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Indian Refrigerator Industry

Essay by   •  September 20, 2015  •  Essay  •  1,835 Words (8 Pages)  •  1,569 Views

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Introduction

Indian Refrigerator Industry

Refrigerator is one of the fastest growing consumer durable in the domestic market. Refrigerator is one of the products whose utility is seen around the year and thus even the seasonal parameter doesn’t see a lot of dip in the sales and adds to the indispensable nature of the product. Though like all others products even refrigerators see an impact of varying GDP. As per the latest stats available, the GDP growth stood at 4.4% in 2013 which is approximately the half of 2007-08. This slowdown has impacted this category also, resulting in 2% growth in refrigerator volume as compared to 20% in 2008. Also due to inflation even manufactures have been facing an increase in the input costs of materials and thus the prices have been seeing a rise, which has also been a driver in the demand of refrigerator. Though as we expect economy to go more stable in the years to come and thus we expect the growth to increase by 1 or 2% in years to come. Also there is a different segment of users also who have higher per capita income and thus are gradually moving towards technology centric products and they have been adding to the volume continuously. They are manufactured in two types generally, which are referred as direct cool and Frost free refrigerators and the former has continued to dominate the Indian demand segment.

Quantitative analysis

The Indian refrigerator market was predicted to grow at a CAGR of 25.7% during the year 2012-16. They constitute a 16% share in the consumer durable industry and are the 2nd most coveted consumer durable. The size of the industry is expected to be 3.5-4 million per year, which drives a revenue number of approximately INR 50 billion. The category has a 9% penetration in the domestic market, which is composed of 75% urban markers and 25% rural markets. There is a huge untapped potential in rural market as that has been challenged due to low income and electricity crisis in these regions. Refrigerators demand has been growing at an average of 15% when analysed over past 10 years, when the consumer durable industry has exhibited an 8% increase during the same duration.  

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Major Players Market share

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Project Objective

Considering the buying of refrigerator has always been dependent on number of qualitative and quantitative factors such as changes in technology, per capita income of the families, family size, growth in GDP, changes in food consumption patterns, it is always a challenge to forecast demand for refrigerators due to changing market conditions. However, forecasting plays important role in planning business activities in the domains of marketing, sales and production. Our objective in this project is to come up with an accurate model for forecasting monthly total refrigerators in India and thus we have forecasted using different methodologies and compare them for better accuracy.  

Need for forecasting

The refrigerator industry is completely dominated by the choice of customers and the number of factors stated above. Such a dynamic industry needs to have precise forecast as it helps in determining the approximate demand for a particular year. This number helps the number of players in market to estimate their production requirement given the number of competitors they have. If forecasts are not proper then it leads to lot of cost on the producers and an indirect cost on the government as it leads to manifold wastage of the raw materials, electricity and labour hours. The estimated demand also helps in estimating the market price once the product enters the market for domestic consumption. The forecast of this industry won’t be able to consider the following factors market considerations, low acceptance in rural markets due to developmental constraints, and environmental hazards.

Drivers for the demand of Refrigerators

  1. Real private consumption
  2. Growth in the retail sector
  3. Improving/Declining Social indicators
  4. Government Initiatives
  5. Product technology enhancement
  6. Easy terms of financing
  7. Whole sale price index
  8. Fluctuations in market index like Sensex
  9. Consumer Price Index/ GDP deflator
  10. Currency Exchange rates
  11. Real GDP
  12. Prevailing interest rates
  13. Index of industrial production
  14. Number of players in market
  15. Impact of globalization in the sector

After doing an analysis of the above factors, we decided to do an in depth impact study of the quantitative factors which are driving the demand which are explained in the analysis ahead        

Real Private Consumption

This factor is used to measure price change in consumer goods and services and evaluates the actual and imputed expenditures of households. This is mainly a measure of goods and services targeted towards individuals. It excludes purchases of dwellings but includes imputed rent for owner-occupied dwellings. It also includes payments and fees to governments to obtain permits and licenses.

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Exchange Rate

This factor takes into account the relative tradability of one currency with respect to other. It is a proxy for understanding the impact of exports and imports of finished goods and how it controls the purchase decisions of consume[pic 4]

GDP Deflator

GDP deflator measures the level of process of all domestically produced goods, final goods and services in an economy. It also measures the impact of inflation and deflation for a particular base year. The GDP deflator for the base year is assumed to be 100. This is not calculated on the basis of fixed goods and services, the goods and services are allowed to change from year to year with different consumption and investments.

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Index of Industrial Production

This parameter for a particular country evaluates the growth of various sectors in an economy such as mining, manufacturing etc. This calculates the change in production of fixed set of good and services in a particular year with respect to base year. Though it is an abstract factor but it represents the level of production of good in the chosen sector for a given time period.

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Consumer Price Index

This checks the change in prices of market basket of consumer goods and services. This statistical value is calculated by taking a sample of representative items, which lie in a fixed market basket and their prices are collected periodically to measure the change. The annual percentage change in CPI is also used an inflation in consumer goods and services.

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