How to reach emerging market consumers with new ... - Roland Berger

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, agriculture,
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" consumers.
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 consumer
segments in tier-1 and tier-2 cities.
Sophisticated consumers can also distribute bottom-of-thepyramid
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 company
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.