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In-depth knowledge for decision makers
Study
global topicS8 billion
in 2030, about 80% of global middle-class consumers will live outside the uS and Europe. this publication will highlight prominent trends that influence what consumers in emerging markets buy.
Consumers – how to reach emerging market consumers with new strategies
January 2013
asia, africa and other emerging regions
In 2030, about 80% of the global middle class will live outside the developed world.
Europe, uS
roland BErgEr StratEgy conSultantS
80%
20%
Study 3
global topicS 8 billionConsumers – how to reach emerging market consumers with new strategies
Introduction
Product portfolio and brand positioning – Meeting the needs of diverse consumers
Marketing and distribution – Think local but act global
Conclusion
p 4
p 6
p 22
p 28
Roland BeRgeR Strategy ConSultantS
IntroductIon
KEy quEStIonS for rEachIng conSuMErS In EMErgIng MarKEtS
Study 5
in 2030, about 80% of global middle-class consumers will live outside the uS and Europe. in this fifth publication, we highlight the trends that are likely to influence how these consumers in emerging markets weigh up their purchases, choose particular items and complete their transactions.1
We examine four areas in particular: product portfolio, brand positioning, marketing and distribution. in each area, we ask some key questions:
Rapidly growing economies attract competitors and empower consumers. How can companies identify new consumer profiles and design versatile product portfolios?
How do brand reputation and consumer values influence consumers' buying behavior?
What techniques ensure that marketing messages really resonate with consumers in emerging markets? How can companies use new mobile technology and networks to build their market share?
Distribution strategies need to closely reflect local conditions. What distribution strategies work in countries with predominantly low-density rural populations?
1) Some of these consumer trends are also discussed in publication 1. We
will repeat these briefly wherever necessary to show the impact of the trend
on a company's strategy.
Roland BeRgeR Strategy ConSultantS
Product PortfolIo and Brand PoSItIonIng – MEEtIng thE nEEdS of dIvErSE conSuMErS
SocIo-dEMograPhIc changE IS drIvIng conSuMEr PowEr
f1
f2
f3
Study 7
SoCIo-deMograPhIC Change IS drIVIng ConSuMer Power
in publication 1, we saw how population growth – at extraordinary levels almost everywhere except Europe – will profoundly shape tomorrow's global economy. according to forecasts, between 2012 and 2030, some 1.2 billion of the world's 1.3 billion new citizens will be born in emerging or developing countries. that's equivalent to 95% of all births.
What does this mean for specific regions between 2012 and 2030? a predicted 600 million people in asia, 500 million in africa and about 90 million in latin america and the caribbean will be added to the local population. Europe will be tiny by comparison, with only 1 million new people, representing 0.1% of the new global population.
Emerging markets will be extremely young in terms of demographics. in 2030, 40% of the population will be under 25, compared to just 26% in developed nations. this fact will have a profound influence on consumption patterns.
the number of young people in emerging markets who enjoy a better education will also increase. in the period up to 2020, private expenditure on education in emerging markets is set to grow nearly 7% per annum, reaching a level of uSd 143 billion.
take china, for instance. chinese society places a strong em phasis on education. the 2009 pisa world education rankings put china in first place in all three educational categories: reading com-prehension, mathematics and science. Many other develo ping countries, india and brazil in particular, are also set to see an increasing number of university graduates. Since 2006, the number of students in china and india has grown by over 7% a year. china now produces half a million new engineers each year – while engineering skills shortages in germany are leading to an estimated annual economic loss of uSd 2.3 billion for german business.
young people with better education and skills also have a greater chance of employment. over the last 25 years, the number of people living in poverty in emerging and developing countries has fallen by half. Education has played a major role in this development, improving lives on the ground.
Every minute, fifty households in developing countries join the middle class. by 2030, an estimated 66% of the world's middle class will live in asia, compared to just 21% in Europe and the united States. indeed, china's burgeoning middle class is already bigger than the entire american population. as for the rich, the number of millionaires in china surpassed that in america some time ago. other countries – not least indonesia, india, pakistan and nigeria, along with other african nations – are also seeing an expanding middle class with money to spend. these upwardly mobile sectors of society share a common wish: to create for their children and grandchildren a world of affluence, political stability and opportunities.
disposable incomes are also on the rise. by 2020, many emerging countries will see more than 80% of their population with annual disposable incomes in excess of uSd 10,000. More than 25% of households in Saudi arabia, turkey, argentina, iran, russia and Malaysia will command incomes above uSd 50,000 a year.
ChangIng SPendIng PaTTernS
total consumer spending in the developing world will nearly double over the next eight years, from uSd 14 to 22 trillion. per capita consumer expenditure is forecast to reach uSd 3,319 a year in 2020. this growth will be largely driven by improved education and rising incomes. in particular, bric countries will see consumer spending grow from uSd 7 to 11 trillion, Mercosur countries from uSd 2 to 3 trillion, and in the Middle East and north africa from uSd 1 to 2 trillion. per capita consumer expenditure is forecast to grow at least 3% annually in each region by 2020. Mercosur will see the highest per capita spending with uSd 10,112, followed by the bric countries with uSd 3,619 and the Middle East and north africa with uSd 3,615.
traditional consumer goods segments such as fashion, leisure and communications are likely to enjoy per capita growth of about 30% by 2020 in emerging and developing countries. European fashion chains such as Zara are already a familiar sight in major cities across india, indonesia, the philippines, Saudi arabia, thailand and South africa. per capita clothing expenditure is forecast to reach uSd 183 a year in 2020, or a total of uSd 1.2 trillion – including uSd 800 billion in our Focus 20 countries alone.2 russia, brazil and turkey will be home to consumers spending the most on fashion. china, india and Vietnam will see a sharp increase – more than 8%
66%14%7%
7%
6%
Roland BeRgeR Strategy ConSultantS
The emerging middle class – by 2030, approximately 80% of the middle class will live outside Europe and the United StatesShare of the global middle class in 2030 (%)*
f1
f2
Spending on consumer goods will increase significantly total consumer expenditure in selected regions,
real value, 2012-2020 (uSd trillion)
Emerging and developing countries
bric
Mercosur
Middle East and north africa
2012
2020
14
22
7
11
2
3
1
2Source: Euromonitor
Source: oEcd
* the "global middle class" is defined as households with daily expenditures between uSd 10 and uSd 100 per person.
66%
Study 9
a year – in spending on leisure and entertainment. indeed, by 2020, emerging markets will spend a total of uSd 924 billion a year on leisure and entertainment.
consumers in the developing world will also invest strongly in improving and protecting their health. Spending will reach around uSd 219 per capita per year by 2020. this is roughly uSd 86 per capita more than at present, and represents a much greater per capita increase than that for fashion, communications or leisure. of the Focus 20 countries, argentina, peru and South africa will see the highest per capita expenditure.
communication technologies will have a strong impact on these new consumers. consumer expenditure on communications will almost double between 2012 and 2020, from uSd 593 billion to uSd 1.1 trillion. the countries with the highest spending on advertising per capita are likely to be Malaysia, russia and turkey.
as consumers become better educated, they also require better information. in response, nokia has developed its "nokia life tools", a product that informs consumers about healthcare, agri-culture, entertainment and education issues via cell phone. For example, the company will shortly launch a diabetes program via cell phone in india. nokia life tools are currently in use in india, china, indonesia and nigeria.
in a similar vein, Johnson & Johnson launched its "text4baby" product in 2010. this is a free mobile information service that helps educate pregnant women and new parents about childcare issues. More than 20 million people in china, india, Mexico, bangladesh, South africa and nigeria currently use the program.
BoTToM-of-The-PyraMId ConSuMPTIon
yet despite rising incomes and consumer expenditures, the majority of people in developing nations continue to struggle. the proportion of nigerians living on less than two dollars a day is currently 85%. in india the figure is 70%, in indonesia 46%. overall, an estimated four billion people worldwide survive on two dollars a day or less.
the poor are what we might call "bottom of the pyramid" con-sumers. thanks to new technology and novel distribution methods, they too have become a potentially profitable market for companies. consumer goods manufacturers are delivering inexpensive, easy-to-use products to them using low-overhead
distribution. the most successful new products are often "frugal innovations" or feature frugal (or "gandhian") engineering. this involves removing non-essential features and thereby significantly reducing the cost and complexity of manufacturing processes.3
one good example is chotuKool, a uSd 70 refrigerator produced by the indian firm godrej. the appliance uses sophisticated cooling chips and a fan similar to computer temperature control systems in place of more costly conventional compressor technology. other affordable "chotu" innovations are a low-cost washing machine, chotuWash, and an inexpensive water purifier.
Sometimes all that is needed is a simple change of packaging. beiersdorf sells shampoos to the low-end market under its subsidiary beiersdorf Hair care china in standardized plastic bottles with simple brand labels. bottles that have expensive labels with special, glossy colors are used only for the con-sumer segments in tier-1 and tier-2 cities.
Sophisticated consumers can also distribute bottom-of-the-pyramid solutions. grameen bank, for instance, organizes clubs of 5-10 people – most often women – who share the responsibility for managing microloans. the clubs also regularly review the performance of borrowers.
another example is the brewer SabMiller. the company has sold beer to africans for over a century, their upscale products including the European brands peroni and grolsch. the com-pany now plans to cater to lower-income rural africans who drink "informal" home-brewed beers. to this end, they developed chibuku, a beer in a carton, which costs up to 40% less than bottled beers, has a similar taste to home-brewed beers and is hygienically produced. the company estimates that the informal beer market in africa is four times larger than the clear beer market. over the next three years, it plans to expand distribution of the new product to around a dozen countries.
2) our Focus 20 countries – the 20 emerging markets projected to
see the most economic growth in the period to 2030 – are
argentina, brazil, china, colombia, Egypt, india, indonesia, iran, iraq,
Malaysia, Mexico, nigeria, pakistan, peru, russia, Saudi arabia,
South africa, thailand, turkey and Vietnam. 3) See publication 4 for
a discussion of key frugal innovation strategies.
Annu
al p
er c
apita
con
sum
er s
pend
ing
by s
egm
ent,
real
val
ue, 2
012-
2020
(USD
)
Spen
ding
will
gro
w in
man
y se
gmen
ts
F3
Food
Housing
Transport
Health
Fashion
Communication
leisure
Source: Euromonitor
5582.2%
4.7%
5.5%
6.4%
3.9%
7.3%
4.7%
CAGR
662
399574
270440
133219
135183
100175
98142
f5
Roland BeRgeR Strategy ConSultantS
low-income consumers can also be attracted by new service portfolios. the Mexican cement manufacturer cemex, for instance, sells a versatile support package to low-income families to help them build homes inexpensively. For just uSd 14 a week, the company provides inspections, materials warehousing, advice from professional architects and the required cement products.
unilever's african portfolio includes both affordable products and training services. it offers low-cost food items, water-thrifty washing powders and grooming products that suit local tastes. in addition, it provides professional training to african entrepreneurs. in 2011, the company opened an academy in Johannesburg that each year will train 5,000 hairdressers who plan to open their own salons. the academy also functions as a forum for testing new products, business models and distribution methods.
in some areas, new methods of delivery have emerged, such as medical services provided to poor rural communities by mobile clinics. the Sanjeevan Mobile clinic operating in parts of india resembles a large bus. but inside it contains a fully equipped doctor's office with X-ray, ultrasound, mammography or electro-cardiogram machines, a second treatment room and a small darkroom to develop X-rays. it even has its own generator so it can operate independently of the local power grid. Each mobile clinic can service hundreds of temporary treatment sites. in one year, for example, a single such vehicle traveling across the uttarakhand province in northern india set up more than 800 medical camps, helping some 60,000 patients. Siemens has equipped 18 of these mobile surgeries over the last 7 years.
urBanIzaTIon
Since 2008, over half the world's population has been living in cities. Enterprising companies will discover that urban landscapes offer many new business prospects. Supply chains, trade, transportation and internet connections are expanding, often rapidly, to serve ever more city dwellers.
the scale of this rapid change is startling: Some 200,000 people will move to cities every day through 2030. Emerging markets will see most of this migration. between 2010 and 2030, the global share of people inhabiting cities will climb from 45% to 55%. Most will be in the developing world. thus, 3.9 billion – or 80% – of 4.9 billion city dwellers worldwide will live in emerging and developing countries as the world's total urban population grows by more than 1.3 billion.
looking at specific regions, latin america will have the highest share of urban residents as its cities grow to include 80% of the total population by 2030. the share of urban residents in africa will increase from 39% to 48%, in india from 31% to 40%, in china from 49% to 69%, and in the rest of asia from 44% to 56%. by 2025, china will have no fewer than 139 cities with over a million inhabitants, the largest number of such agglomerations of any country in the world.
urban house and household sizes are also changing. in india, for instance, per household floor space has doubled every 14 years to its current level of 31.5 m2. this is still two and a half times less than china's 85 m2. according to projections by credit Suisse, india must construct three million houses and china five million houses every year through 2030 to accommodate future population growth.
although global sanitary conditions have improved considerably over the past several decades, 2.6 billion people still have no access to toilets and 70% live in cities without proper sanitation facilities. lack of sanitation causes environmental pollution, social problems, unsafe surroundings and substantially more potential
Source: Euromonitor
f4
In several focus 20 countries, a large share of the population needs better access to sanitary facilities percentage of the urban population that
currently has no access to sanitary facilities (%)
nigeria
india
china
indonesia
64464237
30557
8150
74
Study 13
by 2025, 80% of cities with more than a million inhabitants will be outside the developed world number of urban agglomerations with over a million inhabitants, 2025
ChinaindiaUSnigeria
139544521
f5
Source: un World urbanization prospects: the 2011 revision
Roland BeRgeR Strategy ConSultantS
for epidemics. indeed, one child dies every 15 seconds as a result of consuming water polluted with human excreta. diarrheal diseases cause up to 50% of all deaths in emergency, refugee and idp camp situations – more than 80% of them children under two years of age.
PoTenTIal SoluTIonS
these health and environmental challenges stimulate innovation. For example, Swedish architect anders Wilhelmson designed "peepoo", a personal, single-use, self-sanitizing, fully bio de-gradable toilet that prevents feces from contaminating the immediate surrounding area and ecosystem. after use, peepoo turns into valuable fertilizer that can improve livelihoods and food security.
in india, 40% to 60% of the urban population live in poorly developed, unhygienic conditions. in an effort to improve standards, an in ventive indian real estate company introduced a program to offer small land parcels with decent infrastructure and with a price tag of just uSd 6,500 each. the examples of successful innovation don't stop there, either. three years ago, tata Motors launched the world's cheapest car, priced at just Eur 1,500. the company has now designed the nano house, a 20 m2 coconut and jute fiber unit that can be erected in just a week and is built to last only a few years. tata's plan is to offer affordable shelter to poor people around the world. it believes that government-sponsored mass residential developments for slum dwellers and the homeless will be one of its biggest markets. in developing the nano house, tata consulted local decision-makers, ensuring that the product met local requirements. the company is now analyzing user feedback from a pilot project in rural india. it plans to price the new home at about uSd 700 – roughly what industrialized world consumers might pay for a new ipad.
the design of low-cost housing also needs to take climate change into account. a german initiative, aSH (africa Sustainable House), has developed the world's first low-cost, climate-friendly home for africa and asia. delivered in containers, the units are con-structed on site in a single day. they are fitted with a solar module for lighting and radio reception, and even include air conditioning. novel building materials can also make housing affordable. taiwanese architect arthur Huang developed a method of creating construction materials out of plastic waste. the Ecoark, built from 1.5 million plastic bricks, was shown in november 2010 at taipei's international garden Festival. Even plastic bottles can be used
to build houses. assisted by experts in london, a nigerian building project initiated by the non-governmental organization darE (development association for renewable Energies) is creating homes out of plastic bottles that can withstand earthquakes, fire and even bullets. by using unconventional building materials, darE seeks to address two problems simultaneously: plastic bottles that pollute roads, sewers and gutters are recycled into buildings, and at the same time help alleviate housing shortages in africa's most populous country.
demand for prime location luxury buildings in emerging markets is growing almost as fast as local incomes. the international property consulting firm Knight Frank regularly surveys top real estate advisors to ask which nationalities will become the most important prime property buyers over the next five years. chinese, russian, Middle Eastern, latin american and other high-growth economies consistently lead recent predictions. For example, emerging market cities such as nairobi have seen prime property prices soar more than 25% above 2011 prices, while bali and Jakarta have seen prices increase about 15% – more than in london or Vancouver.
the more people congregate in cities, the more critical it becomes to find ways to control streams of goods and waste. one promising method suggested by research into contemporary urban data management is "smart" city designs – that apply innovative it applications in building design, city planning and infrastructure. these aren't just drawing board recommendations, either. Singapore has become a model of urban it prowess. the city collates and interlinks data on water and power supplies, traffic volumes for shipping, aircraft, cars and taxis, temperature and telephony, all in real time. the scope of the it system is such that a subway train driver knows capacity loads, why trains are slowing down and whether it's advisable to wait longer at a particular station.
the modern city dweller will increasingly require a smartphone to navigate the modern urban data jungle. a "virtuous commercial circle" will evolve as more data stimulates greater demand for multifunctional smart technologies. the potential for highly individualized distribution and marketing is almost unlimited: some vending machines in asia even scan a person's face to customize advertising.
f6
Study 15
geTTIng To know ConSuMerS In eMergIng MarkeTS
the pace of change is speeding up. living standards and the built environment are evolving faster than ever and markets are increasingly diverse in terms of educational levels, incomes and geographies. consumer diversity creates a puzzle for marketing. How can companies identify niches for their new products and services? their first step must be to analyze consumer habits and brand values. With this in mind, roland berger designed a cus-tomiz able tool, the rb profiler, to measure how consumers perceive brands. using a specially developed questionnaire, the rb profiler investigates 20 fundamental values that influence all aspects of customer behavior. the rb profiler analyzes what people's requirements are and how they view brands, generating a range of consumer profiles. companies can use these profiles to develop product positioning options and compare the perfor-mance of their current products with targets. at the same time, the tool's intuitive format and statistical validation encourages organi-zational buy-in and efficient application in marketing.
Here's an example of the tool in action: between 2000 and 2030, china's urban population will nearly double, growing from 36% to 69% of the total population. this new urban population will demonstrate significant differences in terms of tastes and aspirations. a roland berger study using the rb profiler asked chinese consumers about their brand perceptions and differentiation, consumption behavior, purchase patterns and lifestyle. the study showed that consumer preferences vary significantly according to urban size and geographical location.looking at the differences in more detail, it appears that smaller tier-3 cities exhibit different values and priorities than megacities, reflecting their regional orientation. typical tier-3 cities include tongcheng in anhui province, with roughly 744,000 inhabitants, and Fengcheng on the yellow Sea coast, with a population of approximately 630,000. to illustrate how the rb profiler works, figure 6 translates the profiles for megacities and tier-3 cities into two prototype customers, Susan gan and neil Zheng. the differences between the two are immediately obvious.
Susan Gan, single, 35, from Guangzhou, megacityWorks as a systems administrator
for a major chinese company
neil Zheng, married, 43, one child, from tier-3 cityruns a small stationery shop
Main source of news: tV
newspaper: local daily
credit cards owned: none
use of credit card: never
travels for leisure: once every three years
clothes shopping: twice a year
preferred grocery shopping: Supermarket and own plot to grow vegetables
accommodation: Small house in the suburbs
Hours spent watching tV a day: 3
Hours spent on the internet a week: 1
likes: Fitness, family, elegance
Main source of news: internet
newspaper: national daily
credit cards owned: two
use of credit card: Several times a week
travels for leisure: twice a year
clothes shopping: once a week
preferred grocery shopping: Mall
accommodation: one bedroom flat near the city center
Hours spent on watching tV a day: 1
Hours spent on using the internet a day: 3
likes: risk-taking, innovative things, trendy features, just-in-time,
price-defined buying decisions
f6
The people behind the profiles – a possible translation of two typical consumer value profileschinese consumer value profiles with prototype customers,
megacities vs. tier-3 cities
num
ber o
f bra
nds
amon
g th
e 50
0 m
ost v
alua
ble
wor
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ide,
201
2
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ergi
ng m
arke
ts, C
hina
has
the
larg
est
num
ber o
f val
uabl
e br
ands
China
brazil
Russia
Mexico
Hong Kong
United Arab Emirates
Malaysia
Chile
Saudi Arabia
South Africa
F7
Source: interbrand
271084332111
f7
Roland BeRgeR Strategy ConSultantS
Brand PoSITIonIng – SIMPle BuT CreaTIVe
The "country of origin" effect
rising incomes in emerging countries encourage consumers to change their brand purchasing behavior. a welcome consequence of this for Western companies is their increasing preference for established Western brands. local brands are often left far behind in the competition. For example, no local brand features among the leading fashion brands in Saudi arabia, and only one domestic brand in india makes it into the top 10 beauty brands.
Manufacturers in emerging countries own just 12% of the world's 500 most valuable brands. china leads the pack, with 27 inter-nationally distributed brands, followed by brazil, with 10 brands. in the long term, brands from emerging markets are likely to become more prominent in Europe as manufacturers shift their attention from domestic to world markets. products that are
successful in emerging markets can often also be sold globally. For instance, chinese automakers – notably the company behind the Qoros brand – are confident that they can expand into Europe following the example of global chinese brands in the it sector, such as lenovo.
brand origination is a matter of considerable importance in emerging markets. the "country of origin" effect means that people associate particular countries with certain product characteristics. consumers worldwide, for example, frequently associate german products with quality, reliability and durability. in the past, consumer goods manufacturers such as coca-cola transferred their successful national brands, logos and advertising to their worldwide subsidiaries. but building brand awareness today calls for more imagination. Western companies must adapt to local and regional conditions. often the most innovative marketing technique is the simplest. in several emerging countries, for example, coca-cola gives paint in its signature red
f8
Top-selling brands in emerging countriesSales by brand, 2012 (retail value, uSd million)
Source: Euromonitor
Top-selling fashion brands in Saudi Arabia – no homegrown brands Top-selling beauty brands in india – Dabur is the only indian brand
Mothercare
next
Zara
aldo
bossini/Sparkle
Marks & Spencer
clarks Footwear
bershka
Milano
calvin Klein
Fair & lovely
colgate
lux
lifebuoy
godrej
dettol
Santoor
dove
clinic plus
Dabur
2311911641591217060604747
465353336305257244208196159156
Study 19
top ten
Emerging countries lead the ranking of global happiness Happy planet index (index value):
the index's top 10 are emerging countries
#46 Germany 47.2#105 US 37.3Source: centre for Well-being, new economics foundation
Costa Rica64.0
Vietnam60.4
Colombia59.8
belize59.3
Venezuela56.9
Guatemala56.9
f9
Jamaica58.5
Panama57.8 nicaragua
57.1
El Salvador58.9
f9
f10
Roland BeRgeR Strategy ConSultantS
color to village residents to decorate the outside of their houses. another inexpensive coca-cola marketing initiative turns shipping containers, again painted coca-cola red, into storehouses or retail stores.
Hindustan lever uses other techniques to build brand awareness. the company frequently employs street performers – magicians, singers, dancers and actors – to promote soap and toothpaste. lever and ogilvy outreach, a marketing arm of ogilvy & Mather, recruits the local performers, adjusting their scripts in line with local dialects, education levels and religions. a series of such performances in northeastern india saw consumer awareness of breeze, a low-cost 2-in-1 soap, rise from 22% to 30%. a similar program to promote rin Shakti, a moderately priced detergent bar and powder brand, boosted recognition from 28% to 36% over a six-month period.
increasing relevance of values and sustainability
religious values are important for many consumers. increasing numbers of religious people will drive the market for "values-oriented" products. by 2030, when the global population is forecast to exceed 8 billion, approximately a quarter of people will be Muslim. pakistan will likely overtake indonesia as the world's largest islamic country, with a predominantly Muslim population expected to exceed 256 million. christianity will remain the world's dominant religion, however, with the christian population expected to be 2.2 billion by 2030. Most new christian converts will live in emerging countries. together, islam and christianity will account for over half the global population (53%) by 2030. the impact on consumer preferences will be significant – Muslim women's fashion and non-pork meat products are two commonly cited examples.
Values in a broader sense – religious, environmental and social – will play a major role in consumers' purchase decisions and brand loyalties. We are already seeing a strong move in some countries to integrate non-economic values into their economic perspective. bhutan, for example, first formulated a new official measure of living standards, gross national Happiness (gnH), to measure economic progress as early as 1979. the four pillars of gnH are:
Pursuing equitable and equal socio-economic development Preserving and promoting cultural heritage Conserving the environment Ensuring good governance
Ecuador and bolivia have embarked on a similar path. the indigenous principle of "sumak kawsay" (meaning "good living") was enshrined in the Ecuadorian constitution in 2008 and in the bolivian constitution a year later.
We are seeing increasing efforts to measure well-being across the globe. the london-based "centre for Well-being" compiles a Happy planet index to record life expectancy, experienced well-being and people's satisfaction with the environmental impact of the goods and services consumed. costa rica scores highest, followed by Vietnam. Most of the other top 10 are emerging countries in South america. germany and the united States, with their large ecological footprints, rank 46th and 105th respectively.
according to a recent goodpurpose® study by Edelman, consumers in "rapid growth economies" (rgEs) such as china, india, indonesia, Malaysia, uaE and brazil have much higher ex pec-tations of brands and corporations with regard to social issues. as the middle class grows and acquires more purchasing power, consumers in rgEs demonstrate a commitment to "social purpose" across many different activities, such as buying, sharing, donating and volunteering. this commitment is considerably stronger than that found for many consumers in "bear" markets such as Western Europe.
Study 21
56%
84%
buying socially responsible goods is growing in importance in emerging markets
Every 6 to 12 months
Source: goodpurpose®
*) consumers in emerging markets are "bullish" on purpose! they have high expectations of brands when it comes to social issues**) bear markets are industrialized countries. Here, the consumers don't have such high expectations of brands regarding social issues
at least once a month
At least once a year
At least once a year
On average, how often do you buy a
brand that supports a good cause?
22%
19%
62%
37%
bull markets*
bear markets**
f10
Roland BeRgeR Strategy ConSultantS
MarKEtIng and dIStrIButIon – thInK local But act gloBal
MEEtIng conSuMEr rEquIrEMEntS
4) germany's Süddeutsche Zeitung (2012)
5) Worldpay (2012) 6) discover digital arabia (2012)
Study 23
onlIne ShoPPIng and MarkeTIng on The rISe
the trend toward more sophisticated information networking is certain to spread to emerging and developing nations. these countries have seen the number of internet users increase annually by almost 50%, from 80 million in 2000 to 1.2 billion in 2010. projections anticipate 2.5 billion internet users in emerging countries by 2020, almost three times as many as in more advanced nations.
Mobile telephony highlights how emerging country populations rapidly take to network technologies. in most emerging countries, the majority of people are under 25, meaning that they grew up using cell phones. by 2020, it is anticipated that developing nations will have 6.5 billion cell phone users, compared to just 1.2 billion in industrial countries. in less than ten years' time, 84% of the world's population will own a mobile device.
Social networking is also spreading quickly. by mid-2012, there were more than 43 million Facebook users in africa, including 12 million in Egypt, 5.4 million in South africa, 5.2 million in nigeria, 4.5 million in Morocco, 3.8 million in algeria, 3.2 million in tunisia, 1.6 million in Kenya and 1.4 million in ghana.
internet use in general is on the rise in the developing world. numerous african network providers are currently competing for market share. newspapers recently reported that one in four Kenyan residents now accesses the internet at least once a week.4
communication technology can also transform how business is done. in Kenya, the "m-pesa" (the "m" stands for mobile and "pesa" is Swahili for "money") is a versatile way of paying by text message where there is no internet access. "m-pesa" gives even the poorest people access to banking services. Fifteen million Kenyans make use of the system, which has been copied from Kabul to california. the World bank estimates that financial transactions of the m-pesa type currently top uSd 7 billion. Mobile payment systems also allow administrators to track national budget expenditure, such as the funds allocated to districts or towns.
consumers in emerging markets are looking for greater choice, convenience and informed purchasing. More and more they are finding their needs met by online shopping. perhaps surprisingly, in many emerging markets consumers allocate a high percentage
of income to this channel of consumption. a recent Worldpay study finds that indians spend 36% of their disposable income purchasing products and services online. the chinese spend slightly less, at 31% of disposable income, and brazilians 27%.5
Some 43% of all consumers in the arab world buy online, and one in every three internet users in these regions does so at least once a month. More than 60% of those buying online report that they use the internet to research product features and prices before deciding what exactly to buy. the top products sold online are games, software, electrical goods and clothing, just as in developed countries.
the range of products and services offered online in developing countries is broad. in 2010, iran launched its first online super-market, Meydoonak.com. the site offers 2,500 grocery and household items at competitive prices. Homegrown indian start-ups including fashionandyou.com, myntra.com, snapdeal.com, dealsandyou.com, yebhi.com and HomeShop 18 are introducing india's growing middle class to Western brands. and the growth of mobile device use in emerging markets such as china, india and South africa is driving Estée lauder's development of m-commerce sites, along with mobile- and tablet-friendly versions of its brand websites.
How do the consumers themselves view these developments? a survey by Worldpay finds that half of all users see mis-appropriation of data and credit card fraud as the biggest obstacles to online shopping.6 at the same time, websites are emerging where consumers share their information about product quality and prices. these websites are also valuable sources of information for consumer-savvy companies. by analyzing candid consumer opinions, platforms such as the indian www.consumercomplaints.in can help consumer goods manufacturers improve their product and marketing strategies.
num
ber o
f Fac
eboo
k us
ers
in A
fric
a, 2
011
Face
book
use
rs in
Afr
ica
Algeria3,826,940
Morocco4,481,100
Congo (Zaire)795,300
South Africa5,431,280
Angola516,780
Ghana1,436,380
nigeria5,184,620
Senegal664,800
F11
Source: Allfacebook.de
Egypt11,658,000
Tunisia3,214,880
Ethiopia688,040
Kenya1,634,940
Uganda485,480
Tanzania585,660
f12
Roland BeRgeR Strategy ConSultantS
the advertising landscape is also changing rapidly in emerging countries. advertisers are figuring out how to deliver relevant, measurable advertising to their next billion consumers. Mobile marketing spend will likely grow sixfold to more than uSd 6 billion by 2016 in markets such as china, india and brazil. by contrast, Europe's mobile marketing projections for 2016 are roughly the same as they were in 2012, at just uSd 1 billion.
What lies behind this cultural divide? the principal reason is that mobile devices are the primary digital platform in emerging countries, while pcs are more common in economically advanced countries. For example, indian advertisers will be spending approximately 51% of their total digital advertising budgets on mobile channels by 2016, while uS companies will spend just 11%.
over 80% of cell phone users in emerging markets use prepaid phones. additional cell phone minutes are being offered as a reward for customers completing surveys, receiving adver-tisements or purchasing products. customers appear to be happy with this arrangement, too: in brazil, 74% of prepaid users take a positive attitude toward receiving advertising on their mobile devices in return for free airtime minutes, according to one recent study.
dISTrIBuTIon – go "gloCal"
products must be delivered not only to emerging middle-class consumers in cities but also to consumers in rural regions. in 2030, the share of the rural population in developing countries will still be 45% (compared to 19% in developed countries). companies need to adapt their distribution strategies to local conditions. For example, in countries where low-density rural areas predominate, firms should prioritize specific geographical areas and work closely with distribution partners. often it will be too expensive to supply remote areas directly, especially at the market-entry stage.
large and less developed markets such as china are best approached city by city, using distributors to provide services such as physical distribution and cash collection. beiersdorf, for example, serves smaller tier-2 or tier-3 cities through a number of local and regional distributors and sub-distributors in china. distributors typically work on a non-exclusive basis.
Simple distribution technologies such as ordering products by cell phone can help overcome deficiencies in the rural infrastructure.
f12
Mobile advertising on the riseMobile channels as percentage of total digital advertising budget
indian companies
Source: digital capital advisors
51%
11%uS companies
Study 27
direct ordering reduces costs and saves time. on occasion, companies will find it profitable to invest in novel distribution methods that combine different products and services to reach a particular consumer segment.
geTTIng IT rIghT – SoMe exaMPleS
Some companies are most definitely getting it right. Here are some examples from across the developing world that can serve as an inspiration to others.
project Shakti, jointly created by unilever and an indian consulting company, is an innovative delivery and procurement model. by hiring women from microfinance groups as last-mile distributors for unilever household products, the initiative improves the rural reach of fast-moving consumer goods. bank loans are secured through microfinance, with unilever guaranteeing the loans against default. the project currently employs over 45,000 female partners in rural areas across 12 different states, and accounts for 20% of unilever's total rural sales.
on the other side of the world, avon saleswomen travel the amazon and its tributaries in ferries, small boats and canoes to serve remote brazilian mining towns located up to 1,500 kilo-meters from anything resembling urban civilization. the saleswomen's persistence in overcoming distribution barriers has helped propel avon into a leading position in the brazilian cosmetics market. in South africa, avon delivers merchandise to post offices for sales representatives to pick up. Where no bank is available, avon organizes payment through the post office or a major retailer.
coca-cola has evolved a "hub and spoke" distribution model to reach rural markets. twice a week, the company depot supplies large distributors who act as hubs for small distributors. rural markets frequently lack electricity and refrigerators, so coca-cola also provides low-cost ice boxes – a tin box for new outlets and a thermocol box for seasonal outlets.
Heineken and guinness have developed new products for local markets in emerging countries. a core part of their strategy is to master lower-cost production and develop distribution systems linking independent wholesalers, retailers and street vendors. these networks provide products and income to millions of people. another strategy for many retail brands has been to secure a strong local partner to help pave the way for international growth. J.crew, a retailer from the united States, has entered into a partnership with Hong Kong-based specialty store operator lane crawford to expand into asia. From the end of 2012, their women's ready-to-wear clothes and shoes, men's apparel, and accessories collections will be available at certain lane crawford stores in Hong Kong and china.
Samsonite also uses local distribution partners to supply its products to remote areas. recently the company opened a flagship store at the airport in urumqi, a tier-3 city in china. Similarly, procter & gamble uses many local shops and employs popular bollywood actors to endorse its products. Half a year after its release in october 2010, gillette guard held 50% of the market for razors.
Roland BeRgeR Strategy ConSultantS
concluSIon
fIvE KEy actIonS for SuccESS
Study 29
in the coming two decades, consumers in emerging countries will experience change at rates unparalleled in economic history. the range of goods and services available, the extent of the urban environment, and for many the size of disposable incomes will grow at a speed surpassing that seen in all previous major economic phases.
How should companies respond to these changes? What strategic steps must they take to benefit from the opportunities offered by new consumer markets in the developing world? We summarize the key actions needed below.
Analyze trends and market environments – A world of changea prerequisite for understanding consumer behavior is to see how fundamental megatrends such as population growth, urbanization and globalization are driving the development of emerging countries. tools such as scenario planning can help companies develop detailed pictures of the future and identify the main factors influencing consumer behavior. Extended market analyses add detail to these scenarios.
Understand consumers in emerging markets – not a closed book Significant differences in consumer behavior will persist both between rural and urban areas and between cities of different sizes. companies can use tools such as the rb profiler to derive detailed consumer profiles and identify brand preferences. they should also remember that ethical and religious values in emerging countries will favor more socially oriented, ecological consumerism.
Create the right portfolio – broad but specializedbottom-of-the-pyramid consumers prefer cheap products that are simple to use. this may mean offering products in different sizes and packaging formats. the company's familiarity with local and cultural preferences is also crucial. the product portfolio must meet the needs of both poor customers and the growing middle classes. to satisfy the requirements of both groups, companies need critical mass, solid financial resources, a broad product mix and strategic partnerships with local manufacturers. they must also clarify patent issues in emerging markets, as several countries still fail to provide sufficient protection for foreign brands.
Find the right marketing strategy – Simple but creativethe marketing strategy and message have to speak to local consumer needs. Here, again, companies must strike a balance between rural and urban customers' preferences. Sometimes simple marketing strategies are the solution. urban, middle-class consumers prefer online shopping and use social media such as Facebook, so targeted mobile marketing strategies can often be effective here.
Adapt your distribution strategy – Go glocalcompanies face a wide range of challenges when it comes to designing distribution strategies that adequately reflect local conditions. Especially at the market entry stage, it is often simply too expensive to supply remote regions directly. companies need strong partnerships with regional distributors or subcontractors. import and tax regulations must be clarified. Firms should re member that bureaucracy can slow processes down con sider-ably. Sometimes a strategic alliance with competitors can create an opportunity to distribute products in new regions or cities. For the urban middle class, whose purchasing behavior is very similar to consumers in industrialized markets, innovative technology-intensive strategies may prove the most effective.
Roland BeRgeR Strategy ConSultantS
Author
Co-Authors
Bernd Brunkepartner and Member of the global Executive committee, berlin
Christophe Angoulvantpartner, paris
Dr. Wilfried Aulburpartner, Mumbai
Andreas Bauerpartner, Munich
Benno van Dongen partner, amsterdam [email protected]
William Downey partner, new york [email protected]
Duce Gotora project Manager, london [email protected]
Carolin Griese-Michelsprincipal, Hamburg
Maren Hauptmannpartner, Munich
Study 31
Daniel Himmelproject Manager, berlin
Nicklas Holgerssonproject Manager, london
fabian Huhleprincipal, Munich
Dr. Johannes Kleinprincipal, berlin
frank Lateurprincipal, brussels
Per I. Nilsson partner, Stockholm
Dr. Verena ReichlSenior Expert, Munich
Tina Wangpartner, beijing
Dr. Tim Zimmermannpartner, Munich
Dr. Michael Zollenkop principal, Stuttgart [email protected]
Roland BeRgeR Strategy ConSultantS
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Roland BeRgeR Strategy ConSultantS
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pages 2: Martin roemers / panospages 10 - 11: Mads nissen/panospage 14 (1): iMaginE cHina/gaMMa /laifpage 14 (2): Julio Etchart/panospages 16 -17: Espen rasmussen/panospages 24 -25: leo Erken/panos
Creditsour interviewees:Siegfried gänßlen, cEo Hansgrohe agManfred grundke, general partner Knauf gips Kgruth Schaefer, cEo ruth Schaefer intercultural
Special thanks to
Roland BeRgeR Strategy ConSultantS
GLoBAL ToPICsPRoJeCT DesCRIPTIoN
with our gloBal ToPICS initiative, we assess the most pressing issues for leaders in society, business and politics and outline possible solutions.
Roland BeRgeR Strategy ConSultantS
For more information, please visit: www.rolandberger.com/globaltopics
if you have any questions, please contact us at: [email protected]
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