The Indian market is witnessing a noticeable strategic pivot among businesses, moving away from the long-held principle of ‘fortune at the bottom of the pyramid’. While the concept, popularised by CK Prahalad, focused on tapping into the vast consumer base at the lower end of the socio-economic spectrum, recent trends suggest a shift towards premiumisation across various sectors. This recalibration raises pertinent questions about market inclusivity and future opportunities.

Sectoral Retreat

Consider the automotive sector. Barring Maruti Suzuki, most manufacturers have vacated the sub-₹5 lakh car segment. Giants like Škoda Auto Volkswagen, Toyota, and Mahindra & Mahindra are concentrating on higher-priced cars, utility vehicles, and electric vehicles. Even Tata Motors, despite its initial foray into affordable cars, now leans heavily towards premium offerings. A similar trend is evident in two-wheelers, where entry-level 75-110 cc bikes’ market share has shrunk considerably, as per Jefferies India. Consumers are opting for higher-powered bikes, scooters, and electric vehicles.

This premiumisation wave extends to alcoholic beverages as well. Pernod Ricard is reportedly selling its mass-market brands in India, mirroring similar strategies by United Spirits, Radico Khaitan and Allied Blenders & Distillers, all focusing on higher-margin premium brands. In housing, developers are reaping rewards in the premium and luxury segments, while affordable housing projects are losing steam. Even in pharmaceuticals, multinational corporations are streamlining India operations to focus on branded products due to pricing pressures in the generics market, as highlighted by Glenmark Pharmaceuticals.

Profitability Focus

This sectoral shift underscores a significant change in business priorities. Companies are increasingly driven by profitability and return ratios, a healthy sign for market efficiency. This shift is partly fuelled by the current consumer upcycle, where a segment of consumers are willing to spend more on premium products. However, this emphasis on the higher end of the market creates a void at the entry-level and economy segments, limiting choices for budget-conscious consumers.

Disruptors’ Chance

The focus on premium products, while beneficial for company bottom lines, inadvertently opens doors for disruptive entrants. A well-positioned product and business model targeting the underserved lower end of the market could rapidly gain traction and challenge established players. The Indian market, with its diverse consumer base, always presents opportunities for those willing to cater to unmet needs, even at the ‘bottom of the pyramid’. This strategic realignment, therefore, is a double-edged sword. While it promises better profitability for incumbents now, it simultaneously cultivates fertile ground for future market disruptions.

What does this premium push mean for the average Indian consumer? While aspirational buying is on the rise, access to affordable products across key sectors might become limited. This situation could either spur innovation in cost-effective solutions or exacerbate the affordability gap, shaping the market in unexpected ways in the years to come.