66% of female is only interested in LIC.

Taking Figure [c] and Figure [d] under consideration where the graph is showing the
preference on the basis of occupation customers are into. Figure [c] is for those customers
who were found to be in service and Figure [d] is for those who had their own business. The
data revealed by the study was telling some different story, as the percentage of LIC
preference in business class was much lower than the figure for service class. Former had
75% preference for LIC whereas later had 80% preference for LIC.

Let us now consider Figure [e], which is for those customers who are married. Here LIC h
got the maximum preference with 75 % of total insured.

Undoubdtly demographical factor has major effect in the purchase decision as it was fou
during the collection of data, people who were into service are those kind of customer w
don't want to carry any risk while investing and thus had there preference for the L
because according to them LIC is more secured then any company because of
government owned condition. Even if in certain type of life insurance policy they may not
getting the same high return which they would have got while investing in other "privat
companies they are much happier and satisfied while investing in LIC as it gives them pea
of mind. Where as reverse was the case with customer who had their own busines
according to them it doesn't matter who is the owner of the company, what they want at t
end is return and good service. And same was the case with the person who were marrie
they all demanded the security for the money and according to them no company can gi
better security then LIC as it is government owned.

Conclusion

Thus this study reveals that the demographical factor has the major effect in the purcha
decision of the customer. The leadership lies not in getting the maximum policy sold but
understanding the demography of the customer and targeting them in their way. It has be
found that LIC is market leader in insurance sector and market of insurance is still open f
heavy competition. it is recommended that companies dealing in insurance should gi
emphasis on demographic elements to grab opportunity available in this secto
AT this time of the year, it is usual for market observers to attribute
the gyrations in stock prices of companies in certain sectors to the
"monsoon effect".

The prospect of delayed or inadequate rains usually spells trouble for

companies marketing fertilisers, tractors, commercial vehicles or two-
wheelers; while a bountiful monsoon is usually greeted with a healthy
appreciation in their stock prices.

But the numbers for the past 15 years show that the relationship
between the monsoon and sales performance for these sectors is far
from straightforward.

Sectors traditionally believed to be rural-dependent have become more

resilient and can handle a couple of years of poor monsoons.
A set of new factors has compensated for the sluggish demand
stemming from a poor monsoon, for consumer goods and commercial
vehicles. Companies marketing agricultural inputs have been
cushioned by lower seasonality and better prices for farm produce. The
better credit flow to agriculture means farmers can resort to more
capital-intensive farming.

Finally, with the winter half of the agricultural season (the rabi season)
becoming as important as the summer (the kharif) in determining farm
fortunes, the South-West monsoon's influence on the agrarian
economy is also on the wane.

Weakening linkages for consumer goods

Sales numbers show that even traditionally rural-dependent sectors

are becoming more resilient to the monsoon.

Over the past six years, only twice did two-wheeler and commercial
vehicle sales move in tandem with the quantum of rainfall.

Five of the past six years had below-normal rainfall in the South-West
monsoon season. Yet, commercial vehicle and two-wheeler sales
posted strong double-digit growth in all the years, except one.

In fact, commercial vehicle sales revved up from 7 per cent to 30 per

cent in 2002-03, the year of the worst South-West monsoon in over
two decades.

For commercial vehicles, a sharp acceleration in industrial activity and

a noticeable improvement in road infrastructure appears to have made
up for the decline in foodgrain movement, which earlier used to
catalyse sales.
Two-wheeler sales tell a similar story, posting a robust double-digit
growth over the past four years, despite patchy monsoons. The
changing product mix of the players appears to have shielded them
from the fluctuating rural demand for products such as mopeds.

Over the past two years, the two-wheeler market has expanded
sharply on the back of a slew of new product offerings in the
"executive" motorcycle segment targeting the urban biker.

Consumer good sales over the past six years showed an even more
tenuous link with the monsoon.

The sharp acceleration in FMCG sales in the second half of 2004 came
after a particularly erratic monsoon. Industry numbers suggest that it
is expansion in urban sales that is driving the FMCG market.

Similarly, easy consumer credit and price reductions have revved up

consumer durable sales, with erratic monsoons having little or no
influence.

Prices, credit for agri-inputs

The monsoon does continue to wield some influence on the sale of

such agricultural inputs as fertilisers, agrochemicals and tractors. But
investors have to factor in a time lag for the monsoon effect and
evaluate other influences on rural income such as farm product prices
and credit flow to farming households.

Two consecutive years of poor monsoons usually lead to a slump in

fertiliser sales.
However, the past two years have seen growth in fertiliser offtake
despite unsatisfactory monsoons. Sales of tractors, which usually
swing one way or another depending on the monsoon performance,
too have trended up over the past two years.

This is explained by two factors. Though agricultural output has been

impacted in these two years, prices of farm produce have
strengthened substantially on the back of domestic shortages and
global price trends. This is likely to have offset some of the impact on
farm incomes of smaller harvests.

The government-pushed emphasis on agricultural credit too appears to

have given a fillip to rural operations, catalysing purchases of farm
machinery such as tractors.

Agrochemical sales too are influenced by the monsoon. But in recent

years, players have managed to reduce the impact of a poor monsoon
on domestic sales by ramping up their export presence.

Leading players have also changed their product mix to target crops
and markets that are not predominantly rain-fed. Agrochemical sales
have grown 13 per cent in 2004-05 despite a 13 per cent shortfall in
the South-West monsoon.

The better half?

A decade ago, the performance of the South-West monsoon could

make or break agricultural output because at least 60 per cent of it
came from the kharif (April-September) season. But, now, crop
diversification and better irrigation facilities have ensured that the
winter crop makes an equal contribution to the annual farm output.
As a result, the cropping patterns are evolving from an extremely
seasonal activity, centred in the kharif months (July-September), to a
year-round activity.

This trend has had three implications for companies manufacturing

farm inputs. One, their sales performance is now more evenly spread
over the two halves of the year.

Second, a shortfall in agri-input sales in the kharif season, because of

delayed monsoon, is not debilitating as it can be made up in the winter
months.

Third, the increasing rabi contribution tends to lengthen the lag effect
of a monsoon; a part of the proceeds from the kharif harvest is
reinvested in the rabi crop. This postpones rural purchases to the end
of the farming season.

As a result, a normal or above-normal South-West monsoon may not

show up immediately in sales of consumer goods, but can deliver a
significant boost a couple of quarters down the line.

What is in store?

Based on these observations, what is in store for this year? After

playing truant last year, the South-West monsoon has been quite good
in terms of quantum and spatial spread in 2005. As of August 11, the
weighted average rainfall for this season was 5 per cent above normal.

Rainfall was also evenly distributed across the major agricultural belts,
with only the North-East experiencing a deficit.
After several years, copious rains have significantly boosted storage
levels in the reservoirs that feed the irrigation system. At present, the
storage level in the 76 major reservoirs across the country is at twice
the levels of last year. It is also about 50 per cent higher than the
average storage levels for the past 10 years.

Given the weakening linkages with the monsoon in recent years,

investors in commercial vehicle, two-wheeler or consumer goods
stocks should probably not bet on any boost from the "monsoon
effect" this year.

Fertiliser and agro-chemical sales have been less than brisk in the
April-June quarter, due to the delayed monsoon onset. Excess rains in
July-August are also none too positive for sales.

However, investors can expect a volume boost to fertiliser and

agrochemical sales over the second half of the year, as farming
operations benefit from the healthy storage position in reservoirs. The
lag effect of this monsoon may also carry forward into the next year,
translating into good offtake in the 2006 kharif season.

Tractor sales may power up as the availability of credit and the rising
acreage under commercial crops help sales numbers.