Home / Technology / Tech-news /  Eager buyers turn India into EMI nation

New Delhi: EMIs (equated monthly instalments) aren’t new to Indians, but it’s a strategy that companies such as Apple Inc., Gold’s Gym and others are increasingly adopting in a bid to beat the sluggish economy, convincing customers to overcome their reluctance to spend too much money and to go ahead and splurge on an iPhone or a fitness club membership.

Clearly, India is turning into an EMI nation. A range of items are available—cellphones, sunglasses, jeans, vacations, hair transplants, gym memberships—as companies seek to drive consumption in a weak economy. And it seems to be working, most evidently in the case of the iPhone, once a rarity, but suddenly more commonplace in urban India.

IndiGo and Jet Airways (India) Ltd, two of India’s largest airlines, are the latest to announce the availability of air tickets on three- or six-month instalments. Although the schemes have been on for a year, the firms’ recent promotion through newspaper advertisements helped persuade dithering customers, especially since fares have surged 25% in the holiday season,

Limited to a few partner banks, the Jet and Indigo EMI schemes come with a processing fee and a 12.36% service charge for Citibank credit card holders. So a 10,000 IndiGo ticket on a three-month instalment comes for an additional 280.90. On an HDFC Bank card, a passenger pays 1% of the cost of the ticket or 100 for a 10,000 ticket plus a service charge of 12.36.

“The idea is to create more and more options for the customers. It encourages customers to buy more and buy online. An EMI also helps if his credit card does not have sufficient credit limit," said an airline official who declined to be named.

New Delhi-based Shikha Ralleigh, 27, bought an iPhone 5 under the EMI scheme after seeing a newspaper ad. Ralleigh, who works in advertising, made a down payment of 17,000 for the 45,000 phone, with the rest to be paid in nine monthly instalments. “For me, the iPhone is a need-based purchase," she said.

An Apple spokesperson declined to comment on the offer or sales growth.

South Korean consumer products company’s local arm Samsung India Electronics Pvt. Ltd also has EMI schemes of three, six and 12 months’ duration for its smartphones and tablets. The interest-free schemes that also come without processing fees boosted sales by “significant" margins. The company declined to give exact figures.

“The EMI offers serve as a good trigger for consumers to upgrade and drive sales of the higher priced models by making them more affordable. We started with credit cards, but now the scheme is available on debit cards also," said Asim Warsi, vice-president (sales) for mobile business at Samsung India.

“EMI is like the sachet revolution in the FMCG (fast moving consumer goods) category," said B. Narayanaswamy, consumer insight expert and consultant at Ipsos Research. “It simply extends reach."

Agrees Sraboni Bhaduri, consultant brand strategist at IMRB’s Probe Qualitative Research: “FMCG did a tremendous service by launching smaller packs to offer access to branded products. 2, 5 and 10 are the magic price points fuelling desire in the lower socio-economic categories. Everybody wants to touch or access these products. EMIs similarly split up the cost and make products and services reachable."

Clearly, products and services used by the higher socio-economic categories (SECs) are percolating to the rest of the market. “The metros and upper SECs are not driving growth anymore. The smaller towns are," she added.

Needless to say, firms closely study the consumer landscape in terms of per capita income and purchasing power potential.

“There is a huge gap between the purchasing power potential of India and its Western counterparts. The gap is not in ambition, quality, awareness or education. The challenge is of affordability. This is where the need for finance schemes comes in, within the reach for the Indian consumer. Being smartphone majors, we understood that this would (boost) sales for smartphones in India," said Warsi of Samsung.

EMIs allow consumers to be frugal and self-indulgent at the same time, said Adrian Terron, executive director (consumer research) at Nielsen India. “Clearly, the household rupee is getting stretched and consumers are getting used to the idea of short-term debt as a way of tackling inflation without sacrificing aspiration," he said.

According to financial information firm Blufin Advisors, the consumer confidence index for January fell 1.8 points to 38 from 39.8 in December 2012, indicating growing pessimism among Indian consumers.

Data at that time showed weak sentiment about future employment, with the resultant expectations of lower household income contributing to the decline. However, the index was marginally up 3.4 points from 38 in January to 41.4 last month (May) riding on lower pessimism about inflation and rising expectations of a further decline in interest rates in the next 12 months.

Bhaduri said India is turning into an EMI nation thanks to changing consumer attitudes. Earlier, consumers exercised restraint and saved up money to buy later.

“Now they buy first and pay later. This is because desire comes first and discipline later. We are a nation in a hurry. We want everything now," she said.

This change in the nature of the consumer has also pushed firms to devise new strategies, to make sure they get their money.

“Since you may not have the strength of character to pay up, you are forced to pay—if you are tied to a bank, the money will be deducted every month," Bhaduri added.

Nilesh Gupta, managing partner of Vijay Sales, one of the largest dealers of consumer durables in the country, has seen the popularity of EMI schemes rise sharply in the last one year.

“If a consumer has a budget of 15,000 for a mobile phone, he won’t bat an eyelid to double this budget to 30,000 if there is an easy EMI scheme available on credit cards. Categories like smartphones priced between 15,000 and 45,000 and digital cameras priced between 22,000 and 45,000 are big categories being purchased through EMIs in recent times," he observed. Needless to say, EMI offers are helping consumers trade up.

India’s leading websites are also selling gadgets to apparel on instalments. CaratLane.com, which retails diamond and gold jewellery online, launched a zero-interest EMI scheme six months ago in partnership with credit cards from issuers such as Axis Bank, ICICI Bank and HSBC among others.

The initiative was launched on the basis of consumer feedback, according to Siddharth Kapoor, V-P (marketing). “A small part of our customer base consists of younger consumers who may still be studying or may have just started working. EMI options bring precious jewellery within their reach," he said. CaratLane was set up in 2008 by Mithun Sacheti of Jaipur Gems and information technology entrepreneur Srinivasa Gopalan.

“The response has been better than expected. It is now 10% of the total transactions. Consumers are demanding EMI options on more credit cards and we are working towards it," Kapoor said.

At Snapdeal.com, consumers are opting to finance mobiles, laptops, hard drives, gaming consoles, expensive watches and sunglasses through EMIs. Typically, EMIs are sought on items costing 15,000 and above, said Ankit Khanna, V-P (product management).

Narasimha Jayakumar, chief operating officer and business head (e-commerce) at Homeshop18.com, said finance schemes are a boon for e-commerce companies. “With the tightening of spending by consumers, EMIs have been a big driver of growth for e-commerce companies, especially large ones like us," he said.

Other than the usual electronic products and jewellery, jeans on EMIs are also popular on the website. “Two to three pairs of, say, Levi’s would easily cost 8,000-9,000. We’ve seen youngsters using EMIs very aggressively," said Jayakumar.

Over the past few months, Homeshop18 has seen a 60-70% jump in sales in categories like mobiles, consumer durables and electronics, and jewellery, driven entirely by EMIs.

To be sure, EMI schemes that make products accessible to customers do not come for free. However, by and large, the cost is borne either by the company or the bank that the scheme is linked to. In some cases, the consumer is asked to pay a processing fee and a service charge.

Usually, the cost of processing and the subvention cost are split between the brand and the banks associated with the scheme, explained Samsung’s Warsi. “For a 12-month EMI scheme, the cost is 10-11% over the selling price of the product and for a six-month EMI scheme the cost is 5-6% over the price of the product," he said.

According to Gupta of Vijay Sales, companies that market these schemes take a hit on profitability as credit card firms charge them. The impact is based on the duration and nature of the EMI scheme.

E-commerce sites said that the costs are borne by them and not the banks. Khanna of Snapdeal said the site offers EMIs across product categories. “Though EMIs are slightly more expensive than cash on delivery (COD), they are much more hassle-free. We prefer EMIs to COD any day," he said.

According to Jayakumar, the bank charge on a three-month EMI plan is 3-3.5%. For a six-month EMI plan it’s 5%. The figure goes up to 7% for a nine-month EMI plan and roughly 10% for one of 12 months.

Processing fees are being picked up by brands and retailers in some cases, he said.

EMIs, he agreed, were better than COD in many ways. “The charge on a COD transaction is roughly 2-2.5%, “but the issue is that in a COD transaction, the cash reaches you only after 7-10 days, whereas, in an EMI transaction, you get the money mostly within 24 to 48 hours. When you do hundreds of crores worth of transactions that makes a big difference," said Jayakumar.

Interestingly, the services segment is also offering instalment schemes—Sterling Holiday Resorts (India) Ltd’s vacation ownership, treatment at Marico’s Kaya Skin Clinics, Gold’s Gym memberships, and hair transplants.

Arpit Goel, head of marketing at New Delhi-based Berkowits Hair and Skin Clinic, said that the price of hair solutions has declined with more companies entering the business and with better technology. However, the service is no longer restricted to the super rich, thanks to EMI options. Now even the upper-middle class can afford the treatments, Goel said in an interview in April.

Kaya Ltd, a chain of clinics providing beauty and wellness services, has been offering EMIs on services such as hair removal and beauty treatments since 2008 and largely caters to a female audience. EMI offers begin for services upwards of 10,000 and see sufficient takers, according to the company.

Over the past one year, revenue from EMI-related offers has risen—from 6% in early 2012 to 11% this year of the company’s total turnover. “What we are seeing is customers who opt for EMIs actually end up opting for higher ticket sizes," said Arvind R.P., head of marketing. According to him, ticket sizes of EMI purchases exceed that of non-EMI purchases by 12-15%.

Gold’s Gym, which runs a chain of fitness centres across the country, started EMI options about three months back for annual membership fees of about 25,000. “The psychological effect of paying through EMI takes away the initial hesitation of the amount," said Shraddha Sheth, V-P (sales and operations).

Siddharth Singh, associate professor of marketing at the Indian School of Business, feels that EMIs serve to blind people to the real cost of items. “There is an initial sticker shock (i.e. the initial cost of product) which is enough to dissuade potential consumers to make initial purchases. So EMIs allow consumers to experience products which they might not have access to otherwise," he said.

Singh said the trend is part of the change in consumption as EMIs translate into higher indebtedness. “It will continue to penetrate deeper and become more widespread," he said. A major issue that companies will face is developing credit rating methods to gauge consumer buying patterns, Singh added.

Sumita Kale, chief economist at Indicus Analytics Pvt. Ltd, said consumerism and aspirations will spur demand for EMI options and loans, especially among people in their 20s and early 30s. “It’s a generational shift where younger consumers are exposed to so many more products they want to buy, so they tend to earn and spend more. The earlier generation did not have so many credit options," she said.

However, in a high-inflation nation, consumers in their mid-30s tend to become more conservative on spending and start saving, she said. That means the trend of EMIs for smaller products won’t translate into a high-debt situation, Kale added.

Tarun Shukla in New Delhi and Mihir Dalal in Bangalore contributed to this story.

Suneera Tandon
Suneera Tandon is a New Delhi based reporter covering consumer goods for Mint. Suneera reports on fast moving consumer goods makers, retailers as well as other consumer-facing businesses such as restaurants and malls. She is deeply interested in what consumers across urban and rural India buy, wear and eat. Suneera holds a masters degree in English Literature from the University of Delhi.
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