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EMBRACE TOMORROW HOW TO GROW IN FUTURE MARKETS

TAlKThe client magazine October 2012

GfK 2012

Can you see into the future? I, personally, cannot. However, in order to plan today for tomorrow and the day after tomorrow, I turn to reasonable assumptions. And so a particular image of the future appears in my mind. Of my own future, of course, but also the future of GfK, and the future of our clients’ market environments. Your future.

It is our job as market researchers to think about your future. Our surveys show you the way. We provide the foresight you need to make the right decisions in business.

In this first issue of our new ‘Talk’ magazine, we show you how future business opportunities can be developed in both established and new markets. We demonstrate and explain how the car manufacturer Volvo successfully seized an opportunity generated by its well-received image transformation and the right price structure. We look at the prospects offered by the strong economy of South Africa and its consumers. We take a closer look at reasons behind China’s smartphone boom. And we explain why the pharmaceutical industry should increasingly focus on the loyalty of its patients.

Regardless of which industry you operate in, we help you make successful predictions in your business. How? By showing how the future starts here and now, and by continuously updating the fact-based assumptions on which we build our robust predictions.

YoursMatthias HartmannCEO of GfK

THE FUTURE STARTS TOdAy

EMBRACE TOMORROW – HOW TO GROW IN FUTURE MARKETS 2

GfK 2012

EMBRACE TOMORROW – HOW TO GROW IN FUTURE MARKETS 3

CONTENTS

Tomorrow’s opportunitiesBEYOND INSIGHT TO FORESIGHTInterview with Marilyn Raymond

Tomorrow’s productsHOW MUCH CAN A NEW CAR COST?By Marko Anders

Tomorrow’s countriesSOUTH AFRICA – AN EXCEPTIONAL MARKETBy Molemo Moahloli and Bradley Taylor

Tomorrow’s needsTHE SMARTPHONE BOOM IN EMERGING MARKETSBy Gregoire Lemaitre

Tomorrow’s patientsTHE GROWING IMPACT OF CUSTOMER LOYALTYBy Peter Kuester

Tomorrow’s dataTHE POWER AND PITFALLS OF PREDICTIONBy Colin Strong

P.04

P.09

P.14

P.20

P.23

P.28

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BEyONd INSIGHT TO FORESIGHT

GfK 2012

Marilyn, what are future markets?For global companies, market opportunities are often fueled by healthy and growing economies. For example, the MIST countries – Mexico, Indonesia, South Korea and Turkey – which are very active these days. But as well as economic indicators, the cultural perspective becomes equally as important, when assessing the feasibility of investment in a region. Young Japanese consumers, for example, are said to be real trendsetters. Currently, they seek South Korean products, fashion, and music as the new cool ‘must haves’. Since the two countries are only separated by a one hour flight, one might predict that they are a leading edge indicator of what could be happening in the youth market globally – from South Korea to Japan and then beyond.

But generally speaking, no matter what industry or region you want to grow in, the future is already upon us. Perhaps not widely distributed. Perhaps not widely recognized just yet. The opportunity

It’s not that insights are not important, they are. But when companies adopt a growth strategy, they can’t rely just on a view of today. They need a view of tomorrow as well. A clear understanding of evolving consumer and customer needs. And a clear perspective of how markets and categories will evolve. By calibrating how the picture will change and how best to leverage that trajectory, companies get the critical foresight needed to successfully tap into future markets.

Interview with Marilyn Raymond, Global Head of Market Opportunities & Innovation

TOMORROW‘S OppORTUNITIES – BEyONd INSIGHT TO FORESIGHT 5

lies in recognizing how outside influences are impacting your consumer and to snap at the chance in time. Look at Apple, for example: the iPhone didn’t come out of thin air. The individual benefits provided in the product had been seeded by earlier innovations in other ancillary categories. A new future market, be it a new opportunity for a company or a new industry, category or region, is really a new bundle of benefits that provide value to a sufficiently number of people – and delivers ROI. Foresight lets you know which bundle of benefits to ‘package’ and when or where to sell it.

How does a company know what the consumer benefits will be in the future – especially as consumers themselves don’t know about the future?Since consumers only resonate with what they understand, it is imperative to learn what new messaging they are hearing and experiencing, and at what type of frequency. This kind of insight has to be calibrated against outstanding needs.I’ll give you an example: do you recall the first time you heard ‘Bluetooth’? What was the promise? Did you understand the bundle of benefits? For most of us, the seeding of the concept took time. It was only through multiple exposures to hearing and experiencing similar messages that this new technology for exchanging data reached a tipping point. Then, the masses finally

FORESIGHT lETS yOU KNOW WHICH BUNdlE OF

BENEFITS TO ‘pACKAGE’ ANd WHEN OR WHERE TO

SEll IT

GfK 2012

recognized the value of this offering – and a new market was created. You know, new needs are always developing.

Take something as ubiquitous as toothpaste. Once upon a time, the messaging was simply that it cleaned teeth. Then, it was to prevent problems like cavities and tartar. And then it included secondary benefits such as providing fresh breath or whiter teeth. But recently the benefit messaging has moved beyond preventing a problem to actually treating and possibly

enhancing what you were born with: enamel repair. A few years back, society in general was not aware of eroding enamel – be it from lifestyle or genetic predisposition. But now we think about it. A new ‘branch’ of toothpaste products are now occupying retail space because of messaging about the perils of acidic beverages and teeth clenching from stress. Foresight comes from connecting the dots that are all around us and understanding what the market is ready to take hold of and what is still just emerging into their awareness. When you have the right trajectory of how consumers will evolve and how a market will evolve you can time your investment for the point when the two trajectories meet.

What’s the general right trajectory, let’s say, in the globally-growing automotive industry?I don’t own a crystal ball, but my daily work on market opportunities clearly shows that smart technological solutions bring the right benefit bundle to both developing and developed countries.

TOMORROW‘S OppORTUNITIES – BEyONd INSIGHT TO FORESIGHT 6

WHEN yOU HAvE THE RIGHT TRAjECTORy OF HOW

CONSUMERS WIll EvOlvE ANd HOW A MARKET WIll

EvOlvE yOU CAN TIME yOUR INvESTMENT FOR THE

pOINT WHEN THE TWO TRAjECTORIES MEeT

Marilyn Raymond is GfK’s expert for market opportunities and innovation

GfK 2012

To developing countries, they bring prestigious western technology for reasonable prices and better individual mobility than bikes, buses or other. To developed countries they bring fuel economy and electric drive, which is good for both planet and pocket. For these reasons, smart technological solutions have current success and will continue to find growth around the globe.But if you look further out: where is the automotive market headed? Our research indicates that the market for cars that bring wellbeing benefits to their owner will grow. Think about the stress of driving in cities or long distances: what might help your mental wellbeing? Or your physical wellbeing? Already manufacturers are selling features that address these. Lumbar adjustments,

for one. But what would a car look like that has been developed specifically for those seeking a greater sense of wellbeing? And what price might the manufacturers charge? The value of the total proposition is tied to two things: the value of these secondary benefits plus the core benefits for buying a car in the first place, which means ‘must have’ auto benefits like safety and performance. But that value balance might change if this new product were positioned not as a car, but perhaps as a proactive, every day way

TOMORROW‘S OppORTUNITIES – BEyONd INSIGHT TO FORESIGHT 7

to bring calmness to life. It could then be offered as an alternative to paying for scheduled therapy or medication – and then the value perception might well be different.

Do you think that health in general is one of our future trends when developing new products and services?Yes, definitively. And we can be even more concrete: we are sure that self-monitoring products for managing your own health are building a major future market. That’s because they fulfill the needs of an increasingly aging population while leveraging new technologies. The ability to proactively manage your wellbeing is very compelling to consumers. This market does already exist, but it is in its infancy. The growth of non-intrusive measurement, customized solutions and new technology that leverages genetics all point to the growth of this industry.

Looking in your nonexistent crystal ball, what is the most promising ‘dark horse’ that companies should bet on?I suppose the most important future market will be the cashless society. We are certainly well on the way with new products and services, but this industry too is in its infancy. Current new product activities are primarily addressing the core needs of safe and convenient transactions. We call this a wave 1 category, as the secondary benefits are not yet well developed.

What should companies consider? What should they be cautious of, when thinking about their future markets? There are some realities that they need to consider. The first key point is that the real world is moving constantly and static snaps shots of a moment in time do not allow for this change. Having a constantly updating roadmap to the

FORESIGHT COMES FROM CONNECTING THE dOTS THAT ARE All AROUNd

US ANd UNdERSTANdING WHAT THE MARKET IS

REAdy TO TAKE HOld OF ANd WHAT IS STIll jUST

EMERGING INTO THEIR AWARENESS

GfK 2012

future, with stepping stones for how to navigate along the way, makes it easier for companies to hit the optimal timing. Those who don’t keep on top of changes are often too late to the market – or they see the trajectory but move too soon.Another key point is to realize that needs are relative. The same consumer, practitioner, service provider, can have different needs in different situations. In every situation, substitute products or services bring different advantages and disadvantages that need to be considered if you want your product or service to be the one of choice. Understanding the relative frames of reference and capitalizing on them can mean big financial gains.Look at a soup client of ours: he understood intuitively that canned soup competed with frozen meals in quick meal situations. But he was very surprised to find that weight management – a core benefit associated with many items in the frozen food category – accounted for over 25% of their sales volume. None of the soup brands were taking advantage of this benefit space resulting in a migration away from soup usage. Once our

client understood this ‘new frame of reference’ and the benefits it provided, the company could move to an offensive position in the market. And it did. Within months our client revised his ad campaign to compete directly with frozen meals, by highlighting that hearty portions of soup have the same calories as small, “unsatisfying” portions of frozen meals.

So tapping into future markets at the right time means having a hearty portion of foresight built on many, many different insights…That’s right. Innovation is hard work. Having a fact-based strategy for what you want to accomplish and how to do this is essential. Without foreseeing where the market is going, you run the risk of fruitless expenditure of investment funds. That’s why you need foresight. That’s why you need the ability to marry evolving consumer needs with evolving market activity. It’s cheaper at the end of the day. ■

For further information, please contact: Marilyn Raymond, marilyn.raymond@gfk.com

TOMORROW‘S OppORTUNITIES – BEyONd INSIGHT TO FORESIGHT 8

Marilyn’s job is to connect the dots of consumer and market insights and then to develop valuable foresight for strategic planning

GfK 2012

HOW MUCH CAN A NEW CAR COST?

GfK 2012

Hayville, Pennsylvania, USA. Volvo? A few days ago, Mary, aged 35, didn’t know anyone who drove this make of car. Now she herself owns one of the new premium models. In Vibrant Copper Metallic. This Volvo S60 immediately caught her eye at the car dealership. Comfortable and spacious, but also elegant and sporty. Perfect for carrying out her everyday activities in style. She has just dropped off her nine-year-old son Marc at football practice and is on her way to the shopping mall. The drive takes her past houses with perfectly trimmed front lawns. On flag poles, the stars and stripes blow proudly in the autumn breeze. Mary and her family live in an American suburb and depend on a second car. At times this is quite frustrating, given that the fuel price has doubled over the last decade. That is why it was time to find a more economical alternative to their old, gas-guzzling Chrysler.

After her grocery shop, Mary puts the bulging paper bags filled with fruit, vegetables and a few ready-made meals in the trunk of her car. Marc’s football practice will be finished in half an

When a new product is launched globally, one question must inevitably be asked: how much are consumers in different countries willing to pay? Discovering the answer is a difficult task. A further dimension complicating this is if new products include an image transformation as well. Automotive manufacturer Volvo has successfully mastered this challenge in the launch of its new S60 premium model.

By Marko Anders

TOMORROW’S pROdUCTS – HOW MUCH CAN A NEW CAR COST? 10

hour, so she drives back to the pitch. When she arrives, she sees the other mothers waiting on the sidelines. Of course they have noticed Mary’s new car. And an elegant car at that. As she gets out, Mary smiles with satisfaction. They are certain to immediately ask her how much it cost, which they will reflect on in view of the difficult economic situation. But Mary thinks that the S60 looks more expensive than it is. Although prior to market launch, Volvo did set the price of its new model in the US slightly higher than originally planned.

Nuremberg, Germany. Dieter drives his new Volvo S60 in Caspian Blue Metallic out of the garage. The 46-year-old teacher is going to visit his friend Michael in the Bavarian Prealps. Since Dieter’s daughter moved out three months ago, he has had much more time for himself. He is making a conscious effort to enjoy it. Meaning he can finally get ‘on the road’. His new Volvo reflects this new-found lust for life. And it demonstrates that he has made it in life. Until recently he owned a red Volvo 760 estate. Built in 1989. That car was the reason for his nickname – Michael and other friends have called him ‘old Swede’ for many years now. For a long time, Dieter above all valued the safety and function of cars. Appearance didn’t really

MARy THINKS THAT THE S60 lOOKS MORE ExpENSIvE THAN IT IS

GfK 2012

TOMORROW’S pROdUCTS – HOW MUCH CAN A NEW CAR COST? 11

matter. But he quite simply liked the look of the new S60 and, despite not generally relishing being the center of attention, Dieter is enjoying the striking modern design. It is elegant, but not

eccentric. And this Volvo model provides both space and comfort, as well as having four wheel drive, which is particularly important in winter when he drives to the mountains. On the motorway, Dieter cruises past forests and the rolling hills. Michael would be astounded. He would most likely ask how much Dieter paid for his ‘new Swede’. Dieter will happily tell him with more than a hint of pride. The price was borderline, but still affordable. Although it was more than Volvo had actually planned for the German market.

Haidian District, Beijing, China. Han is driving his Flamenco Red Metallic Volvo S60. Or rather, he’s sitting in it. Stuck in a traffic jam. For the past hour. Relaxed he leans back in the plush white faux fur seat cover and opens a second can of bubble tea. Han is used to the Beijing rush hour traffic. And his shiny new car is of course contributing to his good mood.Han is a young entrepreneur and his T-shirt business is currently thriving. As managing director, he has to be very mobile. He is always on the move around the city. As accidents are quite common in the chaotic traffic, the safety features of a new car were naturally particularly important to Han. He soon knew that he wanted

a car that was originally manufactured in Europe. His Volvo is fitted with the ‘city safety package’ and has a high horsepower gasoline engine with a regenerative braking system. In terms of design, it is on par with the sedans of BMW, Audi and Mercedes that Han had originally considered. Of course, the S60 was expensive – and it looks it. Han wouldn’t have bought it otherwise. But it was not as expensive as a comparable model from the other three European manufacturers. This was enough to convince not just Han, but many other Chinese consumers. And this was the basis for

Volvo’s China strategy: it was not withoutreason that the manufacturer decided to offer the S60 at a lower price than previously planned.

Square to stylish – Volvo’s image transformation ‘Previously planned’ – for vehicle manufacturers this phase is the final comprehensive test of what the intended target groups in the intended target countries think of a new model prototype and how profitably they can operate with the proposed prices. Depending on the result, the manufacturer then adjusts the communications strategy specifically for the country and of course also the market launch prices. For Volvo, the launch of its new S60 in 2009 was much more than just a new product launch: the S60 was to be the epitome of the Swedish car manufacturer’s image transformation, directed

IN dIETER’S OpINION, THE pRICE WAS BORdERlINE, BUT STIll AFfORdABlE

THE S60 WAS ExpENSIvE – ANd IT lOOKS IT.

HAN WOUld NOT HAvE BOUGHT IT OTHERWISE

GfK 2012

at new target groups in the premium segment. Premium models for younger premium customers – this is the growth strategy identified by Volvo that has since been in effect, promising to give the brand a prosperous future. However, to achieve this, it was important to move away from a rationally oriented brand to one much more driven by emotions. Initially this involved

changing the design typically associated with Volvo. This marked the end of the square, boxy form. Time for elegance and style. But without losing other essential trademark features, such as functionality and space.It’s a great art to convincingly implement an image transformation. Many wheels must be set in motion, countless switches must be flicked. Volvo actually achieved this with its S60. And it did so extremely well and, most of all, convincingly – as testified by comprehensive surveys we conducted on the prototype. In car clinics, acceptance surveys carried out 24 to 6 months before market launch, the new model received extraordinary praise from a surprising number of representatives of the intended target groups in China, Germany and the US. An unexpected number also considered the tested prices to be entirely appropriate. Even though car clinics are by their very nature

artificial survey situations, this showed that the overall response to the new S60 was undeniably positive.

Calculating potential market shares and adjusting pricesHowever, in order to profitably operate with a new product on target markets, solid market analyses are required in addition to acceptance surveys such as car clinics. In the automotive sector, our solution is the GfK Automotive Pricing Tool. This is a unique combination of a specialized price-conjoint analysis and an evaluation of the customer journey specifically tailored for vehicle purchases. Based on the neutralized car clinic results, Volvo’s test prices and vast amounts of industry expertise, we calculated the anticipated market share of the S60 in the three target countries.The figures from the GfK Automotive Pricing Tool then enabled Volvo to adjust its originally

scheduled prices in order to position the model in the market with the best-possible ROI.In China, which is a highly volatile market as a result of strong price fluctuations, Volvo had to consider the following: if more than 2% of all new registrations in the the first year were to

THE GFK AUTOMOTIvE pRICING TOOl ENABlEd

vOlvO TO AdjUST ITS ORIGINAlly SCHEdUlEd

pRICES

TOMORROW’S pROdUCTS – HOW MUCH CAN A NEW CAR COST? 12

THE lAUNCH OF vOlvO’S NEW S60

IN 2009 WAS MUCH MORE THAN jUST A NEW

pROdUCT lAUNCH

GfK 2012

be the S60 model, the price must be lowered. Said and done. In the end, the S60 achieved 5%. The opposite was true in Germany: the test price looked set to generate a 9% market share of new registrations. However, for strategic reasons, Volvo decided to increase the price and consciously took into account that the share would be lower. This was ultimately 5%. In the USA, a 5% share of new registrations was forecast for the originally planned price. Despite slightly raising the price, the unexpected high growth in the premium segment prior to the launch helped Volvo achieve the predicted 5% market share.

SATISFIEd CONSUMERS AROUNd THE WORld

USA. Mary loves her new S60. While she discusses the advantages of parking systems with another mother, Marc comes over. Rather sweaty after his training session, he runs into his mother’s open arms. Elated, he tells her of the praise he received from the coach for his brilliant performance. The big game is on the weekend and he’s in top form. Mary is proud of him. But he still has to take off his dirty shoes before getting into the car and driving home past the immaculately manicured lawns of their suburb.

Germany. Surrounded by picturesque hills, small farms and many green pastures, Dieter parks in front of Michael’s farmhouse close to Lenggries. Michael is already opening the door and looking at the S60 in amazement. Dieter is thrilled – the surprise came off perfectly. He lowers the

window and pulls out two bottles of Rotbier, a specialty beer from Nuremberg. Now Michael also breaks into a smile as he sits down on the leather passenger seat next to Dieter. Drinking beer in the car. That takes them back to Dieter’s very first Volvo. Only this time they can place the empty bottles in the special holders rather than throwing them on the back seat.

China. The traffic jam disperses on the Yongfeng Road. The road which looked like a giant car park only a few minutes ago is finally opening up again. Han calls his wife Ran to tell he will be pick her up from work in a few minutes. The new S60 moves forward at snail’s pace. Not much faster than the swarm of pedestrians walking along Beijing’s streets. Although the city is trying very hard to reduce traffic by temporarily closing some roads to cars, no real progress has been made. Many of Beijing’s residents spend a large part of their lives sitting in their automobiles.Ran is waiting in front of the dentist’s office where she works. She has bought a new air freshener for the car and hangs it on the rearview mirror. It smells of roses. This is supposed to help reduce stress. They then pick up their daughter, Siara, from her violin lesson. In just under an hour the family of three will finally arrive home. Until then there is time to talk about their day. They are all quite happy to sit in this lovely new car for a little longer, if need be. ■

For further information, please contact: Marko Anders, marko.anders@gfk.com

TOMORROW’S pROdUCTS – HOW MUCH CAN A NEW CAR COST? 13

GfK 2012

SOUTH AFRICA – AN ExCEpTIONAl MARKET

GfK 2012

TOMORROW‘S COUNTRIES – SOUTH AFRICA, AN ExCEpTIONAl MARKET 15

With GDP totaling around €420 billion, South Africa is responsible for almost a quarter of the economic output of the entire continent. For the most part, South Africa’s financial, legal and communication systems have achieved European levels, while its capital market is among the 20 largest in the world. South Africa has a broad-based economy. Not only is the country the world’s major producer of platinum, but it also exports diamonds, coal, gold and other metals. The automotive, textile and food processing industries, along with banking, telecommunications and tourism have already become major engines of growth in the South African economy. With its burgeoning middle class boosting domestic consumption, South Africa has been among the emerging economies of the BRICS countries since 2011, alongside Brazil, Russia,

In no other region of the world is the population growing as fast as in Africa. The continent already has a population in excess of a billion, with an average of two million more being added every month. A huge and promising market, which has remained largely unexploited south of the Sahara. The only exception is South Africa. The largest economy in the whole of the African continent. And the gateway to around 250 million consumers living in the sub-Saharan region.

By Molemo Moahloli and Bradley Taylor

India and China. As a regional hub, it offers easy access to other sub-Saharan countries, as well as to some states in the north of Africa.

A growing number of global companies such as Unilever, Coca-Cola, Wal-Mart and L’Oréal have already established their own presence in South Africa, and others are about to take the plunge. This exceptional African market provides them with alluring growth potential. However, gaining a foothold requires insider knowledge: who are the consumers? What’s important to them? What role does technology play in everyday life? Are there cultural particularities which govern consumer behavior?

Here are some of our answers to these questions, with market insights and foresights:

SOUTH AFRICA WIll BE AMONG

TOp 20 MARKETS FOR RESEARCH

By 2020 AT THE lATEST (ESOMAR)

GfK 2012

…during the next 12 months. Nearly 30% of South Africans believe that their financial situation has improved compared to one year ago. Only 28% of consumers in the country have made five or more cutbacks in the past year, compared with 40% globally. Indeed, South African consumer power has increased over the last decade. The LSM or Living Standards Measure is a means of segmenting the South African market. It groups people according to their living standards. Since 2004, the upper LSM groups, 7-8 and 9-10, have grown by 112% and 56% respectively. The lowest income groups, LSM 1-3, have shrunk by 55% over the same period. Our experts estimate that growth in the upper LSMs will reduce to 20% over the next five years.

TOMORROW‘S COUNTRIES – SOUTH AFRICA, AN ExCEpTIONAl MARKET 16

OF SMARTpHONES ARE pURCHASEd IN ClOTHING STORES...60%

…alongside a new pair of running shoes or outfit. Unique to South Africa, clothing shops are the biggest retailing channel for telecoms products. The prepaid mobile

phone market constitutes 75% of all unit sales. Store-based credit cards allow consumers to stay in touch with the newest mobile phone models, and to pay them

off over a six month period. On average, 1.5 million mobile phones are sold per month. Five years ago, the market bordered on 9 million units per year. And nearly one in three consumers plans to buy portable consumer electronics this or next year.

BElIEvE THEIR FINANCIAl SITUATION WIll IMpROvE…38%

TABlET SAlES HAvE GROWN By

400%…in terms of value from 2011 to 2012. Growth in terms of units has reached 450%. Tablets are also sold through stores which allow a payment plan, and uniquely, this includes banks. The resulting affordability of tablets has created phenomenal growth for this product category. In general, 61% of South Africans plan to buy big-ticket items this year or next.

THE 10 MOST

vISITEd WEBSITES…

...are Google South Africa,

Facebook, Google, YouTube,

Yahoo, Gumtree, Wikipedia,

LinkedIn, News24

and Bid or Buy.

GfK 2012

TOMORROW‘S COUNTRIES – SOUTH AFRICA, AN ExCEpTIONAl MARKET 17

52% lISTENEd TO MUSIC/RAdIO WITH THEIR MOBIlE pHONE…

…in the past 30 days (global: 39%). In a global comparison, South Africans spend more time listening to radio in general: 10.6 hours weekly as compared to 6.1 hours weekly worldwide.

ONly 11% OWN A COMpUTER…

...and only 17% of South Africans use the internet. The country has an estimated 8.5 million

internet users out of 50 million people. For comparison: 49% of Morocco’s

population access the internet, followed by Nigeria (29%), Egypt (26%) and Kenya (25%). The availability of a landline connection is often a problem. This drives the need for GPRS enabled smartphones, which

represent 65% of the South African market. That’s why most

South Africans browse the internet with their cell phones.

GfK PROMOTES MARKET RESEARCH EDUCATION

While companies have a high demand for market information, market researchers are stretched to their limits because of a lack of skilled people. That’s why GfK Verein (a non-profit organization) cooperates with the University of Pretoria to train students in market research. Our experts have developed content for lecturer training and are in the process of setting up research academies to give training in interviewing, moderation and data analysis skills. In addition, we provide hardware, software, books and marketing materials, and also offer internships in Europe and the US for a number of students each year. These university courses will start by the end of 2012. GfK Verein is also collaborating with universities in other African countries, such as Nigeria, Ghana and Kenya.For further information, please contact: Phyllis Macfarlane, phyllis.macfarlane@gfk.com

33% FINd THAT HElpING TO EdUCATE pEOplE IS ONE OF THE THREe MOST IMpORTANT RESpONSIBIlITIES OF

COMpANIES TOdAy (GlOBAl: 9%)

GfK 2012

TOMORROW‘S COUNTRIES – SOUTH AFRICA, AN ExCEpTIONAl MARKET 18

...and have seen double digit growths over the past year. CRT TV (tube TV) has almost been superceded by the introduction of Plasma, then LCD and LED technology. LED has achieved double digit growth each year since its inception, and internet TV is also on the increase. Our forecast for 2012 and 2013 is a 12% unit growth for the flat-screen TV market.

OF FlAT-SCREeN TvS SOld ARE 3d ENABlEd…9%

38%have a satellite dish

or microwave antenna

connection to their main TV

(global: 26%)

18% OF pAINT SOld IS ROOF pAINT…

…in a market that, on average, sells 6,215,000 liters of paint each month via retail stores. South Africans are not only concerned with keeping the proverbial

‘roof over their head’, but also with keeping it in tip-top condition, both for weather protection and aesthetic reasons. South Africa is one of the few DIY markets in the

world to sell water-based emulsion paints for roof application. These paints have maintained a consistent share of the market at a value of approximately €3,5 million (ZAR37 million). The trend has been stable over the past 13 months and will certainly make an ongoing contribution to the progress of the DIY market.

... and they have held this market share for the past five years. The reason behind this is that 43% of South Africans live in rural areas, where water supply is a

major problem. Although there is running water, each house does not necessarily have its own tap. The twin-tub washing machine solves this problem: you can fill it with

water manually. A twin-tub sells at the average price of €195 (ZAR2100). Women commonly open launderettes in their rural area and do washing for the community. Although there are newer technologies available, the twin-tub washing machine will continue to be part of the South African household.

64%say that “home reflects

who I am or what I value” (global: 44%)

35% OF WASHING MACHINES ARE TWIN-TUBS…

GfK 2012

TOMORROW‘S COUNTRIES – SOUTH AFRICA, AN ExCEpTIONAl MARKET 19

75%ARE AlWAyS CONCERNEd ABOUT SAFETy

ANd SECURITy (GlOBAl: 39%)

CONSIdER ENvI-RONMENTAl pROTECTION…19%

ONly 20% OF pET OWNERS BUy pET FOOd… GfK IN SOUTH AFRICA

We deliver insights into the consumer goods market, based on:•10,620 retail outlets delivering retail data for more than 100 product groups•1,000 households (from 2013 on: 3,000) reporting on their purchases for over 50 fast moving consumer product categories •the latest scanning tech-nology

Major clients: Coca-Cola, French Telecom, Kraft, McDonalds, Nestlé, Parmalat, Pernod Ricard, Samsung, LG, Sony, Intel, Canon, Nikon, Microsoft

Market coverage: South Africa + 32 other African markets

Ranking in Africa: No. 4

Contacts: Our retail expert: Molemo Moahloli molemo.moahloli@gfk.comOur consumer panel expert: Sally Rothman sally.rothman@gfk.com

...when making purchase decisions. The proportion of ‘green buying’ increased by 36%

from 2010. And 59% conserve energy at home all or most of the time – behavior that has risen by 7% from 2010. However, the green trend is not without some challenges to marketers: 40% of consumers find that the environmentally friendly alternatives for many of the products they use just don’t work as well, which is more than the global average (36%) and growing (+29% from 2010).

... and sales are higher in the urban areas than in rural or remote communities. Approximately 70%

of revenue is generated from brands sold via supermarkets and other mass merchants. South Africa ranks among the top 10 countries for dogs as pets. There are nearly 10 million dogs in the country, closely following the dog population of Japan and Russia. Many South Africans purchase dogs for security. They are also used in the burgeoning security services industry. It is likely that improved education and better economic times are required to substantially change pet food purchasing behavior among South African pet owners. In the meantime, overall annual revenue growth will be limited in the next few years.

GfK 2012

THE SMARTpHONE BOOM IN EMERGING MARKETS

GfK 2012

TOMORROW‘S NEedS – THE SMARTpHONE BOOM IN EMERGING MARKETS 21

In 2008, smartphones accounted for just 9% of all mobile phone sales in China. Indeed, despite being the world’s largest country, fewer than 200 million phones were sold every year. Move forward to 2012 and there has been a seismic shift in the market. With smartphone sales totaling 59% of the market and overall mobile phone sales boosted to 307 million, the Chinese smartphone market has seen a growth in sales of 108% in 2012. But what factors are behind this vast and sudden uptake of smartphones?

Over the past 18 months, China has seen monumental growth in smartphone sales representing a rapid shift of consumers away from feature phones. China has swiftly transformed itself into the world’s fastest-growing economy. Could the reasons behind the smartphone proliferation there be used to predict similar trends in other emerging markets?

Change agentsUnsurprisingly, the key driver of change was price, with numerous elements combining to drive down the cost of both producing and buying smartphones. Local operators played a critical role in the first wave of smartphone growth in China through heavy subsidies, offering them at the symbolic retail price of CNY1,000 (circa €120) in September last year. The second wave of growth is now led by domestic manufacturers who have started selling entry-level smartphones below CNY1,000. As their research and development into the design and manufacture of Android smartphones has started to pay dividends. Finally, high levels of competition in China’s well-established handsets supply chain have influenced a fall in costs across the component set, from application processors to screens and touch panels.Competition was not, however, the only reason for price change. A move from 3G to 2.5G chipsets and 4-inch screens to 3.5-inch screens allowed for price reductions for consumers of between 20-30% while maintaining acceptable levels of quality. This has been vital in convincing a wider consumer base of the value of upgrading to smartphones. Smaller vendors in China’s tier-4 and tier-5 cities (county-level cities) have developed their own smartphone propositions, including landmark sub-CNY600 (circa €73) handsets – under half the price of entry-level smartphones sold by tier-1 vendors without subsidies.

By Gregoire Lemaitre

GfK 2012

TOMORROW‘S NEedS – THE SMARTpHONE BOOM IN EMERGING MARKETS 22

Future growth marketsSo where should we look for the next boom in smartphone purchasing? We’ve identified emerging markets such as India, The Philippines and Nigeria as the next growth markets for smartphone penetration. The opportunity for cheap smartphones to replace feature phones in these markets is huge: 95% of phones that consumers buy in India are below INR8,500 (equivalent to CNY1,000 or €122), compared to 45% in China. Yet the lack of operator subsidies in these markets means that the smartphone category is not being supported in the same way that we see in Western European markets. As such, these low-priced smartphones are particularly critical for generating growth in the market and fuelling a switch from even lower-cost feature phones. As Chinese and domestic manufacturers ramp up their production capabilities and tier-1 vendors start lowering smartphone prices further, we expect smartphone growth to accelerate in emerging markets from the end of this year and maintain elevated levels over the next two years.

Looking aheadOf course, each emerging market will have its own local twist: smartphone sales in India, for example, should grow 95% in 2013 against only 46% in Brazil where import duties will constrain the cheaper supply effect. Looking ahead, manufacturers who are able to maintain a competitive edge in this new segment will secure a strong position in the future mobile phone market.

Nevertheless, despite such rapid market change, 2012 is likely to mark the end of such explosive growth in China. Our data indicates that unit growth will slow moderately this year and more rapidly thereafter.

For further information, please contact: Gregoire Lemaitre, gregoire.lemaitre@gfk.com

GfK 2012

THE GROWING IMpACT OF CUSTOMER lOyAlTy

GfK 2012

More and more companies recognize the increasing potential of future health markets; for example, AT&T, the largest telecom operator in the US. Its core business is far removed from the healthcare industry. Nevertheless, AT&T is increasingly engaged in Mobile Health Solutions. One of its projects is ‘smart slippers’. These slippers have built-in pressure sensors that register abnormal walking patterns. They automatically alarm a doctor via email if the patient is at risk of falling. The target audience for the slippers is people older than 65. And the potential for the product is substantial. Especially when you consider that costs incurred as a result of falling accidents in this age group are significant. In the UK, for example, costs can go as high as £6 million (€7.5 million) daily.

Health markets are usually far more complex than this example depicts. Yet,the ‘smart slipper’ points out some central challenges and opportunities

The world population is experiencing an impactful aging era. It’s affecting national economies. Health markets are facing significant changes. Morbidity rates are on an upward trajectory. And the characteristic mind set of the older population is to have greater awareness and be more participatory. Success in future health markets will depend largely on including older patients. Gaining their loyalty will be a decisive factor in this process. And is, ultimately, a key parameter for the success of pharmaceutical companies.

By Peter Kuester

TOMORROW’S pATIENTS – THE GROWING IMpACT OF CUSTOMER lOyAlTy 24

for future health markets. Underlying the challenges is the close link between the aging society and higher healthcare costs. Also the impact and the use of technology. Finally, there’s uncertainty regarding reimbursement which will lead to patients having to share costs. So it will be essential to convince and gain the confidence of the patient. This is what underlines the importance of customer loyalty as a parameter for success in the pharmaceutical industry.

The aging of our society is dramatic. The total number of older people is one aspect. And the speed with which this population is growing is another issue. Projections show that the population of those who are 60 years or older will grow much faster than the rest of the population: By 2025 to 2030 the population in that same demographic will be growing 3.5 times faster than the total population. This will have a strong impact on the allocation of old and young on a global scale. While in 1950 only three countries had more than 10 million people aged 60 or over, in 2050 it’s expected to extend to 33 countries. In 2000 this was already the case for 12 countries. So we are on the way to a more and more aging society. And to a more and more aging community of patients.

IN 1950, 205 MIllION pEOplE WERE 60 yEARS

plUS. THE FORECAST FOR 2050 IS 2 BIllION

GfK 2012

The aging society with its consequences leads to growing morbidity rates There’s a clear correlation between age and morbidity for a broad range of indications, like cancer, Alzheimer’s disease, osteoporosis and many others. The prevalence of diabetes is one significant example of growing morbidity due to the aging society. Again, the progression will be fast: In 2011, 346 million people had diabetes worldwide. In 2004, an estimated 3.4 million people died from consequences of diabetes. According to a projection by the World Health Organization (WHO), diabetes deaths will double between 2005 and 2030. Other sources state a growing prevalence of diabetes from 285 million worldwide in 2010 to 439 million in 2030.

All serious sources show one direction: a rapidly growing problem with continuously increasing healthcare expenses. The result is a considerable burden to national economies. In response, we can expect a growing influence on health economics and new regulations of health markets. Due to escalating expenses, the demand for patients to share costs will grow. This again shows an increased need in future health markets to engage patients.

More self-confident, better informed: the profile of older people has changedDue to their numbers, older people are an important demographic for marketing activities. The ‘Silver Generation’ is already an important target group for many markets. Their buying power is remarkable, for example, in Germany: according to data from 2008, the average purchasing power of people aged 60 to 64 years

TOMORROW’S pATIENTS – THE GROWING IMpACT OF CUSTOMER lOyAlTy 25

was about €25,000, for people aged 65 or more still about €21,000. This is not far from the highest values (about €27,000) in the age group of 40 to 49 years.In addition, on the political landscape pensioners are more and more important: in Germany, for example, they already represent about 20 million electors. No political party is ready to make decisions which could put votes from these electors at risk.

The self-confidence of older people is supported by this notion: never before were older people so prepared to fight for their rights. Websites like agedrights.asn.au, helpage.org, globalaging.org, greenseniors.eu, age-platform.eu and many others demonstrate this. And it expresses another exciting change: older people are more and more dedicated to modern technologies, such as the internet.

The share of Austrians aged 60 to 69 years using the World Wide Web grew from 4% in 2000 to 61% in 2010. Also in the age group of 70 years or older, the growing use of the internet was remarkable: from 1% to 33%. These data represent the local Austrian market, but can be

OldER pEOplE vISIT MEdICAl WEBSITES Up TO

THREe TIMES MORE OFTEN THAN AvERAGE INTERNET

USERS

GfK 2012

seen as representative for developed markets in general. It also holds true for the topics researched at visited websites.

Data from Germany show that older people use specific websites much more often than the average population. The basis of the analysis was 60 medical websites with the highest reach within this category in Germany. The average frequency of usage for the whole population was compared to the age groups of those 60 to 69 years and 70 years or older. For 30 of these websites – this means every second website – the frequency of usage by older age groups was between 1.5 and three times higher. These comprised, for example, information portals and a noticeable number of mail-order pharmacies.In fact, one website showed a three-times higher frequency in age groups of both 60 to 69 years and 70 years or older. It is a very product-centric website with special information for a concrete blood sugar meter used by patients with diabetes.This is proof of the correlation between the aging society, growing morbidity and changing characteristics of older people. A dynamic which will be typical for future health markets.

Patient centricity – integrated solutions for complex challenges These perspectives present an interesting, sometimes threatening and indeed complex situation: the aging process is a fact. Morbidity rates will constantly increase. There will be a growing gap between the costs of improving medicine and the reduction of reimbursement. And the growing burden will affect national economies. One of the solutions advocated by health economists is patient-centricity. This

TOMORROW’S pATIENTS – THE GROWING IMpACT OF CUSTOMER lOyAlTy 26

sophisticated model measures the value of treatments mainly by results on a patient’s health. This demonstrates that even complex scientific approaches view the patient as the center of the solution.

Beyond these scientific aspects, patients will demand cost-sharing in the future. At the same time, they will continue to be well-informed and more self-aware. The more self-confidence and knowledge the patients have, the greater are their demands. A solution will only be possible with the inclusion of the patient in future health markets. That means gaining his or her customer loyalty.

Managing patient loyalty – a key strategy for future health markets Customer loyalty is a core mandate in many markets. And the interest and need for it in health markets has never been more apparent. That focus on customer loyalty is demonstrated by the increasing number of articles on the topic as well as health-conferences including the issue on their agenda.

THERE WIll BE A GROWING GAp BETWEeN THE

COSTS OF IMpROvING MEdICINE ANd THE

REdUCTION OF REIMBURSEMENT

GfK 2012

Now, more than ever, it’s time to implement loyalty research approaches which consider the growing influence of patients.

Some innovative companies already investigate the customer loyalty of patients. This con-tributes to their success by strengthening the bond between patient and drug or company. Additionally, bonding supports compliance and an effective communication from industry to patient.

TOMORROW’S pATIENTS – THE GROWING IMpACT OF CUSTOMER lOyAlTy 27

Learn about the status of loyalty towards the company: •share and characteristics of ‘loyal‘ and ‘at risk‘ patients •segmentation of ‘loyal‘ and ‘at risk‘ patients •benchmarking (survey internal and database comparison)

Derive concrete actions to enhance patients’ loyalty: •covering all relevant marketing activities •clear prioritization of marketing actions•recommendations comprehensive over all experience points

Including older patients in consumer loyalty programs – a promising strategyOlder patients will have a growing impact in the marketplace. The pharmaceutical industry should not miss the opportunity to include this growing demographic into their strategies. So let’s promote patient loyalty – for success in future health markets. ■

For further information, please contact:Peter Kuester, peter.kuester@gfk.com

HOW TO ENGAGE AND THEREby WIN THE PATIENT

Loyalty research has to provide intelligent approaches to create insights on different levels. And patient-centric loyalty surveys need to cover these levels.

Identify what experiences drive or enhance loyalty:•classification of experience points •analysis for complex fields of contact (benchmarking)

GfK 2012

THE pOWER ANd pITFAllS OF pREdICTION

GfK 2012

TOMORROW’S dATA – THE pOWER ANd pITFAllS OF pREdICTION 29

Psychology researcher Philip Tetlock is well known for his study on the predictive power of the expert. In the mid-1980s he began a research project in which he interviewed 284 experts. He asked them to answer 27,450 questions resulting in nearly 100 predictions. With admirable patience, he waited over 20 years to see if those predictions came true. The bad news is that the predictions hardly ever did. When Tetlock compared the results of the experts with those of a control group of undergraduates recruited at the same time, the experts did better – but only slightly.What does this mean for us when we make predictions about the technology market, and just how well are we able to do this?

Complex versus simple systemsOf course, we can predict some things pretty well. We can predict that the sun will rise in the morning and that the airplane we are sitting on will take off and land. On the other hand, it is rather difficult to predict with any significant level of accuracy which way stock prices will move, how many people will buy a new model of car or whether a campaign to encourage healthy eating will have the desired effect. So why can we predict some things well and others poorly? This can be explained by looking at the difference between simple and complex

Just how well can we predict the future? This is a key issue for any company developing new products and services, often placing a huge amount of resources into trying to establish what they should back in order to generate future revenues.

By Colin Strong

systems. Simple systems are those in which a model can capture all or most of the variation. A complex system, by contrast, contains many interdependent components working in non-linear ways, which make it difficult to capture the variance. And an awful lot of social and economic activity is necessarily complex.

The influence of social effects on system complexityResearch shows that social effects often impact system complexity. This is illustrated in a study conducted by Duncan Watts, a sociologist working at Microsoft, and his colleagues who used the music download market to explore the social networks that people use. An artificial music market was created with over

14,000 consumers from a teen-related website. All participants were asked to rate a list of previously unheard songs from unknown bands. After rating the songs, they were given the option to download them. A second group did exactly the same but with a crucial difference: they were able

WHy CAN WE pREdICT SOME THINGS WEll

ANd OTHERS pOORly

GfK 2012

depends on their ability to measure and quickly react to the demands of the market by designing, producing, shipping and then selling up-to-the minute fashion. For Zara, a quick response to fashion trends has been highly profitable.

How does market research fit in?Market research is a key part of ‘measure and react’ strategies. First, the story of the ‘collective pulse’ of the market can be told effectively using a variety of techniques from ethnography and focus groups to co-creation, survey work, and data analysis. And, web-based technologies (such as rapid prototyping tools) and emerging technologies (such as 3D printing tools) can provide lifelike representations in order to quickly test and predict the potential in a large group of consumers. The prediction stage can offer highly valuable data to product managers focused on the appropriate design, pricing and potential success of their product or service. However, this stage needs to be approached cautiously. Assumptions that underlie any ‘volumetrics’ need to be shared. And probabilities of outcomes should be given instead of definitive numbers.

The apparent success of ‘measure and react’ strategies is a reflection of the way in which technology companies can make informed hedges about the future. Consumer research has much to offer in this environment with an emphasis on greater clarity, openness and sharing of assumptions relating to how forecasts and predictions are derived. ■

For further information, please contact:Colin Strong, colin.strong@gfk.com

TOMORROW’S dATA – THE pOWER ANd pITFAllS OF pREdICTION 30

to see the number of times that the songs had been downloaded by the first group. When they could see the preferences of others (number of downloads), there was a significant shift in their preferences, with just a few songs becoming hugely popular and the majority getting much lower ratings. Interactions between individuals therefore often magnify small fluctuations and result in outcomes that are very difficult to predict.

The strategy paradoxThere is an increasing realization that predictions about fast-changing markets, such as tech, may not be entirely reliable. Consequently, business processes need to reflect this unpredictability. Indeed, the work of Canadian writer Michael Raynor suggests there is a ‘strategy paradox’ whereby companies might apply excellent logic in the development of their innovation strategy, but they can simply make the wrong call on a very uncertain future. To this end, Raynor advocates that brands should adopt a ‘measure and react’ strategy of flexibility. Here, strategic uncertainty is integrated into the planning process. This contrasts with the more familiar ‘predict and control’ strategy where a particular outcome is anticipated against which business processes are then put in place. So we have a broad portfolio of strategies, some of which will work while others – we accept – may fall on stony ground. We simply don’t know in advance which strategies will be the ones that work.

The case study that is often quoted in this context is that of Zara, the clothes manufacturer and retailer, which has successfully developed a ‘measure and react’ strategy. Their success

GfK 2012

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