BUYING PROPENSITY INDEX Measuring India’s Buying Sentiment
VOL.-2016 VOL. 2016 ISSUE-01 ISSUE - 01
Q1
APR APR-JUN - JUN, 2016 2016
The Buying Propensity Index (BPI) is a quarterly index that measures the buying keenness by directly connecting with consumer-influencers. The research queries consumers on their Need-based, Aspiration-based and Environment-based sentiments towards buying, the three aspects which critically impact purchase decisions. Buying Propensity is a scientific tool the gets to the root of buying, an act that manifests on the basis of Trust (based on reasons to buy) and Attractiveness (based on the inherent magnetic pull to be bought). These two important factors sit on two sides of the Buying Propensity Axis and influence all consumer behavior towards buying. Q1 2016 BPI was at 0.42 which shows a high propensity to buy in the quarter. Though there has been southward pressure on BPI from April through June due to several extraneous factors, the overall Buying Sentiment outlook remains ‘Positive’. N. Chandramouli CEO, TRA Research
Q1 2016 BUYING PROPENSITY Buying Propensity Index
0.42
Introduction 0.50 0.40
0.46
0.44
BPI Q1 2016 = 0.42
0.37
0.30 0.20
Buying Propensity Index Q1 2016
0.10 0.00
April-16
May-16
June-16
The Buying Propensity Index (BPI) is a measure of the existing buying sentiment or ‘keenness to buy’ of India. The current Index represents the first Quarter of FY 2016, i.e. April, May and June. The BPI provides clues as to the consumer’s natural propensity and resistances to making buying decisions. The Buying Propensity Index is generated through a detailed analysis of three factors - the transactional and psychological buying sentiments of the Indian consumer and the environmental buying sentiment of the country.
The BPI value can lie between -1 and 1 ranging from a completely negative sentiment to a fully positive sentiment. The BPI for Q1 2016 stood at 0.42, showing a modest buying sentiment in the country with a downward tendency. The monthly BPI for April 2016 (0.46) fell by 19% in June 2016 (0.37). The higher BPI value for April 2016 (0.46) was on the back of two important announcements. First, RBI’s reduction of the repo rate, albeit by only 25 basis points, to 6.5%, the lowest in more than five years. Just a few days later, in April 2016, the Indian Meteorological Department (IMD) and Skymet, a private weather forecaster, predicted an above-normal monsoon for 2016 after two successive rain-deficient years. The positive sentiment in April 2016 is most likely to have been impacted by these two announcements. However, the BPI in May 2016 (0.44) and June 2016 (0.37) got pulled down by an upsurge in Consumer Price Index (CPI), the highest in 19 months, which went up 5.76%. Delayed rains, which refused to follow the Indian Met Department’s earlier predictions, and uncertainty over Brexit also contributed to a downward pull to the overall buying sentiment in June 2016 (0.37).
Breakdown Analysis of the Buying Propensity Index – Q1 2016 April 2016 0.40 0.43 0.58 0.46
Transactional BPI Aspirational BPI Environment BPI Buying Propensity Index (BPI) 0.70
Analysis of Buying Propensity Index - Q1 2016
0.60
0.58 Environment BPI
0.50 0.40
0.46 BPI 0.43 0.40
0.47 0.44
0.47 Aspirational BPI
0.41
0.30
0.37 Transactional BPI
0.31
0.20 0.10 0.00
April
May
June
May 2016 0.41 0.44 0.47 0.44
June 2016 0.31 0.37 0.47 0.37
Interpretation of Transactional and Emotional Buying Sentiment The Buying Propensity Index is made up of two parts – the Individual’s Buying Propensity and the Environmental impact on the Buying Propensity. The Individual’s propensity to buy is further divided into two parts, the first of which is Transactional Buying Index (propensity for the individual’s need-based buying) and Aspirational Buying Index (propensity for the individual’s desire-based buying). The Environment Buying Propensity is a reflection of the effect of the external environment on the individual’s keenness to buy.
A clear trend is visible when the Buying Propensity Index is broken up into its constituent parts. The individual’s propensity to buy, comprising of Transactional BPI and Aspirational BPI, shows a negligibly small upward movement from April to May 2016. From May to June 2016, the Aspirational BPI fell by about 16%, but the Transactional BPI fell hard by almost 24%, which shows the tendency to put off need-based purchases. The Environment BPI fell from 0.58 in April 2016 to 0.47 in May 2016 and has remained steady in the month thereafter. The steady Environment BPI over the last 2 months indicates better consumer certainty with regard to the environment, but displays some consumer apprehension in current buying zeal, reflected by the lower Transactional and Aspirational BPI in June 2016.
India’s Buying Sentiment Steadies at ‘Very Positive’ Buying Sentiment Polarity Positive Buying Sentiment
Negative Buying Sentiment
Neutral Buying Sentiment
April 2016
77.9%
1.9%
20.2%
May 2016
66.8%
4.4%
28.8%
June 2016
72.2%
5.7%
22.1%
Overall Q1 2016
69.0%
4.6%
25.6%
This sentiment analysis aims to determine the polarity of positive and negative sentiments with respect to Buying Propensity and is calculated by only considering positive and negative views about their present
buying behaviour in relation to the past quarter and the future quarter. The Positive Sentiment is a percentage of all positive responses upon the total responses (the Negative Sentiment is similarly measured for negative responses). The overall Q1 2016 Positive Buying Sentiment was 69.0% and dominates this quarter’s sentiment. The overall Negative Buying Sentiment for the same period was quite low at 4.6%. The Neutral Buying Sentiment, those who see no change in the Buying Sentiment in Q1 2016, stood at 25.6%. The overall Buying Sentiment in India for Q1 2016 on a 7-point scale can be termed as ‘Very Positive’. The highest Positive Sentiment was observed in the month of April (77.9%), which sharply declined over May 2016 (66.8%), losing 11.1%. It regained some points in June 2016 (72.2%). The lowest Negative Sentiment was observed in April 2016 (1.9%); it rose sharply in May 2016 (4.4%) and inched up again in June 2016 (5.7%). The fence-sitters, displaying a Neutral Buying Sentiment, went from 20.2% in April 2016 to 28.8% in May 2016 (up by 8.6%). Some of the fence-sitters’ sentiment shifted to Positive in June 2016 (22.1%). Evaluating the fall and regain in Positive Sentiment, the dominant flavor of Q1 2016, the buying sentiment in the quarter Q1 2016 can be summarized as Steadies at ‘Very Positive’.
Issues Watch – Q2 2016 Seventh Pay Commission Implementation The Union Government approved the Seventh Pay Commission’s recommendations on 29 June, 2016, which is expected to benefit 10 million government employees and pensioners. They will get a hike of 2.5 times their basic pay or pension, costing the exchequer INR 1.02 lakh crore annually. The pay revisions, coupled with job creation in light of burgeoning investments by the private sector and foreign players (thanks to 100% FDIs in certain major sectors), are expected to boost the individual’s overall buying sentiment in Q2 2016. Credit Policy Announcement The RBI kept interest rates unchanged in the last policy meet on June 7, 2016, citing the resurgence of inflation pressures. Given the upward movement of commodity prices and the domestic inflation trajectory, it remains to be seen whether the interest rates will undergo any further cuts in the August policy meet. An interest rate cut is expected to reduce buyer burden and will lead to better individual buying sentiment as more money finds its way into the hands of the consumer. FCNR Deposit Redemption Redemption of Foreign Currency Non-Resident (bank) deposits worth USD 25 billion will commence in Sept 2016. The forthcoming redemptions are expected to pose a challenge if foreign exchange flow dries up due to BREXIT, as banks will struggle to deliver more than USD 10 billion of forwards to the RBI, leading to increased volatility in the money markets. There is also a fear that there will be a shortfall of USD 9.5 billion which is still not covered for by the RBI. Also, it is possible that a bout of volatility may hit the exchange rate and rupee liquidity, thereby impacting the individual’s sentiment about the country’s buying environment. Model Shops and Establishment Act The Centre’s Model Shops and Establishments (Regulation of Employment and Conditions of Service) Bill, 2016, is expected to enable growth of consumer-focused services, which may lead to an increase in the transactional buying sentiment of the country in the coming months. The Act is also expected to bump up ease-of-business in India with the rollout of the online one-stop registration portal. However, security is still an issue and could be a minor impediment to the overall buying sentiment.
Buying Propensity Index Methodology Buying Propensity Index (BPI) is a measure of the country’s buying sentiment, showing the country’s keenness to buy. Buying Propensity, a concept developed by TRA Research, attempts to understand the overt, covert and contextual buying drives of consumer-influencers, the 10% of the population that influences the balance 90%. Buying Propensity is a natural pull that manifests on the basis of Trust (based on reasons to buy) and Attractiveness (based on an inherent magnetic pull of the product). These two combine to make the fundamental substrate on which all buying decisions are made. TRA Research, India’s leading data insights company, also publishes The Brand Trust ReportTM and India’s Most Attractive BrandsTM based on primary research and provides Buying Propensity brand insights mined from the data collected. Trust-based or transactional buying mostly caters to ‘needs’, those items that one finds necessary to have a comfortable life, something that can be seen in terms of physiological fulfilment. This is directly related to one’s spend-capacity and has a cognitive decision process. Attraction-based buying or emotion-led buying mostly caters to ‘desires’ of individuals, the items that provide a sense of self and social worth. When desires are catered to, they bring psychological fulfilment to life. The third aspect that affects buying sentiment is the environment, the context in which the buying occurs. If the context changes, so does the buying sentiment.
Buying Propensity Index Personal Sentiment Transactional Buying Sentiment (Cognitive buying)
Aspirational Buying Sentiment (Worth-related buying)
Country Sentiment Environment Buying Sentiment (Context-related buying)
For the Buying Propensity Index, TRA interviewed 1000 consumer-influencers each month between April and June (totalling 3000 in the quarter), from across 8 Indian cities. Every respondent classified buying as Positive, Negative or Neutral as compared to 3 immediate months in the past and in the future. A score, expressed as the maximum possible positive score, is calculated for each of the three components of the BPI. Based on the positive, neutral and negative weightages the Component Index for each sentiment for the respondent group is calculated. The BPI is then calculated as a geometric weighted average of the three scores. The survey was conducted for 3,000 consumer-influencers on their buying propensity. The survey was collected between the months of April and June 2016. The robust, representative sample is quota-controlled by gender and age. Disaggregation is available by age, gender, personal income, occupation, education, employment, SEC status and location. TRA Research, a Comniscient Group company, is a Data Insights and Brand Intelligence company dedicated to understand and analyse stakeholder behaviour. TRA Research’s Buying Propensity Index is a syndicated study which surveys 3,000 consumer-influencers across 8 cities in India conducted every quarter. Buying Propensity, measures the Transactional, Aspirational and Environment sentiments towards making buying decisions and is a direct measure of propensity to buy. TRA Research also publishes The Brand Trust ReportTM and India’s Most Attractive BrandsTM. This publication may not be reproduced, distributed or published by any recipient for any purpose. The views and recommendations expressed in this publication are the publishers’. They are based on information known by the publisher and on sources which the publisher believes to be reliable. Any of the views and recommendations which comprise estimates, forecasts or other projections, are subject to significant uncertainties and contingencies that cannot reasonably be anticipated. TRA Research Pvt. Ltd. 2/52, Kamal Mansion, 4th Floor, Haji Niyaz Ahmed Azmi Marg, Arthur Bunder Road, Colaba, Mumbai-400005. www.trustadvisory.info Contact: +91-22-66522800 Email: enquiries@trustadvisory.info