Revolution, Consumption, and Consumerism
The Islamic Revolution of 1979 was mainly a reaction to the rapid pace of Westernization under the Pahlavi rule. Therefore, the revolutionaries denounced the Western life style and all associating behaviors particularly materialism and consumerism. On the one hand, they were inspired by spiritual values and called for a modest life style. On the other hand, they vehemently advocated the economic independence and self-sufficiency. As a result, the early years of the Islamic Revolution from 1979 to 1990 were marked by an emphasis on consuming domestic products and avoiding luxurious foreign and Western brands. This trend was intensified by war with Iraq in the 1980s, the subsequent falling oil revenues and financial hardship, and the need for a frugal life style. After the war with Iraq, the government of President Rafsanjani took drastic reforms to rebuild the country and modernize the economy.1 These reforms continued under Khatami presidency from 1997 to 2005 and resulted in a more hospitable environment for business activities, privatization, and economic liberalization. The Islamic Republic gradually distanced itself from the strict populist economic discourse and implicitly accepted the importance of business and free market economy. After 1990, foreign investment was attracted; a large number of small and medium-sized businesses started up, and massive amounts of foreign and Western products were imported to the domestic market. While the early revolutionaries emphasized the importance of a frugal life style, the second generation in the 1990s tried to reconcile to the Islamic values with business activity and the associated phenomena such as consumerism, capitalism, profit orientation, and the rule of supply and demand in the marketplace.
Consumer Behavior
As members of a collectivist and hierarchical culture, Iranian consumers are marked by status consciousness. They attach importance to product brand, image, and fashion. For them the brand and image of their possession are the main components of their social identity that reveal who they are, what they do, and where they come from. As prestige-seeking consumers, they are often concerned about what others think of them and tend to purchase expensive brands.2 Many consumers are influenced by their peers and those with whom they want to be associated.3 Not surprisingly, the opinions of friends and peers play an important role in shaping their consumption behavior. Torn between new trends and their identity, Iranian consumers are seemingly reconciling traditional and religious tenets with modern, materialistic, and hedonistic values of consumerism. Hedonic shopping reflects the experiential values that include fantasy, arousal, sensory stimulation, enjoyment, pleasure, curiosity, and escapism.4 The youth are particularly keen on experiencing new trends and are attracted by luxury, fancy, and high-tech products. Since family and interpersonal relationships are very important in Iran, consumers spend considerable amount of time and money to buy and exchange gifts. Furthermore, household size is still larger than the Western countries and the averages of spending per purchase particularly in food and general staples are relatively higher. Shopping malls (passage) are very popular in urban centers and vary in size, construction, and layout. In addition to shopping, the malls are considered as ideal meeting places for the youth to socialize, have fun, and eat or drink together. Major purchase decisions especially those about furniture and appliances are often taken within the family. Women are increasingly playing important roles in both major and daily purchase decisions. The use of Internet, mobile phones, and social media is widespread and is gradually replacing the traditional forms of media mainly newspapers and catalogs. Meanwhile, radio, television, and banners are still popular. Iranians are well-known for their extraordinary sense of humor and linguistic subtleties that may be used by marketers to capture their attention.5
Market Potential and Consumption
Iran is a sizeable market of 80 million consumers with a purchasing power parity of more than $12,000 classified as an upper middle income country.6 With a Gini Index of 44.5 in 2006, it is evident that the income inequality is high in the country and there is a significant gap between the rich and the poor.7 Traveling across the country, one may observe that large portions of the population are living under a decent level of disposable income, particularly those living in villages and small towns. Nevertheless, Iran has a large well-educated and urban middle class that can afford a wide range of consumer products.8 During the 2000s, Iran’s economy grew significantly as a result of high oil prices leading to increased incomes and expenditures. Since 2010 the country has been facing some harsh international sanctions that have negatively affected the economy, resulted in double-digit inflation, and by consequence, have reduced the purchasing power of consumers. More recently, the value of rial (Iranian national currency) has dramatically fallen and the purchasing power of consumers has been severely eroded. Thus, consumers are saving less and spending more and some imported products have become extremely expensive for average Iranians. Some families have been relying on their savings to mitigate the effects of the past years’ vertiginous inflation. Many others have sought a second job in the informal sector to support their families.
Iran’s fertility rate has been slowing radically, but with a median age of 27.1 years in 2010, Iran is still considered a young country where almost 50 percent of the population is under the age of 27. An average Iranian family consists of four persons. In general, large households are found in rural areas or poor urban neighborhoods. As a modernizing society, the urban Iranians are gradually moving away from traditional life style, tend to have smaller families with one or two children, and generally reside in apartments with one or two bedrooms.9 Most young couples are professionals with both men and women working outside of the home and have busy life styles. Thanks to educational attainment and urbanization, the new generations of Iranian consumers are more sophisticated than their parents and seek the highest quality products and services. Urban middle class Iranians are much larger than other Middle Eastern countries and constitute the bulk of the country’s consumers. They consume a wide range of nationally and internationally made products such as appliances, electronics and computers, vehicles, clothing, food, and accessories. With changes in their traditional long-term orientation, Iranians are spending more than their parents and are becoming more hedonistic consumers. Middle class women are often professional and play an important role in purchasing decisions, but men are still breadwinners and enjoy higher levels of income. As head of household, the men are responsible for major family expenses. Many professional women prefer to spend their income at their own discretionary shopping such as clothing, cosmetics, kitchen appliances, and jewelry. While shopping is done by both men and women, the latter have more influence in the purchase decisions related to food, furniture, and appliances. Nearly all shopping is done by cash or certified checks as credit cards are not very common in Iran. For that reason, many customers tend to postpone their shopping until the end of month when their salaries are paid.
Like other collectivistic cultures, socialization with friends and family receives a good deal of attention in Iran. The family gatherings are often occasions to enjoy a meal together and exchange gifts. Culturally speaking, Iranians are very status conscious and consider appearances and fashion very important, especially if the consumption takes place in the presence of others. Showing off the most recent fashion trends or expensive brands is a sign of wealth and social status in Iran. The European trends in clothing and beauty products and cosmetics are in great demand, especially among young girls.10 As mentioned previously, the socioeconomic inequality is significant and only a small fraction of households are able to afford expensive and luxury products. Consumers have a great admiration for famous brands and those who can afford the luxurious lifestyles boast of their high social status.
Retail and Distribution
Small shops dominate the Iranian marketplace and the quality of products and services vary hugely from one business to another across the country. Some large department stores and Western-style supermarkets were selling merchandises before the Islamic Revolution of 1979, but during the 1980s they practically closed down or downsized. Since 2000, modern supermarkets and shopping malls have become popular in Tehran and other major cities like Isfahan, Tabriz, Shiraz, and Mashhad. The new supermarkets are particularly practical for middle class professional young families who have busy lifestyles and intend to save on time and money.11 Since the department stores are well decorated and display large quantities of products, they effectively attract Iranian customers and result in higher volumes of sales. Furthermore, the modern supermarkets are attractive to many middle class Iranians who have enough disposable income and seek a wide variety of products in one place. Haggling is widespread in Iran and leads to some discount that could range between 10 to 25 percent of initial price, but the department stores and modern retailers do not permit such practice. In addition to supermarkets, shopping malls are popular places that are used for recreational purposes where people can spend some time with friends and share a meal or drink. People often consider shopping in supermarkets or malls as a family activity where all members including children play a role in consumption behavior. In large cities, shops are open until late at night and shopping is done mainly in the afternoons or evenings. With the advent of Internet and new telecommunication technologies, e-commerce and online shops are gaining popularity. While electronic payments and new banking services have become common, it seems that the Iranian consumers are not completely prepared for online shopping and still prefer brick-and-mortar stores.
Promotion and Communication
As discussed in the previous chapters, Iranian culture is marked by traits such as collectivism, polychronic orientation, and high-context communication. In such a culture, people prefer to socialize, share information with each other, build interpersonal relations, and communicate orally. Socialization and gathering represent appropriate occasions for spreading word-of-mouth and making recommendation about the consumption experience. With the advent of new technologies, the processes of communication and socialization are undergoing significant transformations. Mobile phones are becoming very popular and affordable in the country and are used by a large majority of the population. Like other products, smartphones come in many shapes and brands and often indicate the social status of their users. In addition to phone conversations, short text messages are very common and are used for business or fun. In the recent years, some businesses are using Short Message Services for advertisement. Other technological advancements like Internet and satellite TV are often used for advertisement and play important roles in shaping the consumer decisions. The Iranian government considers satellite TV illegal and enforces Internet censorship, but the younger generation is mostly tech savvy and is able to overcome these barriers easily. Internet penetration in Iran has grown drastically in the past 10 years and has reached 53 percent of the population in 2012 (42 million users). It is estimated that more than 40 percent of the population watch satellite TV channels that broadcast from abroad in Farsi or English. The luxuriant advertisements and products shown via satellite TV channels are particularly tempting to a population that has been under political pressure and international sanctions in the past three decades.12 Social networking sites such as Facebook, Google+, and Twitter are very popular among the youth and more recently are being used for advertisement and business purposes. Despite prohibition and censorship, it is estimated that more than 50 percent of Iranians regularly use Facebook.13 As a consequence of these technologies and devices, Iranian consumers are becoming aware of the latest trends, are targeted by more sophisticated marketing campaigns, and increasingly are tempted to change their consumption patterns.
Since the 1990s, marketing activities have grown tremendously and many businesses are relying on experts to conduct consumer research and carry out advertising campaigns. It seems that businesses are gradually becoming more sensitive to consumers’ needs and wants. They are finally shifting from their traditional push marketing to pull marketing techniques. Iran state-run TV and radio stations, newspapers, magazines, and other forms of printed media contain commercial advertisement, particularly for Iranian-made products. Similarly, Iranian cities and highways are decorated with many large billboards showing domestic and foreign brands targeting middle-class consumers. Printed media such as newspapers and magazines are often used to promote certain products. As a general rule, the marketing campaigns aim at the middle class consumers in Tehran and large urban centers such as Isfahan, Shiraz, Tabriz, and Mashhad that are believed to have consumers with higher levels of disposable income.14 The contents and forms of commercials are generally adapted to the Iranian culture and customs, emphasizing values such as family, status, nationalism, functionality, and collective well-being. As a general decree, sexuality and nudity are not allowed in marketing messages. Furthermore, the commercial advertisement in the Iranian official outlets such as billboards, state-run TV and radio stations are required to observe the strict Islamic Republic’s rules and guidelines.
Products, Consumption, and Expenditures
Despite economic sanctions, the Iranian market is currently flooded with all types of imported products such as machinery, luxury cars, appliances, computers, electronics, clothes, cosmetics, foods, beverages, and cigarettes. Many American brands and products such as Apple, Dell, Pepsi, Coke, Kodak, GE, Nike, and Levi’s are found in the Iranian marketplace. The American products are imported generally via UAE and Turkey. Iranian consumers attach a great deal of importance to brands and pay a premium for those products originating in the United States, Germany, and Japan.15 The products, especially appliances, from European and Japanese manufacturers are preferred, while Korean and Chinese brands receive less consideration. In the recent years, Iranian markets have been saturated with Chinese products mainly due to their low prices. Middle class and low income Iranians who constitute a large portion of the population demand cheap and functional products such as clothing, appliances, vehicles, and furniture that are often supplied by Chinese manufacturers. Other Asian products, especially South Korean brands such as Samsung and LG Electronics are present in the Iranian marketplace and enjoy a large market share. In some cases, large European or Asian multinationals like Nestlé, Nokia, and Samsung have created joint ventures or alliances with local businesses and aggressively advertise their products. Domestically made products, particularly packaged drinks, sweets, and snacks are very popular and are advertised on the state-run TV. Iran has not signed the international treaty for the protection of intellectual property, and consequently the Iranian market is full of a wide range of counterfeit products including electronics, software, books, and music and entertainment disks.
Housing
Real estate occupies an important place in the Iranian society. It is estimated that almost 120 industrial activities are related to the real estate sector and almost 50 percent of the final goods are consumed in home construction.16 While the rate of home ownership is estimated at 65 to 70 percent, some authorities have warned of a housing crisis especially for the younger families.17 Over the past decades, accelerated urbanization and the government policies have resulted in an astonishing increase in the cost of living in urban areas. It is estimated that relative to income, housing costs for Iranian urban residents are among the highest in the world.18 The average housing price at 70 square meters was estimated around $120,000 in Tehran in 2013. What is more, home purchases are done mainly in cash and even when financing is available, the financial institutions provide mortgages up to 20 percent of the home value. Many young couples receive financial help from their parents to make their first home purchase. According to the Statistical Center of Iran, 55 percent of household income is devoted to rents in Tehran. Considering the paramount importance of housing, a large number of construction and renovation materials and products such as cement, steel, bricks, wood, flooring, and complex structures are in high demand. At homes, the floors are covered with carpets that could be very expensive. Increasingly, some families are using factory-woven carpets as cheaper substitutes to expensive handmade Persian rugs.
Food
After housing, food ranks as the second largest household expenditure. Iran’s food consumption market was estimated at $77 billion in 2012.19 Due to significant socioeconomic development in the past 30 years, hunger and malnutrition have been generally reduced. Nevertheless, the food prices have been soaring and many families had to cut on their daily calories. The reliance on food imports has increased the country’s vulnerability to global forces, particularly price volatilities and geopolitical issues. Iranians mainly consume rice, meat, poultry, dairy products, and vegetables. Like many other developing countries, a nutrition transit is happening as the traditional diet based on a combination of wheat, fruits, and vegetables is being replaced by consumption of processed or fast food, sugar, salt, and fat. As a result of these transitions, 55 percent of women and 38 percent of men in Iran are considered overweight.20 Despite the hike in food prices, eating out remains popular especially among young middle class Iranians as it offers pleasant occasions for socialization with friends and family. The demand for food is growing and new products are constantly introduced. Iranian consumers are becoming increasingly conscious about their health and for that reason they take into consideration the health benefits of food products. Busier lifestyles in large cities contribute to attractiveness of numerous canned, frozen, and ready-to-eat meals, jams, and pickles. Many of these products are produced by domestic companies and are widely advertised on TV and radio stations, newspapers, and billboards. Wealthier consumers may afford fancy imported food products, beverages, chocolates, cookies, and cans that are generally more expensive. Most of the Iranians buy their foodstuff from small grocery stores, but in large cities there are some chain supermarkets that offer a wide selection of domestic and imported items. It seems that gradually Iranian consumers, especially in large cities, are changing their shopping habits and are embracing modern supermarkets. The consumption of alcoholic drinks is officially forbidden, but some alcoholic drinks are smuggled and consumed. Many domestic factories produce soft drinks, soda, juices, bottled water, and nonalcoholic beer. The national dish is chelo-kabab consisting of steam-cooked white rice (chelo) and some varieties of minced or spiced meat on skewers cooked over fire (kabab). Chelo-kabab is served with other accompaniments such as grilled tomatoes, butter, bread, yogurt, and powdered sumac. Almost all restaurants offer this popular dish throughout the country. Alongside traditional cuisine, there are many restaurants offering pizza, pasta, hamburger, and fried chicken. Since the American fast food franchisees are not present in the country, some local restaurants have imitated their products and even their logos.
Transport
It is estimated that more than one million people work in the transportation sector accounting for 9 percent of the GDP. In the past three years, the prices of fuel, and by extension, the cost of transport have been increasing. Much of transport in Iran is done via roads by buses, taxis, and private cars. The number of vehicles has grown significantly in the past 10 years. In Tehran alone, the number of cars is estimated at eight million. The Tehran subway system (Metro) consists of four operational lines and carries 2 million passengers a day. The country has a well-developed network of highways and roads linking villages, towns, and large cities. Nevertheless, the road safety is very low and every year almost 38,000 people die or get injured in car accidents. Iran has a national railway system of 12,998 kilometers with a ridership of 21 million passengers per year connecting far flung cities to Tehran and other large cities. Three major airlines namely Iran Air, Mahan, and Aseman offer national and international flights to destinations in Asia and Europe and to more than 35 destinations within Iran. While the air transport is relatively developed, the U.S. led sanctions have seriously undermined the Iranian airlines as they cannot procure spare plane parts.
Telecommunication
Spending on telecommunication includes a wide range of products and services such as mobile phones, computers, laptops, tablets, e-readers, satellite receivers, and telephone land lines. In the past 10 years, spending on communications particularly on the Internet and mobile phones has grown drastically. The country reached more than one mobile phone per inhabitant in 2012. While Iran has done very well in connecting people via telephone, it is well behind other neighboring countries in the number of Internet users.21 More recently, schools encourage students to use Internet resources. Social networking websites such as Facebook and Twitter are very popular among the younger generations. In addition to talking, mobile phones are used for sharing photos, music, and video files. There is a strong demand for satellite TV mainly because of a harsh censorship of the news and media in the country. Satellite dishes can be seen on many rooftops or on balconies.
Education
Education accounts for almost 2 percent of consumers’ expenditure, which is well above the Middle East average. Despite the existence of state funded public schools, the number of private schools has grown sharply in the recent years. The private schools generally offer smaller classes and better services and are preferred by middle-class Iranians. State-run universities are free but their capacity is limited and their entrance remains very competitive. Many students have to enroll in private universities that require tuition fees. Spending on higher education has grown fast in the past 15 years as a large number of families are sending their kids to college in preparation for a better future. In 2008, Iran had over 3.5 million students enrolled in both state-run and private universities.22 Education expenditures are related to a wide variety of services offered by day care centers, elementary and high schools, language institutes, college preparation departments, professional training institutes, and public or private colleges and universities.
Clothing and Footwear
Clothing and footwear are considered as other significant family expenditures. According to Thompson Reuters report, Iran has the second biggest global market for Muslim clothing after Turkey, valued at $20.5 billion in 2012.23 The Iranian garments market is flooded with varieties of domestic and imported products. In the recent years, the cheap imports from China have replaced the Iranian-made clothing and footwear. Shopping for clothing peaks in the last weeks of winter from February to March in preparation for the Persian New Year (Nowrouz), which falls on the first day of spring (March 20th). Many exhibitions and markets are held at the end of Iranian New Year, a few days or weeks before the Nowrouz holiday. All people, particularly children, are expected to wear new clothing and shoes during Nowrouz celebrations. Employees receive the end-of-year bonuses and allowances that are spent mainly on clothing or food. Iranian consumers generally prefer European fashion brands and many upper class consumers make shopping trips to Dubai, Turkey, and Malaysia to purchase high quality clothing brands. Others may travel to the Iranian free trade zones such as Kish and Qeshm islands to purchase foreign made clothing.
Gold and Jewelry
Spending on gold and jewelry is very common as many Iranians consider gold as a reliable investment and ornament. Thanks to limited investment opportunities, Iran has been a major gold consuming country in the recent years.24 With high inflation rates hovering around 15 to 25 percent per year, gold has become a performing asset. In addition to investment, wedding celebrations involve the exchange of gold and jewelry gifts. After all, a wedding without gold is meaningless. Jewelry and gold shops are seen in all cities and neighborhoods and offer a combination of traditional and European designs made with 18 carat gold and decorated with precious stones.
Health care and Pharmaceutical
Iran’s health care industry was estimated to be around $28.13 billion in 2012.25 Almost 7 percent of consumer expenditure is devoted to health-related products and services. This number represents almost 9 percent of GDP in 2008, which is higher than that of other Middle Eastern countries.26 Cardiovascular diseases, road accidents, and different types of cancers are the major causes of death and injury and respectively account for 45, 18, and 14 percent of deaths. Furthermore, diabetes, osteoporosis, and nutritional and psychological disorders are on the rise. Drug addiction problems affect 3 to 5 percent of the population.27 With an aging population, it is estimated that the demand for health care services will increase in the next two decades. Large cities and urban centers enjoy developed clinics and hospitals, but the small towns and villages suffer from lack of adequate health care services. Therefore, many Iranian patients from small towns refer to hospitals and clinics in Tehran and other provincial capitals. The national average of consumption of medicines is higher than normal and it seems that Iranians consume a lot of over-the-counter medications. Iran enjoys a well-developed pharmaceutical industry, but many critical drugs are imported. With the Western sanctions, Iran has been importing Indian and Chinese medications that are generally of lower quality. Iran’s pharmaceutical market was estimated at $3.26 billion in 2011. In addition to medicine, the demand for vitamins, food supplements, and slimming products is growing as consumers are becoming more sensitive to their aesthetics. Indeed, appearance is very important to Iranian consumers, particularly to women. For that reason, the country is ranked sixth in the consumption of cosmetics and beauty products in the world. Ironically, despite having to wear the hijab in public, Iranian women pay a good deal of attention to their appearance and meticulously take care of their hair. The demand for all sorts of cosmetics, perfumes, and hair care and skin care products is strong and is estimated to increase over time.
Leisure and Recreation
In tandem with other expenses, spending on leisure and recreation is growing. Most of the outdoor activities are done in groups with friends or family. Among indoor activities, reading books and watching TV and films are very popular. Films, CDs, computer games, and some foreign books are sold as pirated or copied products. In Tehran and other large cities, cinemas, theatres, and music concerts are popular. Due to the Islamic codes of conduct imposed after the revolution, most people prefer to organize their gatherings and celebrations in homes or private gardens. Every year many Iranians travel across the country to visit other regions and enjoy differences in landscape, climate, and cultural heritage. Some holy cities like Mashhad and Qom attract millions of pilgrims. Isfahan, Shiraz, and Tabriz are home to numerous cultural and historical attractions and receive large number of tourists each year. Every weekend, the Caspian Sea coastal cities are vacation destinations of many Tehranis who are impatient to escape the air pollution and traffic jams of the capital. The southern regions and Khuzestan are preferred in winter times and during Nowrouz holiday. The upper class Iranians can afford to visit foreign destinations. In the recent years, Dubai, Mecca, Turkey, Armenia, Azerbaijan, Malaysia, Singapore, and Thailand have been popular foreign destinations.
E-commerce and Online Shopping
E-commerce is quite young and undeveloped in Iran and according to unofficial estimations, it represents only about 0.7 percent of the GDP. This number is much lower than in neighboring countries such as Turkey and the UAE.28 Despite its underdevelopment, e-commerce may have a promising future in Iran. The country enjoys a large number of Internet users estimated at about 35 to 45 million and is the second largest in the region after Turkey. Iran has high Internet and mobile phone penetration rates estimated at about 55 and 126 percent, respectively. More importantly, the number of Internet users has reportedly doubled every year since 2005 and the number of broadband connections has been growing exponentially in the recent years.29 Majority of the Internet users are urban, young, educated, tech-savvy, and middle-class citizens who have higher than average income and are fascinated by Internet, smartphones, and technology. The fixed broadband Internet connection is very affordable and Internet advertising is generally cheaper than other media and outlets. Iranian consumers traditionally have been skeptical about online shopping, but the new generations are more likely to consider the benefits of e-commerce. For instance, online shoppers have easy access to wider selections of products, can easily compare prices, and may avoid the hassles of shopping, such as transport, traffic, and parking-related problems.
Obviously, there are huge obstacles to e-commerce development in Iran. In addition to international sanctions and isolation, Internet censorship implies that Iranian businesses are, at least formally, banned from advertising on outlets such as YouTube, Twitter, Facebook, Yahoo!, and Google. While the Internet infrastructure and telecommunication services are quite satisfactory, due to ideological and political reasons, numerous websites or services are restricted, and occasionally, Internet speeds are kept low on purpose. Bureaucratic complexities and obtaining operating licenses for online retailers make the e-commerce operations even more difficult. The new administration of President Rohani has tried to lift some of the harsh restrictions and reduce Internet censorship. More recently, the introduction of mobile 3G and 4G has been approved by the government and Internet providers have been allowed to increase bandwidth to 10 megabits a second for domestic customers.30 While the international sanctions and Internet censorship have created considerable hurdles to e-commerce, ironically they have brought golden opportunities for Iranian startups to gain market shares in the absence of tech giants such as Amazon and eBay. It is estimated that there are about 15,000 Iranian online shopping websites. In the past years, numerous Iranian e-commerce retailers like Digikala, Takhfifan, eSam, Kadochi, Sheypoor, and Persian Luxury have witnessed amazing growth rates. Reportedly, half of Internet users in Iran have made an online purchase and online retailers are receiving half of the Internet traffic.31 Due to international sanctions, Iranian consumers and businesses do not have access to services offered by Visa, MasterCard, and PayPal. More recently, domestically-designed services have emerged to increase public trust in online payments. For instance, ZarinPal, the Iranian PayPal substitute, is offering security and convenience to Iranian e-commerce.