Is consumer getting what he wants?

On a global level, consumers are well-aware of their needs and wants. They know what choices are available to them and they can prioritize their purchases intelligently. The presence of transparent system in most developed countries and the strong presence of consumer rights bodies allow consumers to enjoy a large variety of choices, stand up for their rights and even influence the government to take appropriate steps if need be.

However, in third-world countries like Pakistan, consumer awareness is comparatively low. Most of the consumers are swindled of their hard-earned money without realizing it. When they do realize that they have purchased an inferior product, it’s too late to reverse the damage. Several reasons can be identified for low consumer awareness in Pakistan. Few of them are low literacy level, low internet penetration and high level of corruption and crime rate. One of the effective quick fixes for this problem can be that companies take the initiative to act like responsible corporate citizens and educate consumers about the difference between spurious products and authentic products and at the same time highlight the relative advantages and disadvantages of using each type of product.

The current on-going global recession has slowed down consumer spending all over the world including the developing countries. Our economy is worst-hit because of various other factors that have made many products much less affordable for the consumers. Some of these factors include double-digit inflation and increasing import duties on many products.

A prime example of such products is a mobile phone. A few months back government categorized all mobile phones as luxury items and imposed a flat rate of PKR 750 on all mobile phones being imported regardless of their prices. This has made all mobile phones available locally much more expensive especially for the low-tier consumers.

Mobile phone manufacturers have recently shifted their focus towards developing countries where mobile phone penetration is lower than that of developed countries. In many developed nations number of mobile phones is higher than the number of population of that country. Even though, in recent times, Pakistani telecom industry has experienced accelerated growth in mobile phone subscription and mobile phone penetration, there’s still a huge chunk of population particularly in rural areas where mobile phone penetration is low. This is the potential untapped market being targeted by mobile phone manufacturers operating in Pakistan.

While the government’s objective behind higher import duties was to reduce the widening trade deficit, in effect, it has had an overall negative impact on consumers, mobile phone manufacturers and government itself.

The authentic mobile phones that are available with manufacturers’ warranty are now out of the reach of a common man. Consumer need for using a mobile phone is still being fulfilled. However, this gap is being filled by mobile phones available through grey channels and Chinese mobile phones. These mobile phones are available at cheaper rates but they are not reliable and furthermore they are not accompanied by the warranty that comes with original handsets. There’s no guarantee that the mobile handset available from grey channels would contain all the accessories and even if all the accessories are part of the packaging, there’s no guarantee of the authenticity of these accessories. Similar problems are associated with Chinese mobile phones. They can malfunction at any moment resulting in loss of all the important contacts and other data stored in the mobile phone.

Sale of mobile phone manufacturers operating in Pakistan has declined to a great extent. Most of these sales of mobile phone manufacturers are being eaten away by the flourishing grey channels. They are facing a tough time in improving sales locally.

Due to high import taxes, import of mobile phones has declined by almost 70% in the first half of fiscal year 2008-09 compared to the same period of last fiscal year. The direct result is lower tax revenues being earned by the government. Further tax evasion takes place every time mobile handsets are imported via grey channels; this activity has been rising particularly after imposing of higher import duties breeding greater corruption in society.

In the current scenario, consumers who are suffering the most are ones who deserve to get the greatest relief in terms of prices. Mobile phones have become an important means of earning livelihood for wage-workers who use mobile phone services to communicate their product and service rates. As human dependence on mobile phones for communication is increasing, mobile phone is going further away from the category of luxury goods. This holds true specifically for the low-cost mobile phones used by low-tier consumers. These consumers are certainly not getting what they want. Due to increased prices of mobile phones, they are left with no other choice but to buy unreliable handsets through alternative channels. It is the low-tier consumers who are bearing the greatest burden of tax revenue. A flat rate of PKR 750 implies that a mobile handset of PKR 50,000 now costs PKR 50,750 while a handset of PKR 2,500 costs PKR 3,250. This means that a person buying a PKR 3,250 mobile handset is paying 30% taxes while a person buying PKR 50,750 mobile handset is paying only 1.5% of taxes.

In order to improve level of consumer awareness, mobile phone manufacturers can run awareness campaigns to educate consumers about the cons being faced by the consumers when they don’t purchase authentic product. On the other hand, government must rethink whether low-cost mobile phones (priced PKR 5,000 or below) are luxury item or not. By not considering low-cost mobile phones as luxury items, government will benefit consumers, mobile phone manufacturers and the economy on the whole. Taking the suggested measures will not only curb mobile phone smuggling but also lead to higher tax revenues as more mobile phone imports will take place through authorized channels. Then eventually the consumer will get what he really wants.

Written by Danish Hassan

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Is consumer getting what he wants? was first posted on January 31, 2009 at 7:51 pm.