Digital influence to reach $150 billion by 2016

by CXOtoday News Desk    Apr 25, 2013

Online Shopping

Forty percent of India’s 90 million urban Internet users say that online activities such as product research and price comparison influence what they buy. This digital influence, currently affecting $30 billion of urban consumer spending, is expected to greatly accelerate over the next four years, according to a new report by The Boston Consulting Group (BCG).

The report, titled From Buzz to Bucks: Capitalizing on India’s “Digitally Influenced” Consumers, asserts that the number of Internet users in India is expected to nearly triple from 125 million in 2011 to 330 million by 2016. This surge of Internet penetration will cause the digital influence on purchase decisions to explode.

To determine how Internet use affects buying decisions, BCG’s Centre for Consumer and Customer Insight surveyed 25,000 Indian consumers on their online activities during each step of the purchase cycle, in 101 different product categories. “We found that the growing digital influence is particularly important in categories such as appliances and consumer electronics, in which 40 to 60 percent of buyers have access to the Internet, and more than a third of them are relying on the Internet for product research or price comparison,” said Arvind Subramanian, a BCG partner and co-author of the report. “The post-purchase stage is underserved by companies in India so far. Digital offers business-to-consumer companies an opportunity to stay in touch with their customers, build loyalty and, potentially, even advocacy in ways that were not possible before,” he added.

On the basis of the findings, BCG assigned each product category a Digital Intensity Index (DII). Categories with the highest DII have the most online activity among category buyers. “The fact that air travel, a category with highest very high digital intensity, has a DII of only 20.6 out of 100 shows how much opportunity still exists for companies to engage Indian consumers online—and to influence their buying decisions,” noted Nimisha Jain, a BCG principal and co-author of the report.

The demographics of Indian Internet use revealed some unexpected findings. Indian men are far more likely than women to be on the Internet (32 percent versus 12 percent) and more than three times likely to be digitally influenced (14 percent versus 4 percent). Although higher income levels are well represented online, even 18 percent of the lower-income “strugglers” (whose annual household income is less than Rs 1.5 lakh) have Internet access, and 6 percent are engaged in commercial activity online.

Overall, the Internet has the highest penetration among people ages 18 to 24 (48 percent) and the lowest among those older than 54 (6 percent). 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.

BCG’s research also dispelled many misperceptions about Indian consumers. Only 30 percent of online buyers were drawn to Internet shopping for discounts. A higher proportion (37 percent) valued the convenience of shopping from home, and 29 percent said that they appreciated the expanded variety of products available online compared with what is available at brick-and-mortar stores. In contrast to more advanced e-commerce markets, digitally influenced consumers in India rely on company websites for detailed product information as frequently as they refer to third-party sites for comparative research and online purchases.

 The report highlights that this rapidly expanding digital influence in India is a call to action for consumer products companies. By acting quickly and decisively, these companies can mitigate the risk of being disintermediated from their customers by e-commerce powerhouses as has happened in the U.S. and China. To capitalize on this growing market, companies must integrate their online and offline strategies, engage consumers and build their loyalty, refocus ad spending, actively manage the Internet channel, mind the gaps in which online activity is low, and optimize the mobile experience.

 “Today, India’s e-commerce numbers tell only part of the story. Far more important is the bigger picture: the relationship between online activities and offline sales, as well as the powerful influence that the Internet has in shaping the brand preferences and buying decisions of Indian shoppers,” noted Subramanian. “The report’s insights can help guide companies as they develop strategies for reaching and engaging India’s growing base of online consumers.”