Seven Golden Rules to deconstruct misconcepts and clichés

aiming to create win-win business models oriented to BOP in emergent markets

Lessons that I learned working with development organizations

and also as a marketing and strategy consultant to corporations

Or...

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1. Don’t be misguided by income indicators;

2. Use consumption indicators just as a starting point;

3. Bear in mind that there is a very dynamic and simultaneous process of mass market formation and fragmentation;

4. Don’t underestimate the dynamism of emergent markets;

5. Avoid fiercely the macro-economics myopia, and invest in gaining in-depth knowledge about the fabric of society;

6. Strive to understand people’s desires not only needs;

7. Don’t get fooled with “low-income” tag, give these customers low quality and wait for the backlash.

Don’t be misguided by income indicators

1

Don’t be misguided by income indicators and about the number of people living below poverty line

MDOs and governments overestimate the size of poverty

MDOs use secondary data sources (national governments), which are inconsistent and use inadequate methodologies

Data gathered by national

governments

Country levelinterpretation

Data gathered by World Bank and

MDOs

Consolidated global analysis

by MDOs

Mainstream media

General Public

•Opinion makers,

• Politicians,

•Social Activists

•Business Sector

Anatomy of a Misconception Formation

• 60 million

• 46 million

• 44 million

• 22 million

• 16 million

FGV Hunger Zero Program Workers Party IPEA FGV dissidents

BRAZIL 2004 = 182 million inhabitants

Governmental Brazilian Think-Tanks, processing the income data of Census 2001, came to the following figures for Brazilians living below the Poverty Line:

Taking into account the Census of 70, 80 and 91, FGV releases the Atlas of Hunger in Brazil:

• 50 million Brazilians live below the poverty line

• 29.3% have less than R$80 monthly per capita.

Rio de Janeiro, 10 July 2001 Guidance for policymaking

Most influential think-tank for public policy issues in Brazil

Now, taking into account the Census of 2001, FGVs releases the Atlas of Hunger in Brazil II:

•59 million Brazilians live below the poverty line

•1/3 population has less than R$79 monthly per capita.

Rio de Janeiro, 15 April 2004

15 de abril de 2004

“60 million below the poverty line”

Income per capita?

How much is your monthly income?

National census and surveys ask the head of the household:

Formal economy ==> not very reliable data

Informal economy ==> no consistent income

Don’t pay attention to the researches avaliable about number of people

living below the Poverty Line

Methods to estimate the income per capita are extremely inconsistent specially in markets where the informality is high

Income48% does have formal

labour relationship

52% does not have formal or consistent income

The issue of the INFORMAL ECONOMY and how it mess up the CENSUS conclusions

Poor knowledge

MDB and other development organizations and governments overestimate the size of poverty

Use consumption indicators as a starting point to solve the puzzle

2

Appliances: market penetration per strata 2000

Source: ANEP/ABIPEME/IBOPE

Strata TOTALGoods A1 A2 B1 B2 C D E

Washing machine 96 95 91 85 66 32 4 58

Dryer (clothes) 58 40 28 16 7 2 9

Dish washer 68 44 26 8 1 5

Refrigerator 100 100 100 100 99 94 31 89

Freezer 87 75 53 40 18 5 19

Microwave oven 89 78 54 34 11 2 15

Vaccum cleaner 83 76 66 43 15 2 19

More than 4 radios 51 45 42 50 33 5

TV set 100 100 100 100 99 95 62 93

2 or more TV set 100 98 40 21 6 1 11

CD Player 96 92 81 63 32 9 1 30

VCR 100 98 94 87 47 4 37

Telephone 98 96 86 67 36 11 1 33

VCR camera 63 35 16 8 1 - - 4

PC 69 51 32 11 3 - - 7

Fax 44 22 12 4 1 - - 3

Market penetration of goods (% households) 2001

96%

98%

89%

79%

57%

48%

48%

22%

14%

0% 20% 40% 60% 80% 100%

Geladeira

Liquidif icador

Telefone (f ixo ou celular)

Videocassete

Carro

Pearlman’s research: the evolution of consumption patterns in Rio’s favelas

Patterns of Rio’s Favelas 21st CenturyPoverty: the failure to understand it and the need to re-interpret it correctly.

48% does have formal labour relationship

52% does not have formal or consistent income

Consumption and Life Styles

Better knowledge about the different segments of the society as a whole

Development organizations

Indicator:

INCOME per capita

Objetive:

Determine the needs of society

Corporations

Indicators:

MARKET PENETRATION of goods and services per household

Objetive:

Figuring out what consumers want and their behavior

Income per capita?

How much is your monthly income?

Census and Surveys ask the head of the household

Formal economy ==> not very reliable data

informal economy ==> no consistent income

THE BIG TROUBLE WITH INCOME DATA

When you focus on Income you get a very poor picture about the reality, especially when informal

economy becomes more significant...

Consumption?

Do you have a TV set, car, what apparels, your level of education etc.?

Marketing research

Very tangible questions

On the other hand, when you focus on consuption we get a

more accurate picture not only about the purchasing power but

also about people’s lifestyle

Bear in mind that there is a very dynamic process of mass market

formation and at same time market mass market fragmentation

3

• Rich/Affluents

• Middle class

• Poor

• Deprived

• 300 thousand households

• 2,5 million households

• 12,5 million households

90 million inhabitants 15 million households

Consumer

socie

ty

Out of

Consumer

Society

------------------------- Poverty line ------------------------------

Brasil of the 70s

Brazil 2004

182 million inhabitants47,5 million household

Critical mass of an emergent middle class

The New Brazilian Middle Class

1993 1996 2000 Variation

A 2 5 5 3

B 12 19 19 7

C 26 31 34 8

D 42 33 34 -6

E 18 12 8 -10

Former Middle Class

The NewMiddle Class

Emergent Middle Class

Don’t underestimate the vitality of low income emergent markets

4

1963-1990

Avoid the macro-economics myopia and invest in gaining in-depth knowledge about the fabric of

society

5

Lack of Poverty Segmentation

• Low income• Vulnerability related to groups (gender, youth, elderly)• Subnutrition• Unemployment• Mental and physical disabilities• Family disagregation • Drug and Alcohol Addiction• Homelessness

Strive to understand people’s desires not only needs

6

Don’t get fooled by the label “low-income”, that doesn’t mean the

customer have low quality standard expectations

7

Source: David Meyers, The American Paradox

O paradoxo do progresso e da felicidade na sociedade contemporânea

Wealth and poverty are both a moving target

Fast food casual

restaurant oriented

for low income

segment

28 deparment megastore chain in Rio

2 million active clients only in the RJ state

(13,8 million inhabitants)

Health insurance for low income strata in the states of RJ and SP

increased the number of clients from 250 thousand to 400 thousand over the last 3 years

Government, Society and Business Players should revise and integrate the concepts of: Poverty, Social Vulnerability, Low Income and Informality

Thank you!

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