How to reach emerging market consumers with new ... - Roland Berger
How to reach emerging market consumers with new ... - Roland Berger
How to reach emerging market consumers with new ... - Roland Berger
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<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
January 2013<br />
Study<br />
In-depth knowledge for decision makers<br />
In 2030, about 80%<br />
of the global middle<br />
class will live outside<br />
the developed world.<br />
80%<br />
Asia, Africa and other<br />
<strong>emerging</strong> regions<br />
20%<br />
Europe, US<br />
Consumers – how <strong>to</strong> <strong>reach</strong> <strong>emerging</strong> <strong>market</strong> <strong>consumers</strong> <strong>with</strong> <strong>new</strong> strategies<br />
global <strong>to</strong>pics<br />
8 billion<br />
In 2030, about 80% of global middle-class<br />
<strong>consumers</strong> will live outside the US and Europe.<br />
This publication will highlight prominent trends<br />
that influence what <strong>consumers</strong> in <strong>emerging</strong><br />
<strong>market</strong>s buy.
Study 3<br />
global <strong>to</strong>pics<br />
8 billion<br />
Consumers – how <strong>to</strong> <strong>reach</strong> <strong>emerging</strong> <strong>market</strong><br />
<strong>consumers</strong> <strong>with</strong> <strong>new</strong> strategies<br />
Introduction<br />
Product portfolio and brand positioning –<br />
Meeting the needs of diverse <strong>consumers</strong><br />
Marketing and distribution –<br />
Think local but act global<br />
Conclusion<br />
p 4<br />
p 6<br />
p 22<br />
p 28
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
introduction<br />
Key questions for <strong>reach</strong>ing CONSUMERS<br />
in <strong>emerging</strong> <strong>market</strong>s
Study 5<br />
In 2030, about 80% of global middle-class <strong>consumers</strong> will live<br />
outside the US and Europe. In this fifth publication, we highlight<br />
the trends that are likely <strong>to</strong> influence how these <strong>consumers</strong><br />
in <strong>emerging</strong> <strong>market</strong>s weigh up their purchases, choose particular<br />
items and complete their transactions. 1<br />
We examine four areas in particular: product portfolio, brand<br />
positioning, <strong>market</strong>ing and distribution. In each area, we ask<br />
some key questions:<br />
Rapidly growing economies attract competi<strong>to</strong>rs and empower<br />
<strong>consumers</strong>. <strong>How</strong> can companies identify <strong>new</strong> consumer profiles<br />
and design versatile product portfolios?<br />
<strong>How</strong> do brand reputation and consumer values influence<br />
<strong>consumers</strong>' buying behavior?<br />
What techniques ensure that <strong>market</strong>ing messages really<br />
resonate <strong>with</strong> <strong>consumers</strong> in <strong>emerging</strong> <strong>market</strong>s? <strong>How</strong><br />
can companies use <strong>new</strong> mobile technology and networks<br />
<strong>to</strong> build their <strong>market</strong> share?<br />
Distribution strategies need <strong>to</strong> closely reflect local<br />
conditions. What distribution strategies work in countries<br />
<strong>with</strong> predominantly low-density rural populations?<br />
1) Some of these consumer trends are also discussed in publication 1. We<br />
will repeat these briefly wherever necessary <strong>to</strong> show the impact of the trend<br />
on a company's strategy.
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
Product portfolio and brand<br />
positioning – Meeting the<br />
needs of diverse <strong>consumers</strong><br />
Socio-demographic change IS DRIVING consumer power
Study 7<br />
Socio-demographic change IS DRIVING<br />
consumer power<br />
In publication 1, we saw how population growth – at extraordinary<br />
levels almost everywhere except Europe – will profoundly shape<br />
<strong>to</strong>morrow's global economy. According <strong>to</strong> forecasts, between 2012<br />
and 2030, some 1.2 billion of the world's 1.3 billion <strong>new</strong> citizens<br />
will be born in <strong>emerging</strong> or developing countries. That's equivalent<br />
<strong>to</strong> 95% of all births.<br />
What does this mean for specific regions between 2012 and<br />
2030? A predicted 600 million people in Asia, 500 million in Africa<br />
and about 90 million in Latin America and the Caribbean will be<br />
added <strong>to</strong> the local population. Europe will be tiny by comparison,<br />
<strong>with</strong> only 1 million <strong>new</strong> people, representing 0.1% of the <strong>new</strong><br />
global population.<br />
Emerging <strong>market</strong>s will be extremely young in terms of<br />
demographics. In 2030, 40% of the population will be under 25,<br />
compared <strong>to</strong> just 26% in developed nations. This fact will have a<br />
profound influence on consumption patterns.<br />
The number of young people in <strong>emerging</strong> <strong>market</strong>s who enjoy a<br />
better education will also increase. In the period up <strong>to</strong> 2020,<br />
private expenditure on education in <strong>emerging</strong> <strong>market</strong>s is set <strong>to</strong><br />
grow nearly 7% per annum, <strong>reach</strong>ing a level of USD 143 billion.<br />
Take China, for instance. Chinese society places a strong em phasis<br />
on education. The 2009 Pisa world education rankings put China<br />
in first place in all three educational categories: reading comprehension,<br />
mathematics and science. Many other develo ping<br />
countries, India and Brazil in particular, are also set <strong>to</strong> see<br />
an increasing number of university graduates. Since 2006, the<br />
number of students in China and India has grown by over 7% a<br />
year. China now produces half a million <strong>new</strong> engineers each year –<br />
while engineering skills shortages in Germany are leading <strong>to</strong><br />
an estimated annual economic loss of USD 2.3 billion for German<br />
business.<br />
Young people <strong>with</strong> better education and skills also have a greater<br />
chance of employment. Over the last 25 years, the number of<br />
people living in poverty in <strong>emerging</strong> and developing countries has<br />
fallen by half. Education has played a major role in this<br />
development, improving lives on the ground.<br />
f1 Every minute, fifty households in developing countries join the<br />
middle class. By 2030, an estimated 66% of the world's middle<br />
class will live in Asia, compared <strong>to</strong> just 21% in Europe and the<br />
United States. Indeed, China's burgeoning middle class is already<br />
bigger than the entire American population. As for the rich, the<br />
number of millionaires in China surpassed that in America some<br />
time ago. Other countries – not least Indonesia, India, Pakistan<br />
and Nigeria, along <strong>with</strong> other African nations – are also seeing an<br />
expanding middle class <strong>with</strong> money <strong>to</strong> spend. These upwardly<br />
mobile sec<strong>to</strong>rs of society share a common wish: <strong>to</strong> create for their<br />
children and grandchildren a world of affluence, political stability<br />
and opportunities.<br />
f2<br />
f3<br />
Disposable incomes are also on the rise. By 2020, many <strong>emerging</strong><br />
countries will see more than 80% of their population <strong>with</strong> annual<br />
disposable incomes in excess of USD 10,000. More than 25% of<br />
households in Saudi Arabia, Turkey, Argentina, Iran, Russia and<br />
Malaysia will command incomes above USD 50,000 a year.<br />
Changing spending patterns<br />
Total consumer spending in the developing world will nearly<br />
double over the next eight years, from USD 14 <strong>to</strong> 22 trillion. Per<br />
capita consumer expenditure is forecast <strong>to</strong> <strong>reach</strong> USD 3,319 a year<br />
in 2020. This growth will be largely driven by improved education<br />
and rising incomes. In particular, BRIC countries will see consumer<br />
spending grow from USD 7 <strong>to</strong> 11 trillion, Mercosur countries from<br />
USD 2 <strong>to</strong> 3 trillion, and in the Middle East and North Africa from USD<br />
1 <strong>to</strong> 2 trillion. Per capita consumer expenditure is forecast <strong>to</strong> grow<br />
at least 3% annually in each region by 2020. Mercosur will see<br />
the highest per capita spending <strong>with</strong> USD 10,112, followed by the<br />
BRIC countries <strong>with</strong> USD 3,619 and the Middle East and North<br />
Africa <strong>with</strong> USD 3,615.<br />
Traditional consumer goods segments such as fashion, leisure and<br />
communications are likely <strong>to</strong> enjoy per capita growth of about 30%<br />
by 2020 in <strong>emerging</strong> and developing countries. European fashion<br />
chains such as Zara are already a familiar sight in major cities<br />
across India, Indonesia, the Philippines, Saudi Arabia, Thailand and<br />
South Africa. Per capita clothing expenditure is forecast <strong>to</strong> <strong>reach</strong><br />
USD 183 a year in 2020, or a <strong>to</strong>tal of USD 1.2 trillion – including<br />
USD 800 billion in our Focus 20 countries alone. 2 Russia, Brazil and<br />
Turkey will be home <strong>to</strong> <strong>consumers</strong> spending the most on fashion.<br />
China, India and Vietnam will see a sharp increase – more than 8%
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
F1<br />
The <strong>emerging</strong> middle class – By<br />
2030, approximately 80% of<br />
the middle class will live outside<br />
Europe and the United States<br />
Share of the global middle class in 2030 (%)*<br />
7%<br />
14%<br />
6%<br />
7%<br />
66%<br />
Source: OECD<br />
* The "global middle class" is defined as households <strong>with</strong> daily expenditures between USD 10 and USD 100 per person.<br />
F2<br />
Spending on consumer goods will<br />
increase significantly<br />
Total consumer expenditure in selected regions,<br />
real value, 2012-2020 (USD trillion)<br />
Emerging and developing countries<br />
BRIC<br />
14<br />
22<br />
7<br />
11<br />
2012<br />
2020<br />
Source: Euromoni<strong>to</strong>r<br />
Mercosur<br />
Middle East and North Africa<br />
2<br />
3<br />
1<br />
2
Study 9<br />
a year – in spending on leisure and entertainment. Indeed, by<br />
2020, <strong>emerging</strong> <strong>market</strong>s will spend a <strong>to</strong>tal of USD 924 billion a<br />
year on leisure and entertainment.<br />
Consumers in the developing world will also invest strongly in<br />
improving and protecting their health. Spending will <strong>reach</strong> around<br />
USD 219 per capita per year by 2020. This is roughly USD 86 per<br />
capita more than at present, and represents a much greater per<br />
capita increase than that for fashion, communications or leisure.<br />
Of the Focus 20 countries, Argentina, Peru and South Africa will<br />
see the highest per capita expenditure.<br />
Communication technologies will have a strong impact on these<br />
<strong>new</strong> <strong>consumers</strong>. Consumer expenditure on communications will<br />
almost double between 2012 and 2020, from USD 593 billion <strong>to</strong><br />
USD 1.1 trillion. The countries <strong>with</strong> the highest spending on<br />
advertising per capita are likely <strong>to</strong> be Malaysia, Russia and Turkey.<br />
As <strong>consumers</strong> become better educated, they also require better<br />
information. In response, Nokia has developed its "Nokia Life<br />
Tools", a product that informs <strong>consumers</strong> about healthcare, agriculture,<br />
entertainment and education issues via cell phone. For<br />
example, the company will shortly launch a diabetes program via<br />
cell phone in India. Nokia Life Tools are currently in use in India,<br />
China, Indonesia and Nigeria.<br />
In a similar vein, Johnson & Johnson launched its "Text4Baby"<br />
product in 2010. This is a free mobile information service that<br />
helps educate pregnant women and <strong>new</strong> parents about childcare<br />
issues. More than 20 million people in China, India, Mexico,<br />
Bangladesh, South Africa and Nigeria currently use the program.<br />
Bot<strong>to</strong>m-of-the-pyramid consumption<br />
Yet despite rising incomes and consumer expenditures, the<br />
majority of people in developing nations continue <strong>to</strong> struggle. The<br />
proportion of Nigerians living on less than two dollars a day is<br />
currently 85%. In India the figure is 70%, in Indonesia 46%. Overall,<br />
an estimated four billion people worldwide survive on two dollars<br />
a day or less.<br />
The poor are what we might call "bot<strong>to</strong>m of the pyramid" <strong>consumers</strong>.<br />
Thanks <strong>to</strong> <strong>new</strong> technology and novel distribution<br />
methods, they <strong>to</strong>o have become a potentially profitable <strong>market</strong><br />
for companies. Consumer goods manufacturers are delivering<br />
inexpensive, easy-<strong>to</strong>-use products <strong>to</strong> them using low-overhead<br />
distribution. The most successful <strong>new</strong> products are often "frugal<br />
innovations" or feature frugal (or "Gandhian") engineering. This<br />
involves removing non-essential features and thereby<br />
significantly reducing the cost and complexity of manufacturing<br />
processes. 3<br />
One good example is ChotuKool, a USD 70 refrigera<strong>to</strong>r produced by<br />
the Indian firm Godrej. The appliance uses sophisticated cooling<br />
chips and a fan similar <strong>to</strong> computer temperature control systems<br />
in place of more costly conventional compressor technology.<br />
Other affordable "Chotu" innovations are a low-cost washing<br />
machine, ChotuWash, and an inexpensive water purifier.<br />
Sometimes all that is needed is a simple change of packaging.<br />
Beiersdorf sells shampoos <strong>to</strong> the low-end <strong>market</strong> under its<br />
subsidiary Beiersdorf Hair Care China in standardized plastic<br />
bottles <strong>with</strong> simple brand labels. Bottles that have expensive<br />
labels <strong>with</strong> special, glossy colors are used only for the consumer<br />
segments in tier-1 and tier-2 cities.<br />
Sophisticated <strong>consumers</strong> can also distribute bot<strong>to</strong>m-of-thepyramid<br />
solutions. Grameen Bank, for instance, organizes clubs of<br />
5-10 people – most often women – who share the responsibility<br />
for managing microloans. The clubs also regularly review the<br />
performance of borrowers.<br />
Another example is the brewer SABMiller. The company has<br />
sold beer <strong>to</strong> Africans for over a century, their upscale products<br />
including the European brands Peroni and Grolsch. The company<br />
now plans <strong>to</strong> cater <strong>to</strong> lower-income rural Africans who<br />
drink "informal" home-brewed beers. To this end, they developed<br />
Chibuku, a beer in a car<strong>to</strong>n, which costs up <strong>to</strong> 40% less than<br />
bottled beers, has a similar taste <strong>to</strong> home-brewed beers and is<br />
hygienically produced. The company estimates that the informal<br />
beer <strong>market</strong> in Africa is four times larger than the clear beer<br />
<strong>market</strong>. Over the next three years, it plans <strong>to</strong> expand distribution<br />
of the <strong>new</strong> product <strong>to</strong> around a dozen countries.<br />
2) Our Focus 20 countries – the 20 <strong>emerging</strong> <strong>market</strong>s projected <strong>to</strong><br />
see the most economic growth in the period <strong>to</strong> 2030 – are<br />
Argentina, Brazil, China, Colombia, Egypt, India, Indonesia, Iran, Iraq,<br />
Malaysia, Mexico, Nigeria, Pakistan, Peru, Russia, Saudi Arabia,<br />
South Africa, Thailand, Turkey and Vietnam. 3) See Publication 4 for<br />
a discussion of key frugal innovation strategies.
Spending will grow in many segments<br />
Annual per capita consumer spending by segment, real value, 2012-2020 (USD)<br />
F3<br />
Food<br />
Housing<br />
Transport<br />
Health<br />
Fashion<br />
Communication<br />
Leisure
CAGR<br />
558<br />
662<br />
399<br />
574<br />
270<br />
440<br />
133<br />
219<br />
135<br />
183<br />
100<br />
175<br />
98<br />
142<br />
2.2%<br />
4.7%<br />
5.5%<br />
6.4%<br />
3.9%<br />
7.3%<br />
4.7%<br />
Source: Euromoni<strong>to</strong>r
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
Low-income <strong>consumers</strong> can also be attracted by <strong>new</strong> service<br />
portfolios. The Mexican cement manufacturer Cemex, for instance,<br />
sells a versatile support package <strong>to</strong> low-income families <strong>to</strong> help<br />
them build homes inexpensively. For just USD 14 a week, the<br />
company provides inspections, materials warehousing, advice<br />
from professional architects and the required cement products.<br />
Unilever's African portfolio includes both affordable products and<br />
training services. It offers low-cost food items, water-thrifty<br />
washing powders and grooming products that suit local tastes. In<br />
addition, it provides professional training <strong>to</strong> African entrepreneurs.<br />
In 2011, the company opened an academy in Johannesburg that<br />
each year will train 5,000 hairdressers who plan <strong>to</strong> open their own<br />
salons. The academy also functions as a forum for testing <strong>new</strong><br />
products, business models and distribution methods.<br />
In some areas, <strong>new</strong> methods of delivery have emerged, such<br />
as medical services provided <strong>to</strong> poor rural communities by mobile<br />
clinics. The Sanjeevan Mobile Clinic operating in parts of India<br />
resembles a large bus. But inside it contains a fully equipped<br />
doc<strong>to</strong>r's office <strong>with</strong> X-ray, ultrasound, mammography or electrocardiogram<br />
machines, a second treatment room and a small<br />
darkroom <strong>to</strong> develop X-rays. It even has its own genera<strong>to</strong>r so it<br />
can operate independently of the local power grid. Each mobile<br />
clinic can service hundreds of temporary treatment sites. In<br />
one year, for example, a single such vehicle traveling across the<br />
Uttarakhand Province in northern India set up more than<br />
800 medical camps, helping some 60,000 patients. Siemens<br />
has equipped 18 of these mobile surgeries over the last 7 years.<br />
Urbanization<br />
Since 2008, over half the world's population has been living in<br />
cities. Enterprising companies will discover that urban landscapes<br />
offer many <strong>new</strong> business prospects. Supply chains, trade,<br />
transportation and Internet connections are expanding, often<br />
rapidly, <strong>to</strong> serve ever more city dwellers.<br />
f5 The scale of this rapid change is startling: Some 200,000 people<br />
will move <strong>to</strong> cities every day through 2030. Emerging <strong>market</strong>s will<br />
see most of this migration. Between 2010 and 2030, the global<br />
share of people inhabiting cities will climb from 45% <strong>to</strong> 55%. Most<br />
will be in the developing world. Thus, 3.9 billion – or 80% – of 4.9<br />
billion city dwellers worldwide will live in <strong>emerging</strong> and developing<br />
countries as the world's <strong>to</strong>tal urban population grows by more<br />
than 1.3 billion.<br />
Looking at specific regions, Latin America will have the highest<br />
share of urban residents as its cities grow <strong>to</strong> include 80% of the<br />
<strong>to</strong>tal population by 2030. The share of urban residents in Africa will<br />
increase from 39% <strong>to</strong> 48%, in India from 31% <strong>to</strong> 40%, in China from<br />
49% <strong>to</strong> 69%, and in the rest of Asia from 44% <strong>to</strong> 56%. By 2025,<br />
China will have no fewer than 139 cities <strong>with</strong> over a million<br />
inhabitants, the largest number of such agglomerations of any<br />
country in the world.<br />
Urban house and household sizes are also changing. In India, for<br />
instance, per household floor space has doubled every 14 years <strong>to</strong><br />
its current level of 31.5 m 2 . This is still two and a half times less<br />
than China's 85 m 2 . According <strong>to</strong> projections by Credit Suisse, India<br />
must construct three million houses and China five million houses<br />
every year through 2030 <strong>to</strong> accommodate future population<br />
growth.<br />
Although global sanitary conditions have improved considerably<br />
over the past several decades, 2.6 billion people still have no<br />
access <strong>to</strong> <strong>to</strong>ilets and 70% live in cities <strong>with</strong>out proper sanitation<br />
facilities. Lack of sanitation causes environmental pollution, social<br />
problems, unsafe surroundings and substantially more potential<br />
F4<br />
In several Focus 20 countries, a large<br />
share of the population needs better<br />
access <strong>to</strong> sanitary facilities<br />
Percentage of the urban population that<br />
currently has no access <strong>to</strong> sanitary facilities (%)<br />
Nigeria<br />
India<br />
China<br />
Indonesia<br />
64<br />
46<br />
42<br />
37<br />
Source: Euromoni<strong>to</strong>r
Study 13<br />
F5<br />
By 2025, 80% of cities <strong>with</strong> more<br />
than a million inhabitants will<br />
be outside the developed world<br />
Number of urban agglomerations <strong>with</strong> over a million inhabitants, 2025<br />
50<br />
57<br />
74<br />
81<br />
305<br />
China<br />
India<br />
US<br />
Nigeria<br />
139<br />
54<br />
45<br />
21<br />
Source: UN World Urbanization Prospects: The 2011 Revision
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
for epidemics. Indeed, one child dies every 15 seconds as a result<br />
of consuming water polluted <strong>with</strong> human excreta. Diarrheal<br />
diseases cause up <strong>to</strong> 50% of all deaths in emergency, refugee and<br />
IDP camp situations – more than 80% of them children under two<br />
years of age.<br />
Potential solutions<br />
These health and environmental challenges stimulate innovation.<br />
For example, Swedish architect Anders Wilhelmson designed<br />
"Peepoo", a personal, single-use, self-sanitizing, fully bio degradable<br />
<strong>to</strong>ilet that prevents feces from contaminating the<br />
immediate surrounding area and ecosystem. After use, Peepoo<br />
turns in<strong>to</strong> valuable fertilizer that can improve livelihoods and<br />
food security.<br />
In India, 40% <strong>to</strong> 60% of the urban population live in poorly developed,<br />
unhygienic conditions. In an effort <strong>to</strong> improve standards, an<br />
in ventive Indian real estate company introduced a program <strong>to</strong><br />
offer small land parcels <strong>with</strong> decent infrastructure and <strong>with</strong> a<br />
price tag of just USD 6,500 each. The examples of successful<br />
innovation don't s<strong>to</strong>p there, either. Three years ago, Tata Mo<strong>to</strong>rs<br />
launched the world's cheapest car, priced at just EUR 1,500. The<br />
company has now designed the Nano house, a 20 m 2 coconut<br />
and jute fiber unit that can be erected in just a week and is built <strong>to</strong><br />
last only a few years. Tata's plan is <strong>to</strong> offer affordable shelter <strong>to</strong><br />
poor people around the world. It believes that governmentsponsored<br />
mass residential developments for slum dwellers and<br />
the homeless will be one of its biggest <strong>market</strong>s. In developing<br />
the Nano house, Tata consulted local decision-makers, ensuring<br />
that the product met local requirements. The company is now<br />
analyzing user feedback from a pilot project in rural India. It plans<br />
<strong>to</strong> price the <strong>new</strong> home at about USD 700 – roughly what<br />
industrialized world <strong>consumers</strong> might pay for a <strong>new</strong> iPad.<br />
The design of low-cost housing also needs <strong>to</strong> take climate change<br />
in<strong>to</strong> account. A German initiative, ASH (Africa Sustainable House),<br />
has developed the world's first low-cost, climate-friendly home<br />
for Africa and Asia. Delivered in containers, the units are constructed<br />
on site in a single day. They are fitted <strong>with</strong> a solar module<br />
for lighting and radio reception, and even include air conditioning.<br />
Novel building materials can also make housing affordable.<br />
Taiwanese architect Arthur Huang developed a method of creating<br />
construction materials out of plastic waste. The EcoArk, built from<br />
1.5 million plastic bricks, was shown in November 2010 at Taipei's<br />
International Garden Festival. Even plastic bottles can be used<br />
<strong>to</strong> build houses. Assisted by experts in London, a Nigerian building<br />
project initiated by the non-governmental organization DARE<br />
(Development Association for Re<strong>new</strong>able Energies) is creating<br />
homes out of plastic bottles that can <strong>with</strong>stand earthquakes,<br />
fire and even bullets. By using unconventional building materials,<br />
DARE seeks <strong>to</strong> address two problems simultaneously: plastic<br />
bottles that pollute roads, sewers and gutters are recycled in<strong>to</strong><br />
buildings, and at the same time help alleviate housing shortages<br />
in Africa's most populous country.<br />
Demand for prime location luxury buildings in <strong>emerging</strong> <strong>market</strong>s<br />
is growing almost as fast as local incomes. The international<br />
property consulting firm Knight Frank regularly surveys <strong>to</strong>p real<br />
estate advisors <strong>to</strong> ask which nationalities will become the most<br />
important prime property buyers over the next five years. Chinese,<br />
Russian, Middle Eastern, Latin American and other high-growth<br />
economies consistently lead recent predictions. For example,<br />
<strong>emerging</strong> <strong>market</strong> cities such as Nairobi have seen prime property<br />
prices soar more than 25% above 2011 prices, while Bali and<br />
Jakarta have seen prices increase about 15% – more than<br />
in London or Vancouver.<br />
The more people congregate in cities, the more critical it becomes<br />
<strong>to</strong> find ways <strong>to</strong> control streams of goods and waste. One promising<br />
method suggested by research in<strong>to</strong> contemporary urban data<br />
management is "smart" city designs – that apply innovative IT<br />
applications in building design, city planning and infrastructure.<br />
These aren't just drawing board recommendations, either.<br />
Singapore has become a model of urban IT prowess. The city<br />
collates and interlinks data on water and power supplies, traffic<br />
volumes for shipping, aircraft, cars and taxis, temperature and<br />
telephony, all in real time. The scope of the IT system is such<br />
that a subway train driver knows capacity loads, why trains are<br />
slowing down and whether it's advisable <strong>to</strong> wait longer at a<br />
particular station.<br />
The modern city dweller will increasingly require a smartphone<br />
<strong>to</strong> navigate the modern urban data jungle. A "virtuous commercial<br />
circle" will evolve as more data stimulates greater demand<br />
for multifunctional smart technologies. The potential for highly<br />
individualized distribution and <strong>market</strong>ing is almost unlimited:<br />
some vending machines in Asia even scan a person's face<br />
<strong>to</strong> cus<strong>to</strong>mize advertising.
Study 15<br />
Getting <strong>to</strong> know CONSUMERS<br />
in <strong>emerging</strong> <strong>market</strong>s<br />
The pace of change is speeding up. Living standards and the built<br />
environment are evolving faster than ever and <strong>market</strong>s are<br />
increasingly diverse in terms of educational levels, incomes and<br />
geographies. Consumer diversity creates a puzzle for <strong>market</strong>ing.<br />
<strong>How</strong> can companies identify niches for their <strong>new</strong> products and<br />
services? Their first step must be <strong>to</strong> analyze consumer habits and<br />
brand values. With this in mind, <strong>Roland</strong> <strong>Berger</strong> designed a cus<strong>to</strong>miz<br />
able <strong>to</strong>ol, the RB Profiler, <strong>to</strong> measure how <strong>consumers</strong><br />
perceive brands. Using a specially developed questionnaire, the<br />
RB Profiler investigates 20 fundamental values that influence<br />
all aspects of cus<strong>to</strong>mer behavior. The RB Profiler analyzes what<br />
people's requirements are and how they view brands, generating<br />
a range of consumer profiles. Companies can use these profiles<br />
<strong>to</strong> develop product positioning options and compare the performance<br />
of their current products <strong>with</strong> targets. At the same time, the<br />
<strong>to</strong>ol's intuitive format and statistical validation encourages organizational<br />
buy-in and efficient application in <strong>market</strong>ing.<br />
f6 Here's an example of the <strong>to</strong>ol in action: Between 2000 and 2030,<br />
China's urban population will nearly double, growing from 36%<br />
<strong>to</strong> 69% of the <strong>to</strong>tal population. This <strong>new</strong> urban population will<br />
demonstrate significant differences in terms of tastes and<br />
aspirations. A <strong>Roland</strong> <strong>Berger</strong> study using the RB Profiler asked<br />
Chinese <strong>consumers</strong> about their brand perceptions and<br />
differentiation, consumption behavior, purchase patterns and<br />
lifestyle. The study showed that consumer preferences vary<br />
significantly according <strong>to</strong> urban size and geographical location.<br />
Looking at the differences in more detail, it appears that<br />
smaller tier-3 cities exhibit different values and priorities than<br />
megacities, reflecting their regional orientation. Typical tier-3<br />
cities include Tongcheng in Anhui province, <strong>with</strong> roughly 744,000<br />
inhabitants, and Fengcheng on the Yellow Sea coast, <strong>with</strong> a<br />
population of approximately 630,000. To illustrate how the RB<br />
Profiler works, figure 6 translates the profiles for megacities and<br />
tier-3 cities in<strong>to</strong> two pro<strong>to</strong>type cus<strong>to</strong>mers, Susan Gan and Neil<br />
Zheng. The differences between the two are immediately obvious.<br />
F6<br />
The people behind the profiles – A possible<br />
translation of two typical consumer value profiles<br />
Chinese consumer value profiles <strong>with</strong> pro<strong>to</strong>type cus<strong>to</strong>mers,<br />
megacities vs. tier-3 cities<br />
Susan Gan, single, 35,<br />
from Guangzhou, megacity<br />
Works as a systems administra<strong>to</strong>r<br />
for a major Chinese company<br />
Main source of <strong>new</strong>s: Internet<br />
Newspaper: National daily<br />
Credit cards owned: Two<br />
Use of credit card: Several times a week<br />
Travels for leisure: Twice a year<br />
Clothes shopping: Once a week<br />
Preferred grocery shopping: Mall<br />
Accommodation: One bedroom flat near the city center<br />
Hours spent on watching TV a day: 1<br />
Hours spent on using the Internet a day: 3<br />
Likes: Risk-taking, innovative things, trendy features, just-in-time,<br />
price-defined buying decisions<br />
Neil Zheng, married, 43,<br />
one child, from tier-3 city<br />
Runs a small stationery shop<br />
Main source of <strong>new</strong>s: TV<br />
Newspaper: Local daily<br />
Credit cards owned: None<br />
Use of credit card: Never<br />
Travels for leisure: Once every three years<br />
Clothes shopping: Twice a year<br />
Preferred grocery shopping: Super<strong>market</strong> and own plot <strong>to</strong> grow vegetables<br />
Accommodation: Small house in the suburbs<br />
Hours spent watching TV a day: 3<br />
Hours spent on the Internet a week: 1<br />
Likes: Fitness, family, elegance
F7<br />
China<br />
Among <strong>emerging</strong> <strong>market</strong>s, China has the largest<br />
number of valuable brands<br />
Number of brands among the 500 most valuable worldwide, 2012<br />
Brazil<br />
Russia<br />
Mexico<br />
Hong Kong<br />
United Arab Emirates<br />
Malaysia<br />
Chile<br />
Saudi Arabia<br />
South Africa
27<br />
10<br />
8<br />
4<br />
3<br />
3<br />
2<br />
1<br />
1<br />
1<br />
Source: Interbrand
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
Brand positioning – Simple but creative<br />
The "country of origin" effect<br />
Rising incomes in <strong>emerging</strong> countries encourage <strong>consumers</strong> <strong>to</strong><br />
change their brand purchasing behavior. A welcome consequence<br />
of this for Western companies is their increasing preference for<br />
established Western brands. Local brands are often left far behind<br />
in the competition. For example, no local brand features among<br />
the leading fashion brands in Saudi Arabia, and only one domestic<br />
brand in India makes it in<strong>to</strong> the <strong>to</strong>p 10 beauty brands.<br />
f7 Manufacturers in <strong>emerging</strong> countries own just 12% of the world's<br />
500 most valuable brands. China leads the pack, <strong>with</strong> 27 internationally<br />
distributed brands, followed by Brazil, <strong>with</strong> 10 brands.<br />
In the long term, brands from <strong>emerging</strong> <strong>market</strong>s are likely <strong>to</strong><br />
become more prominent in Europe as manufacturers shift their<br />
attention from domestic <strong>to</strong> world <strong>market</strong>s. Products that are<br />
successful in <strong>emerging</strong> <strong>market</strong>s can often also be sold globally.<br />
For instance, Chinese au<strong>to</strong>makers – notably the company behind<br />
the Qoros brand – are confident that they can expand in<strong>to</strong> Europe<br />
following the example of global Chinese brands in the IT sec<strong>to</strong>r,<br />
such as Lenovo.<br />
Brand origination is a matter of considerable importance in<br />
<strong>emerging</strong> <strong>market</strong>s. The "country of origin" effect means that<br />
people associate particular countries <strong>with</strong> certain product<br />
characteristics. Consumers worldwide, for example, frequently<br />
associate German products <strong>with</strong> quality, reliability and durability.<br />
In the past, consumer goods manufacturers such as Coca-Cola<br />
transferred their successful national brands, logos and advertising<br />
<strong>to</strong> their worldwide subsidiaries. But building brand awareness<br />
<strong>to</strong>day calls for more imagination. Western companies must<br />
adapt <strong>to</strong> local and regional conditions. Often the most innovative<br />
<strong>market</strong>ing technique is the simplest. In several <strong>emerging</strong><br />
countries, for example, Coca-Cola gives paint in its signature red<br />
F8<br />
Top-selling brands in <strong>emerging</strong> countries<br />
Sales by brand, 2012 (retail value, USD million)<br />
Top-selling fashion brands in Saudi Arabia – No homegrown brands<br />
Mothercare<br />
Next<br />
Zara<br />
Aldo<br />
Bossini/Sparkle<br />
Marks & Spencer<br />
Clarks Footwear<br />
Bershka<br />
Milano<br />
Calvin Klein<br />
231<br />
191<br />
164<br />
159<br />
121<br />
70<br />
60<br />
60<br />
47<br />
47<br />
Top-selling beauty brands in India – Dabur is the only Indian brand<br />
Fair & Lovely<br />
Colgate<br />
Lux<br />
Lifebuoy<br />
Godrej<br />
Det<strong>to</strong>l<br />
San<strong>to</strong>or<br />
Dove<br />
Clinic Plus<br />
Dabur<br />
465<br />
353<br />
336<br />
305<br />
257<br />
244<br />
208<br />
196<br />
159<br />
156<br />
Source: Euromoni<strong>to</strong>r
Study 19<br />
F9<br />
Emerging countries lead the<br />
ranking of global happiness<br />
Happy Planet Index (index value):<br />
The index's <strong>to</strong>p 10 are <strong>emerging</strong> countries<br />
Jamaica<br />
58.5<br />
Colombia<br />
59.8<br />
Costa Rica<br />
64.0<br />
<strong>to</strong>p<br />
ten<br />
El Salvador<br />
58.9<br />
Venezuela<br />
56.9<br />
Vietnam<br />
60.4<br />
Panama<br />
57.8 Nicaragua<br />
57.1<br />
Belize<br />
59.3<br />
Guatemala<br />
56.9<br />
Source: Centre for Well-being, <strong>new</strong> economics foundation<br />
#46 Germany 47.2<br />
#105 US 37.3
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
color <strong>to</strong> village residents <strong>to</strong> decorate the outside of their houses.<br />
Another inexpensive Coca-Cola <strong>market</strong>ing initiative turns shipping<br />
containers, again painted Coca-Cola red, in<strong>to</strong> s<strong>to</strong>rehouses or retail<br />
s<strong>to</strong>res.<br />
Ecuador and Bolivia have embarked on a similar path. The<br />
indigenous principle of "sumak kawsay" (meaning "good living")<br />
was enshrined in the Ecuadorian constitution in 2008 and in the<br />
Bolivian constitution a year later.<br />
Hindustan Lever uses other techniques <strong>to</strong> build brand awareness.<br />
The company frequently employs street performers – magicians,<br />
singers, dancers and ac<strong>to</strong>rs – <strong>to</strong> promote soap and <strong>to</strong>othpaste.<br />
Lever and Ogilvy Out<strong>reach</strong>, a <strong>market</strong>ing arm of Ogilvy & Mather,<br />
recruits the local performers, adjusting their scripts in line <strong>with</strong><br />
local dialects, education levels and religions. A series of such<br />
performances in northeastern India saw consumer awareness<br />
of Breeze, a low-cost 2-in-1 soap, rise from 22% <strong>to</strong> 30%. A similar<br />
program <strong>to</strong> promote Rin Shakti, a moderately priced detergent<br />
bar and powder brand, boosted recognition from 28% <strong>to</strong> 36% over<br />
a six-month period.<br />
Increasing relevance of values and sustainability<br />
Religious values are important for many <strong>consumers</strong>. Increasing<br />
numbers of religious people will drive the <strong>market</strong> for "valuesoriented"<br />
products. By 2030, when the global population is<br />
forecast <strong>to</strong> exceed 8 billion, approximately a quarter of people will<br />
be Muslim. Pakistan will likely overtake Indonesia as the world's<br />
largest Islamic country, <strong>with</strong> a predominantly Muslim population<br />
expected <strong>to</strong> exceed 256 million. Christianity will remain the world's<br />
dominant religion, however, <strong>with</strong> the Christian population expected<br />
<strong>to</strong> be 2.2 billion by 2030. Most <strong>new</strong> Christian converts will live in<br />
<strong>emerging</strong> countries. Together, Islam and Christianity will account<br />
for over half the global population (53%) by 2030. The impact<br />
on consumer preferences will be significant – Muslim women's<br />
fashion and non-pork meat products are two commonly cited<br />
examples.<br />
Values in a broader sense – religious, environmental and social –<br />
will play a major role in <strong>consumers</strong>' purchase decisions and brand<br />
loyalties. We are already seeing a strong move in some countries<br />
<strong>to</strong> integrate non-economic values in<strong>to</strong> their economic perspective.<br />
Bhutan, for example, first formulated a <strong>new</strong> official measure of<br />
living standards, Gross National Happiness (GNH), <strong>to</strong> measure<br />
economic progress as early as 1979. The four pillars of GNH are:<br />
Pursuing equitable and equal socio-economic development<br />
Preserving and promoting cultural heritage<br />
Conserving the environment<br />
Ensuring good governance<br />
f9 We are seeing increasing efforts <strong>to</strong> measure well-being across the<br />
globe. The London-based "Centre for Well-being" compiles a Happy<br />
Planet Index <strong>to</strong> record life expectancy, experienced well-being<br />
and people's satisfaction <strong>with</strong> the environmental impact of the<br />
goods and services consumed. Costa Rica scores highest, followed<br />
by Vietnam. Most of the other <strong>to</strong>p 10 are <strong>emerging</strong> countries in<br />
South America. Germany and the United States, <strong>with</strong> their large<br />
ecological footprints, rank 46th and 105th respectively.<br />
f10<br />
According <strong>to</strong> a recent goodpurpose® study by Edelman, <strong>consumers</strong><br />
in "rapid growth economies" (RGEs) such as China, India,<br />
Indonesia, Malaysia, UAE and Brazil have much higher ex pectations<br />
of brands and corporations <strong>with</strong> regard <strong>to</strong> social issues. As<br />
the middle class grows and acquires more purchasing power,<br />
<strong>consumers</strong> in RGEs demonstrate a commitment <strong>to</strong> "social<br />
purpose" across many different activities, such as buying, sharing,<br />
donating and volunteering. This commitment is considerably<br />
stronger than that found for many <strong>consumers</strong> in "bear" <strong>market</strong>s<br />
such as Western Europe.
Study 21<br />
F10<br />
Buying socially<br />
responsible goods is<br />
growing in importance<br />
in <strong>emerging</strong> <strong>market</strong>s<br />
On average, how<br />
often do you buy a<br />
brand that supports<br />
a good cause?<br />
Every 6 <strong>to</strong> 12 months<br />
At least once a month<br />
Bull <strong>market</strong>s *<br />
22%<br />
62%<br />
84%<br />
At least once a year<br />
Bear <strong>market</strong>s **<br />
19%<br />
37%<br />
56%<br />
At least once a year<br />
*) Consumers in <strong>emerging</strong> <strong>market</strong>s are "bullish" on purpose! They have high expectations of brands when it comes <strong>to</strong> social issues<br />
**) Bear <strong>market</strong>s are industrialized countries. Here, the <strong>consumers</strong> don't have such high expectations of brands regarding social issues<br />
Source: goodpurpose®
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
Marketing and distribution –<br />
Think local but act global<br />
Meeting consumer requirements
Study 23<br />
Online shopping and <strong>market</strong>ing on the rise<br />
The trend <strong>to</strong>ward more sophisticated information networking is<br />
certain <strong>to</strong> spread <strong>to</strong> <strong>emerging</strong> and developing nations. These<br />
countries have seen the number of Internet users increase<br />
annually by almost 50%, from 80 million in 2000 <strong>to</strong> 1.2 billion in<br />
2010. Projections anticipate 2.5 billion Internet users in <strong>emerging</strong><br />
countries by 2020, almost three times as many as in more<br />
advanced nations.<br />
Mobile telephony highlights how <strong>emerging</strong> country populations<br />
rapidly take <strong>to</strong> network technologies. In most <strong>emerging</strong> countries,<br />
the majority of people are under 25, meaning that they grew<br />
up using cell phones. By 2020, it is anticipated that developing<br />
nations will have 6.5 billion cell phone users, compared <strong>to</strong> just<br />
1.2 billion in industrial countries. In less than ten years' time, 84%<br />
of the world's population will own a mobile device.<br />
Social networking is also spreading quickly. By mid-2012, there<br />
were more than 43 million Facebook users in Africa, including<br />
12 million in Egypt, 5.4 million in South Africa, 5.2 million in<br />
Nigeria, 4.5 million in Morocco, 3.8 million in Algeria, 3.2 million<br />
in Tunisia, 1.6 million in Kenya and 1.4 million in Ghana.<br />
Internet use in general is on the rise in the developing world.<br />
Numerous African network providers are currently competing<br />
for <strong>market</strong> share. Newspapers recently reported that one in<br />
four Kenyan residents now accesses the Internet at least once<br />
a week. 4<br />
Communication technology can also transform how business is<br />
done. In Kenya, the "m-pesa" (the "m" stands for mobile and "pesa"<br />
is Swahili for "money") is a versatile way of paying by text<br />
message where there is no Internet access. "m-pesa" gives even<br />
the poorest people access <strong>to</strong> banking services. Fifteen million<br />
Kenyans make use of the system, which has been copied from<br />
Kabul <strong>to</strong> California. The World Bank estimates that financial<br />
transactions of the m-pesa type currently <strong>to</strong>p USD 7 billion. Mobile<br />
payment systems also allow administra<strong>to</strong>rs <strong>to</strong> track national<br />
budget expenditure, such as the funds allocated <strong>to</strong> districts or<br />
<strong>to</strong>wns.<br />
of income <strong>to</strong> this channel of consumption. A recent WorldPay<br />
study finds that Indians spend 36% of their disposable income<br />
purchasing products and services online. The Chinese spend<br />
slightly less, at 31% of disposable income, and Brazilians 27%. 5<br />
Some 43% of all <strong>consumers</strong> in the Arab world buy online, and one<br />
in every three Internet users in these regions does so at least<br />
once a month. More than 60% of those buying online report that<br />
they use the Internet <strong>to</strong> research product features and prices<br />
before deciding what exactly <strong>to</strong> buy. The <strong>to</strong>p products sold online<br />
are games, software, electrical goods and clothing, just as in<br />
developed countries.<br />
The range of products and services offered online in developing<br />
countries is broad. In 2010, Iran launched its first online super<strong>market</strong>,<br />
Meydoonak.com. The site offers 2,500 grocery and<br />
household items at competitive prices. Homegrown Indian startups<br />
including fashionandyou.com, myntra.com, snapdeal.com,<br />
dealsandyou.com, yebhi.com and HomeShop 18 are introducing<br />
India's growing middle class <strong>to</strong> Western brands. And the growth of<br />
mobile device use in <strong>emerging</strong> <strong>market</strong>s such as China, India and<br />
South Africa is driving Estée Lauder's development of m-commerce<br />
sites, along <strong>with</strong> mobile- and tablet-friendly versions of its brand<br />
websites.<br />
<strong>How</strong> do the <strong>consumers</strong> themselves view these developments?<br />
A survey by WorldPay finds that half of all users see misappropriation<br />
of data and credit card fraud as the biggest<br />
obstacles <strong>to</strong> online shopping. 6 At the same time, websites are<br />
<strong>emerging</strong> where <strong>consumers</strong> share their information about<br />
product quality and prices. These websites are also valuable<br />
sources of information for consumer-savvy companies. By<br />
analyzing candid consumer opinions, platforms such as the<br />
Indian www.consumercomplaints.in can help consumer<br />
goods manufacturers improve their product and <strong>market</strong>ing<br />
strategies.<br />
Consumers in <strong>emerging</strong> <strong>market</strong>s are looking for greater choice,<br />
convenience and informed purchasing. More and more they are<br />
finding their needs met by online shopping. Perhaps surprisingly,<br />
in many <strong>emerging</strong> <strong>market</strong>s <strong>consumers</strong> allocate a high percentage<br />
4) Germany's Süddeutsche Zeitung (2012)<br />
5) WorldPay (2012) 6) Discover Digital Arabia (2012)
F11<br />
Morocco<br />
4,481,100<br />
Algeria<br />
3,826,940<br />
Senegal<br />
664,800<br />
Nigeria<br />
5,184,620<br />
Ghana<br />
1,436,380<br />
Congo (Zaire)<br />
795,300<br />
Facebook users in Africa<br />
Number of Facebook users in Africa, 2011<br />
Angola<br />
516,780<br />
South Africa<br />
5,431,280
Tunisia<br />
3,214,880<br />
Egypt<br />
11,658,000<br />
Ethiopia<br />
688,040<br />
Kenya<br />
1,634,940<br />
Uganda<br />
485,480<br />
Tanzania<br />
585,660<br />
Source: Allfacebook.de
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
The advertising landscape is also changing rapidly in <strong>emerging</strong><br />
countries. Advertisers are figuring out how <strong>to</strong> deliver relevant,<br />
measurable advertising <strong>to</strong> their next billion <strong>consumers</strong>. Mobile<br />
<strong>market</strong>ing spend will likely grow sixfold <strong>to</strong> more than USD 6 billion<br />
by 2016 in <strong>market</strong>s such as China, India and Brazil. By contrast,<br />
Europe's mobile <strong>market</strong>ing projections for 2016 are roughly the<br />
same as they were in 2012, at just USD 1 billion.<br />
f12 What lies behind this cultural divide? The principal reason is that<br />
mobile devices are the primary digital platform in <strong>emerging</strong><br />
countries, while PCs are more common in economically advanced<br />
countries. For example, Indian advertisers will be spending<br />
approximately 51% of their <strong>to</strong>tal digital advertising budgets on<br />
mobile channels by 2016, while US companies will spend just 11%.<br />
Over 80% of cell phone users in <strong>emerging</strong> <strong>market</strong>s use prepaid<br />
phones. Additional cell phone minutes are being offered as<br />
a reward for cus<strong>to</strong>mers completing surveys, receiving advertisements<br />
or purchasing products. Cus<strong>to</strong>mers appear <strong>to</strong> be happy<br />
<strong>with</strong> this arrangement, <strong>to</strong>o: In Brazil, 74% of prepaid users take<br />
a positive attitude <strong>to</strong>ward receiving advertising on their mobile<br />
devices in return for free airtime minutes, according <strong>to</strong> one<br />
recent study.<br />
F12<br />
Mobile advertising on the rise<br />
Mobile channels as percentage of <strong>to</strong>tal digital advertising budget<br />
Indian companies<br />
51%<br />
Distribution – Go "glocal"<br />
Products must be delivered not only <strong>to</strong> <strong>emerging</strong> middle-class<br />
<strong>consumers</strong> in cities but also <strong>to</strong> <strong>consumers</strong> in rural regions. In<br />
2030, the share of the rural population in developing countries will<br />
still be 45% (compared <strong>to</strong> 19% in developed countries). Companies<br />
need <strong>to</strong> adapt their distribution strategies <strong>to</strong> local conditions. For<br />
example, in countries where low-density rural areas predominate,<br />
firms should prioritize specific geographical areas and work<br />
closely <strong>with</strong> distribution partners. Often it will be <strong>to</strong>o expensive <strong>to</strong><br />
supply remote areas directly, especially at the <strong>market</strong>-entry<br />
stage.<br />
Large and less developed <strong>market</strong>s such as China are best<br />
approached city by city, using distribu<strong>to</strong>rs <strong>to</strong> provide services<br />
such as physical distribution and cash collection. Beiersdorf, for<br />
example, serves smaller tier-2 or tier-3 cities through a number<br />
of local and regional distribu<strong>to</strong>rs and sub-distribu<strong>to</strong>rs in China.<br />
Distribu<strong>to</strong>rs typically work on a non-exclusive basis.<br />
Simple distribution technologies such as ordering products by cell<br />
phone can help overcome deficiencies in the rural infrastructure.<br />
US companies<br />
11%<br />
Source: Digital Capital Advisors
Study 27<br />
Direct ordering reduces costs and saves time. On occasion,<br />
companies will find it profitable <strong>to</strong> invest in novel distribution<br />
methods that combine different products and services <strong>to</strong><br />
<strong>reach</strong> a particular consumer segment.<br />
Getting it right – Some examples<br />
Some companies are most definitely getting it right. Here are some<br />
examples from across the developing world that can serve as an<br />
inspiration <strong>to</strong> others.<br />
Project Shakti, jointly created by Unilever and an Indian consulting<br />
company, is an innovative delivery and procurement model. By<br />
hiring women from microfinance groups as last-mile distribu<strong>to</strong>rs<br />
for Unilever household products, the initiative improves the rural<br />
<strong>reach</strong> of fast-moving consumer goods. Bank loans are secured<br />
through microfinance, <strong>with</strong> Unilever guaranteeing the loans<br />
against default. The project currently employs over 45,000 female<br />
partners in rural areas across 12 different states, and accounts<br />
for 20% of Unilever's <strong>to</strong>tal rural sales.<br />
On the other side of the world, Avon saleswomen travel the<br />
Amazon and its tributaries in ferries, small boats and canoes <strong>to</strong><br />
serve remote Brazilian mining <strong>to</strong>wns located up <strong>to</strong> 1,500 kilometers<br />
from anything resembling urban civilization. The<br />
saleswomen's persistence in overcoming distribution barriers<br />
has helped propel Avon in<strong>to</strong> a leading position in the Brazilian<br />
cosmetics <strong>market</strong>. In South Africa, Avon delivers merchandise <strong>to</strong><br />
post offices for sales representatives <strong>to</strong> pick up. Where no bank is<br />
available, Avon organizes payment through the post office or a<br />
major retailer.<br />
Coca-Cola has evolved a "hub and spoke" distribution model <strong>to</strong><br />
<strong>reach</strong> rural <strong>market</strong>s. Twice a week, the company depot supplies<br />
large distribu<strong>to</strong>rs who act as hubs for small distribu<strong>to</strong>rs. Rural<br />
<strong>market</strong>s frequently lack electricity and refrigera<strong>to</strong>rs, so Coca-Cola<br />
also provides low-cost ice boxes – a tin box for <strong>new</strong> outlets<br />
and a thermocol box for seasonal outlets.<br />
Heineken and Guinness have developed <strong>new</strong> products for local<br />
<strong>market</strong>s in <strong>emerging</strong> countries. A core part of their strategy is <strong>to</strong><br />
master lower-cost production and develop distribution systems<br />
linking independent wholesalers, retailers and street vendors.<br />
These networks provide products and income <strong>to</strong> millions of people.<br />
Another strategy for many retail brands has been <strong>to</strong> secure a<br />
strong local partner <strong>to</strong> help pave the way for international growth.<br />
J.Crew, a retailer from the United States, has entered in<strong>to</strong> a<br />
partnership <strong>with</strong> Hong Kong-based specialty s<strong>to</strong>re opera<strong>to</strong>r Lane<br />
Crawford <strong>to</strong> expand in<strong>to</strong> Asia. From the end of 2012, their women's<br />
ready-<strong>to</strong>-wear clothes and shoes, men's apparel, and accessories<br />
collections will be available at certain Lane Crawford s<strong>to</strong>res in<br />
Hong Kong and China.<br />
Samsonite also uses local distribution partners <strong>to</strong> supply its<br />
products <strong>to</strong> remote areas. Recently the company opened a<br />
flagship s<strong>to</strong>re at the airport in Urumqi, a tier-3 city in China.<br />
Similarly, Procter & Gamble uses many local shops and employs<br />
popular Bollywood ac<strong>to</strong>rs <strong>to</strong> endorse its products. Half a year<br />
after its release in Oc<strong>to</strong>ber 2010, Gillette Guard held 50% of the<br />
<strong>market</strong> for razors.
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
Conclusion<br />
Five key actions for success
Study 29<br />
In the coming two decades, <strong>consumers</strong> in <strong>emerging</strong> countries will<br />
experience change at rates unparalleled in economic his<strong>to</strong>ry. The<br />
range of goods and services available, the extent of the urban<br />
environment, and for many the size of disposable incomes will<br />
grow at a speed surpassing that seen in all previous major<br />
economic phases.<br />
<strong>How</strong> should companies respond <strong>to</strong> these changes? What strategic<br />
steps must they take <strong>to</strong> benefit from the opportunities offered by<br />
<strong>new</strong> consumer <strong>market</strong>s in the developing world? We summarize<br />
the key actions needed below.<br />
Analyze trends and <strong>market</strong> environments – A world of change<br />
A prerequisite for understanding consumer behavior is <strong>to</strong> see how<br />
fundamental megatrends such as population growth, urbanization<br />
and globalization are driving the development of <strong>emerging</strong><br />
countries. Tools such as scenario planning can help companies<br />
develop detailed pictures of the future and identify the main<br />
fac<strong>to</strong>rs influencing consumer behavior. Extended <strong>market</strong> analyses<br />
add detail <strong>to</strong> these scenarios.<br />
Understand <strong>consumers</strong> in <strong>emerging</strong> <strong>market</strong>s – Not a closed book<br />
Significant differences in consumer behavior will persist both<br />
between rural and urban areas and between cities of different<br />
sizes. Companies can use <strong>to</strong>ols such as the RB Profiler <strong>to</strong> derive<br />
detailed consumer profiles and identify brand preferences.<br />
They should also remember that ethical and religious values in<br />
<strong>emerging</strong> countries will favor more socially oriented, ecological<br />
consumerism.<br />
Find the right <strong>market</strong>ing strategy – Simple but creative<br />
The <strong>market</strong>ing strategy and message have <strong>to</strong> speak <strong>to</strong> local<br />
consumer needs. Here, again, companies must strike a balance<br />
between rural and urban cus<strong>to</strong>mers' preferences. Sometimes<br />
simple <strong>market</strong>ing strategies are the solution. Urban, middle-class<br />
<strong>consumers</strong> prefer online shopping and use social media such<br />
as Facebook, so targeted mobile <strong>market</strong>ing strategies can often<br />
be effective here.<br />
Adapt your distribution strategy – Go glocal<br />
Companies face a wide range of challenges when it comes <strong>to</strong><br />
designing distribution strategies that adequately reflect local<br />
conditions. Especially at the <strong>market</strong> entry stage, it is often simply<br />
<strong>to</strong>o expensive <strong>to</strong> supply remote regions directly. Companies need<br />
strong partnerships <strong>with</strong> regional distribu<strong>to</strong>rs or subcontrac<strong>to</strong>rs.<br />
Import and tax regulations must be clarified. Firms should<br />
re member that bureaucracy can slow processes down con siderably.<br />
Sometimes a strategic alliance <strong>with</strong> competi<strong>to</strong>rs can create<br />
an opportunity <strong>to</strong> distribute products in <strong>new</strong> regions or cities.<br />
For the urban middle class, whose purchasing behavior is very<br />
similar <strong>to</strong> <strong>consumers</strong> in industrialized <strong>market</strong>s, innovative<br />
technology-intensive strategies may prove the most effective.<br />
Create the right portfolio – Broad but specialized<br />
Bot<strong>to</strong>m-of-the-pyramid <strong>consumers</strong> prefer cheap products that<br />
are simple <strong>to</strong> use. This may mean offering products in different<br />
sizes and packaging formats. The company's familiarity <strong>with</strong> local<br />
and cultural preferences is also crucial. The product portfolio<br />
must meet the needs of both poor cus<strong>to</strong>mers and the growing<br />
middle classes. To satisfy the requirements of both groups,<br />
companies need critical mass, solid financial resources, a broad<br />
product mix and strategic partnerships <strong>with</strong> local manufacturers.<br />
They must also clarify patent issues in <strong>emerging</strong> <strong>market</strong>s,<br />
as several countries still fail <strong>to</strong> provide sufficient protection for<br />
foreign brands.
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
Author<br />
Bernd Brunke<br />
Partner and Member of the<br />
Global Executive Committee, Berlin<br />
bernd.brunke@rolandberger.com<br />
Benno van Dongen<br />
Partner, Amsterdam<br />
benno.dongen@rolandberger.com<br />
William Downey<br />
Partner, New York<br />
william.downey@rolandberger.com<br />
Co-Authors<br />
Chris<strong>to</strong>phe Angoulvant<br />
Partner, Paris<br />
chris<strong>to</strong>phe.angoulvant@rolandberger.com<br />
Duce Go<strong>to</strong>ra<br />
Project Manager, London<br />
duce.go<strong>to</strong>ra@rolandberger.com<br />
Dr. Wilfried Aulbur<br />
Partner, Mumbai<br />
wilfried.aulbur@rolandberger.com<br />
Carolin Griese-Michels<br />
Principal, Hamburg<br />
carolin.griese@rolandberger.com<br />
Andreas Bauer<br />
Partner, Munich<br />
andreas.bauer@rolandberger.com<br />
Maren Hauptmann<br />
Partner, Munich<br />
maren.hauptmann@rolandberger.com
Study 31<br />
Daniel Himmel<br />
Project Manager, Berlin<br />
daniel.himmel@rolandberger.com<br />
Per I. Nilsson<br />
Partner, S<strong>to</strong>ckholm<br />
per-i.nilsson@rolandberger.com<br />
Nicklas Holgersson<br />
Project Manager, London<br />
nicklas.holgersson@rolandberger.com<br />
Dr. Verena Reichl<br />
Senior Expert, Munich<br />
verena.reichl@rolandberger.com<br />
Fabian Huhle<br />
Principal, Munich<br />
fabian.huhle@rolandberger.com<br />
Tina Wang<br />
Partner, Beijing<br />
tina.wang@rolandberger.com<br />
Dr. Johannes Klein<br />
Principal, Berlin<br />
johannes.klein@rolandberger.com<br />
Dr. Tim Zimmermann<br />
Partner, Munich<br />
tim.zimmermann@rolandberger.com<br />
Frank Lateur<br />
Principal, Brussels<br />
frank.lateur@rolandberger.com<br />
Dr. Michael Zollenkop<br />
Principal, Stuttgart<br />
michael.zollenkop@rolandberger.com
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
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from careers and relationships <strong>to</strong> family and faith<br />
G. O. Barney (1980)<br />
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Bloomberg (2012)<br />
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<strong>emerging</strong> <strong>market</strong>s and BRICs<br />
Catalyst (2005)<br />
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diversity<br />
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leaders<br />
CNN Money (2011)<br />
Global Fortune 500<br />
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Emerging <strong>market</strong>s trend talk report<br />
DB Research (2011)<br />
Research follows production<br />
Diabetes Atlas (2010)<br />
Global estimates of the prevalence of diabetes<br />
for 2010 and 2030<br />
Digital Capital Advisors (2012)<br />
The evolutionary shift <strong>to</strong> mobile<br />
Discover Digital Arabia (2012)<br />
Online shopping in the Arab world<br />
Economist (2012)<br />
Consumer goods in Africa – A continent goes shopping<br />
Economist Intelligence Unit<br />
– Country data (2011, 2012)<br />
– People for growth: The talent challenge<br />
in <strong>emerging</strong> <strong>market</strong>s (2008)<br />
Edelman (2012)<br />
goodpurpose® study<br />
Y. Emmanuel and B.D. Gelb (2010)<br />
Better <strong>market</strong>ing <strong>to</strong> developing countries: Why and how<br />
Euromoni<strong>to</strong>r (2011, 2012)<br />
Country and consumer data<br />
Eurostat (2012)<br />
Innovation and research data<br />
Experientia (2012)<br />
Designing for <strong>emerging</strong> <strong>market</strong>s<br />
Food and Agriculture Organization (2009/2010)<br />
<strong>How</strong> <strong>to</strong> feed the world in 2050<br />
Forbes (2011)<br />
Diversity & inclusion: Unlocking global potential<br />
Global diversity rankings by country, sec<strong>to</strong>r and occupation
Study 33<br />
S. S. Garr (2011)<br />
Retaining talent in <strong>emerging</strong> <strong>market</strong>s<br />
Gartner Inc. (2011)<br />
Market Trends: Mobile payments worldwide<br />
General Electric (2012)<br />
Global Innovation Barometer<br />
Global Industry Analysts (2010)<br />
Biosimilars: A global strategic business report<br />
Goldman Sachs (2010)<br />
Global Economics Paper No. 170 and 204<br />
The power of the purse<br />
V. Govindarajan (2012)<br />
The $2,000 car<br />
S. A. Hewlett et al. (2010)<br />
Winning the war for talent in <strong>emerging</strong> <strong>market</strong>s<br />
S. A. Hewlett and R. Rashid (2010)<br />
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IBM (2011)<br />
Global Location Trends<br />
IHS Global Insight (2011, 2012)<br />
Data Insight Web<br />
J. R. Immelt (2009)<br />
<strong>How</strong> GE is disrupting itself<br />
Innovation 360 Group (2012)<br />
The missing link between innovation strategy<br />
and leadership in the Middle East<br />
INSEAD (2011)<br />
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Interbrand (2012)<br />
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International Institute for Applied Systems Analysis (2007)<br />
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<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
I. Razak (2009)<br />
The correlation between population and<br />
economic growth in Malaysia<br />
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Implications for other developing countries<br />
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The effects of diversity reputation and leader racial diversity<br />
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
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opportunities in a multi-sec<strong>to</strong>r industry (2011)<br />
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for growth and globalization (2012)<br />
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Not at all (2010)<br />
– think: act CONTENT – Scenario planning (2009)<br />
– think: act STUDY – Chinese consumer report (2009)<br />
– think: act STUDY – Delivering financial services in<br />
sub-Saharan Africa (2011)<br />
– Trend Compendium 2030 (2011)<br />
<strong>Roland</strong> <strong>Berger</strong> School of Strategy and Economics (2012)<br />
Scenario update 2012<br />
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Why mobile <strong>market</strong>ing in <strong>emerging</strong> <strong>market</strong>s is the next big thing<br />
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<strong>How</strong> <strong>to</strong> manage virtual teams<br />
L. Taylor (2011)<br />
Diabetes - pharma's fastest-growing <strong>market</strong><br />
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Das große Schrumpfen<br />
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Die digitale Revolution erobert Afrika
Study 35<br />
Credits<br />
Pages 2: Martin Roemers /Panos<br />
Pages 10 - 11: Mads Nissen/Panos<br />
Page 14 (1): IMAGINE CHINA/GAMMA /laif<br />
Page 14 (2): Julio Etchart/Panos<br />
Pages 16 -17: Espen Rasmussen/Panos<br />
Pages 24 -25: Leo Erken/Panos<br />
Special thanks <strong>to</strong><br />
Our interviewees:<br />
Siegfried Gänßlen, CEO Hansgrohe AG<br />
Manfred Grundke, General Partner Knauf Gips KG<br />
Ruth Schaefer, CEO Ruth Schaefer Intercultural
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
Global Topics<br />
project description<br />
With our GLOBAL TOPICS initiative, we<br />
assess the most pressing issues for<br />
leaders in society, business and politics<br />
and outline possible solutions.
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
For more information, please visit:<br />
www.rolandberger.com/global<strong>to</strong>pics<br />
If you have any questions, please contact us at:<br />
Global_Topics@de.rolandberger.com<br />
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants GmbH<br />
HighLight Towers, Mies-van-der-Rohe-Str. 6, 80807 Munich, Germany
Study 38