5 reasons why India’s established brands will lose their market power

Having a strong brand guarantees a minimum amount of sales and some pricing power over competition. However, going forward, many such big brands especially in India's branded apparel segment will lose their market power that will have serious implications for their sales and profit margins. There are five reasons for that:

First, brand power exists because buyers don’t have access to what economists call the ‘perfect information’ about products and services or their substitutes available in the market. In the absence of the so called perfect information, buyers opt for branded goods and services as they ensure a basic minimum of quality and reliability. That gives market power to brands. Established brands also maintain their supremacy through expensive advertisement that only a few could afford and many new entrants couldn't. However, social media has democratized access to information and brought down the cost of advertising – at least on online platforms.

Moreover, buyers can now easily learn truths and untruths about brands and their products. Online reviews and comments on Facebook from friends help prospective buyers to see a product’s realities and not the image that its manufacturers or seller would like to project. Thus, better access to information will make product differentiation difficult for established players. Relatively cheaper and better targeted advertisement on social media platforms will it easier for new brands to emerge and survive. That will lead to an erosion of the power of established brands with adverse implications for revenues and margins.

Second, established brands will further be pressurized by rapidly rising number of young (working) population who have higher marginal propensity to spend, but (they) are less loyal customers and increasingly seek value for money through discounts and offers especially in a cost conscious market like India. Two-third of Indians are projected to be in the age bracket 20-35 by 2021.

Such customers would increasingly be indifferent among choices, and targeted by online retailers who’re trying (quite successfully with the help of technology) to minimize the limitations of not having face to face connect with buyers. That may explain why the end of season sales have increased from two to four or five now and most sale of the branded apparels happen during the sale seasons.

Third, big branded fashion companies (which are run by expensive, slow and rigid bureaucracy) will naturally be slower to respond to market challenges in VUCA world. Their inability to retain talented skilled employees (who anyways are in short supply in a country like India) will further complicate matters.

Fourth, not being fast and enthusiastic enough to product innovation or extra careful about post sales service are another weaknesses of such strong but traditional brands /companies that will adversely affect their sales and profit.

Fifth, with the cost conscious buyers increasingly being open to explore new product offerings as such products often come cheaper, multi-brand retailers are pushing private labels to increase sales volume and improve margins. If private labels can deliver quality and post-sales service on a consistent basis, competition from them will further erode the market power of established brands in 2017.

However, this doesn’t mean that all established brands will fade or die eventually. Many of them will still survive especially the ones which can maintain their distinct identity, unmatched and consistent quality, and post sales service and in turn connect with the buyers. Yet, they should be able to operate on lower margins compared to what they've used to in the past.

One thing is sure, superficial advertisement through paid media channels will not be enough anymore to maintain market dominance as prospective buyers will increasingly rely on social media to verify and cross verify the claims on quality or uniqueness made by established brands and compare them with new entrants who may offer greater value for money. That’s not a good sign for established players.

Please share your ideas and thoughts on the subject. Humans should differ because we're all unique in our own ways and hence, are expected to think differently. It doesn't matter even if you have a different viewpoint. Please feel free to criticize my ideas...but please give your reasons for the same. That will help me improve my knowledge and understanding. If we're not connected, it's time to get to know each other. 

If you like this post, please share it with your colleagues and friends who may like to check it. You can follow me on twitter @RiteshEconomist and The Smart Consumer

Image Credit: https://circuitsandcableknit.com/retail/amazon-has-quietly-launched-7-private-fashion-labels

This article is part of the LinkedIn Top Voices list, a collection of the must-read writers on the year. For the global list of LinkedIn Top Voices, click here. Check out #BigIdeas2017 here.