It has been predicted that over the next decade, the Indian economy will overtake the economy of the USA. India will then be the second-largest economic powerhouse on the planet, falling right below China. The Indian economy’s rapid growth is expected to only accelerate with time (Kerkache, 2020).
However, overall economic growth aside, there are certain emerging consumer behaviour trends that are extremely intriguing to be cognisant of. One of these behavioural trends which could have significant ramifications upon the way the market functions is the rise of the rental segment also known as the Sharing Economy.
The rise of the rental segment of the market is evident if we note that the sharing economy of India is to be worth 2 billion USD by the end of the current year (“Shared economy in India to be USD 2 billion industry by 2020-end: Maple Capital”, 2020). This is indicative of how rental as a concept in India is gaining momentum. But what percentage of the Indian population invests in the rental industry? And why do they make these investments in the sharing economy?
“A Survey Designed to Uncover Future Consumer Trends” conducted by Boston Consulting Group’s Center for Customer Insight (CCI) provides us with some interesting insights, which can be used to answer the above questions. This survey was done drawing in participants from major metropolitan cities as well as Tier 1, Tier 2, and Tier 3 cities.
As per BCG’s CCI, Indian consumers are increasingly spending more on experiences and less on the purchase of traditional goods and services like homes. This movement from possessions to experiences was found in all Indian cities and across all demographic segments. To be more specific, 17% of the urban consumers who responded to the survey had tried renting in at least one niche where buying was the norm (the niches enlisted in the survey excluded real estate). These niches included but were not limited to the Kitchen Appliance niche, the Clothing niche, and the Furniture niche. This trend of exploring the rental economy was prevalent across consumers of varied genders and income brackets in India. Furthermore, 25% of the respondents said they would consider renting in one of these niche areas in the future (“Ten Trends That Are Altering Consumer Behavior in India”, 2020).
Having addressed the first question, we move onto the second question at hand – Why do people choose to rent goods and services in India? The answer to this question is contingent upon what income level the consumers have. Lower-income consumers tend to rent because it offers greater affordability. On the other hand, higher-income consumers lean towards rental as it offers more flexibility to them. This trend of renting over possessing; was found to be particularly prevalent in the generation of Millenials; and especially young professionals who have transient jobs.
This survey also illustrates how the trend to rent is shaping the market for specific product categories. 0-14% of the population chose to rent over buying in the following categories – Appliances (Kitchen appliances, Large home appliances, and Entertainment electronics), Gadgets (Mobile phones, Computers, and the Tablet), Daily care (Baby products), Apparel (Women’s and Men’s apparel), Accessories (Handbags and belts and Eyewear), Luxury Jewellery (Designer) and Others (Home Furnishings).
I believe the following four factors may be responsible for growth in India’s Sharing Economy.
Shopping to stay up to date on the latest trends:
62% of the respondents said that the key reason they bought a product (in at least one category) was to keep up with the latest market trends. There is a desire to upgrade to newer products, even if the old products are fully functional. However, consumers’ incomes are limited and this constrains them. They cannot easily purchase a new gadget, for instance, every time a new mobile model launches due to their limited incomes (“Ten Trends That Are Altering Consumer Behavior in India”, 2020). Rental provides an opportunity here to stay up to date on the latest trends within the constraints of limited incomes. Further, it is important to note that the more visible a product category was, the more likely its upgrades were to be pursued.
There has been a shift in priorities, especially amongst millennials who have newer goals that deviate from the more traditional ones such as buying homes. For instance: going on holidays 2-5 times a year was so important to Millenials that 62% of them were even willing to borrow money to fulfil these holiday desires (Kerkache, 2020). Thus, millennials may end up renting more traditional products like homes and cars; so as to save money overall and utilize this saved up money for their travel and other pursuits that they prioritize upon.
A change in the multigenerational nature of the Indian household:
Only about 37% of Indian families now live in multigenerational households, and this percentage is expected to further decline in the coming time. Nuclear families are slowly but steadily becoming the new normal (Kerkache, 2020). When people live as nuclear families and sway from the tradition of multigenerational households, there may be less attachment to a single home since it is no longer to be passed down one generation after another. Here, as every generation of a family enters its prime, a new home is invested in. This gives homes a transient nature. Given this transient nature of homes in today’s times, it may appeal to people to rent rather than buy.
Desiring a positive impact via consumption:
Results from the Deloitte Millennial Survey 2019 show that Indian millennials are the second most optimistic population of millennials across 40 countries of the world. 57% of the Indian millennials are particularly attached to the idea of having a positive impact on society. In fact, they rank making a positive impact above and beyond ‘traditional aspirations’ like homeownership (“Millennial Survey 2019 | Millennial Thinking – Report | Deloitte India”, 2020). Thus, if Indian millennials are made aware of the sustainability that rental offers, there is a strong likelihood that they would choose to engage in the Sharing Economy rather than buying.
The importance accorded to exclusivity:
37% of urban Indian consumers said they had purchased at least one product in the last 12 months because it offered exclusivity. This factor holds value amongst particular product categories – eyewear, apparel, and select electronic items. Gender also seemed to play a role here, with 14% of the urban female consumers reported that they perceived an item to be value for money, because it accorded upon them social status by holding a character of exclusivity (“Ten Trends That Are Altering Consumer Behavior in India”, 2020).
Based on the research conducted by the Boston Consulting Group’s Center for Customer Insight (CCI) we can also extrapolate that rental aggregators may come to play a massive role in facilitating transactions via e-commerce platforms. This importance being attributed to rental aggregators may be traced back to the expected growth of the e-commerce industry combined with two specific consumer trends.
In general, the e-commerce industry in India is expected to grow tremendously. In fact, as of October 2019, India’s internet penetration rate was a mere 41%. Even with internet penetration at less than half its potential, India’s e-commerce market is the second largest in the world. With growing emphasis on digital literacy and an anticipated increase in the penetration rate, we can expect the e-commerce industry of India to further thrive. This includes the e-commerce rental marketplace.
However, the e-commerce rental marketplace thriving in itself does not by itself mean rental aggregators will assume an important role. There are two more specific trends that play an important role in conjunction with growth of the e-commerce marketplace. The first is that consumers are increasingly inclined towards ‘information centered shopping’. In fact, a staggering 85% of the total urban consumers examine and compare at least two data points across all categories before making a purchase. Roughly half of all urban consumers chose to gather information and draw comparisons online. The very role of aggregators includes helping consumers make such comparisons and accordingly find products and services best suited to their needs. The second factor here is that at least 57% of the urban Indian consumers prioritize and are willing to pay more for products/services that help them save on time; even if this results in them having under optimized usage of goods they already possess or costs more monetarily. Aggregators provide one such time-saving service, enabling consumers to minimize the time they need to invest in getting the best deals on products of varying categories (“Ten Trends That Are Altering Consumer Behavior in India”, 2020). These two factors accompanied by the overall thriving of the rental e-commerce market could mean that rental aggregators play a very significant role in the coming times.
Rental as a concept in India is complex and dynamic. Consumers from different income groups may choose to rent instead of purchasing for varied reasons. These reasons may in turn be determined by their income level and age bracket, amongst other factors.