8billion emerging markets change the global innovation agenda

8/15/2019 8Billion Emerging Markets Change the Global Innovation Agenda

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In-depth knowledge for decision mak

STUD

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

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%


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STUDY

GLOBAL TOPICS

8 BILLION

Consumers – how to reach emerging marketconsumers 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 2

p 2


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INTRODUCTION

KEY QUESTIONS FOR REACHING CONSUMERS

IN EMERGING MARKETS


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STUDY

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 countrieswith 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.


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PRODUCT PORTFOLIO AND BRANDPOSITIONING – MEETING THE

NEEDS OF DIVERSE CONSUMERS

SOCIO-DEMOGRAPHIC CHANGE IS DRIVING CONSUMER POWER


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F1

F2

F3

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SOCIO-DEMOGRAPHIC CHANGE IS DRIVINGCONSUMER 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 togrow nearly 7% per annum, reaching a level of USD 143 billion.

Take China, for instance. Chinese society places a strong emphasis

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 developing

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 the

children and grandchildren a world of affluence, political stability

and opportunities.

Disposable incomes are also on the rise. By 2020, many emergincountries 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 ye

in 2020. This growth will be largely driven by improved educationand rising incomes. In particular, BRIC countries will see consum

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 US

1 to 2 trillion. Per capita consumer expenditure is forecast to gro

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 a

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 an

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 an

Turkey will be home to consumers spending the most on fashion

China, India and Vietnam will see a sharp increase – more than 8%


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66%

14%7%

7%

6%


The emerging middle class – By

2030, approximately 80% ofthe middle class will live outside

Europe and the United States

Share 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.


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STUDY

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 willalmost 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 b

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

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.


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A n n u a l p e r c a p i t a c o

n s u m e r s p e n d i n g b y s e g m e n t , r e a l v a l u e ,

2 0 1 2 - 2 0 2 0 ( U S D )

S p e n d i n g w i l l

g r o w i n m a n y s e g m e n t s

F 3

Food

Housing

Transport

Health

Fashion

Communication

Leisure


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Source: Euromonit

5582.2%

4.7%

5.5%

6.4%

3.9%

7.3%

4.7%

CAG

662

399

574

270

440

133219

135

183

100

175

98

142


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F5


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 newproducts, 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. Inone 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 w

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

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, Ind

must construct three million houses and China five million houseevery 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, soci

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

64

46

42

37


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57

81

50

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By 2025, 80% of cities with more

than a million inhabitants willbe outside the developed world

Number of urban agglomerations with over a million inhabitants, 2025

China

IndiaUS

Nigeria

139

5445

21

F5

Source: UN World Urbanization Prospects: The 2011 Revision


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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 biode-

gradable toilet that prevents feces from contaminating the

immediate surrounding area and ecosystem. After use, Peepoo

turns into valuable fertilizer that can improve livelihoods andfood security.

In India, 40% to 60% of the urban population live in poorly developed,

unhygienic conditions. In an effort to improve standards, an

inventive 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 tolast 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 buildin

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 mostimportant prime property buyers over the next five years. Chines

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 become

to find ways to control streams of goods and waste. One promisin

method suggested by research into contemporary urban datamanagement 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 commercia

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.


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F6

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GETTING TO KNOW CONSUMERSIN 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-

tomizable 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 whatpeople'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 andaspirations. 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, megacity

Works as a systems administrator

for a major Chinese company

Neil Zheng, married, 43,

one child, from tier-3 city

Runs 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 profiles

Chinese consumer value profiles with prototype customers,

megacities vs. tier-3 cities


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N u m b e r o f b r a n d s a m

o n g t h e 5 0 0 m o s t v a l u a

b l e w o r l d w i d e ,

2 0 1 2

A m o n g e m e r g

i n g m a r k e t s , C

h i n a h a s t h e l a r g e s t

n u m b e r o f v a l u a b l e b r a n d s

China

Brazil

Russia

Mexico

Hong Kong

United Arab Emirates

Malaysia

Chile

Saudi Arabia

South Africa

F 7


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Source: Interbrand

27

10

8

4

3

3

2

11

1


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F7


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 Europ

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 advertisi

to their worldwide subsidiaries. But building brand awarenesstoday 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 countries

Sales 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

231191

164

159

121

70

60

60

47

47

465353

336

305

257

244

208

196

159

156


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STUDY

topten

Emerging countries lead theranking 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


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F9

F10


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 detergentbar 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 populationexpected 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 th

globe. The London-based "Centre for Well-being" compiles a Happ

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, followe

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, consume

in "rapid growth economies" (RGEs) such as China, India,

Indonesia, Malaysia, UAE and Brazil have much higher expec-

tations of brands and corporations with regard to social issues. A

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, sharin

donating and volunteering. This commitment is considerably

stronger than that found for many consumers in "bear" markets

such as Western Europe.


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STUDY

56%

84%

Buying sociallyresponsible 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

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


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MARKETING AND DISTRIBUTION –THINK LOCAL BUT ACT GLOBAL

MEETING CONSUMER REQUIREMENTS


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4) Germany's Süddeutsche Zeitung (2012)

5) WorldPay (2012) 6) Discover Digital Arabia (2012)

STUDY

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 developingnations 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 o

mobile device use in emerging markets such as China, India and

South Africa is driving Estée Lauder's development of m-commer

sites, along with mobile- and tablet-friendly versions of its brandwebsites.

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.


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N u m b e r o f F a c e b o o k

u s e r s i n A f r i c a ,

2 0 1 1

F a c e b o o k u s e

r s i n A f r i c a

Algeria3,826,940

Morocco4,481,100

Congo (Zaire)795,300

South Africa5,431,280

Angola516,780

Ghana1,436,380

Nigeria5,184,620

Senegal664,800

F 1 1


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Source: Allfacebook.

Egypt11,658,000

Tunisia3,214,880

Ethiopia688,040

Kenya1,634,940

Uganda485,480

Tanzania585,660


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F12


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 rise

Mobile channels as percentage of total digital advertising budget

Indian companies

Source: Digital Capital Advisors

51%

11%

US companies


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STUDY

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 distributorsfor 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. Thesaleswomen'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-Col

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 peop

Another strategy for many retail brands has been to secure astrong 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

ready-to-wear clothes and shoes, men's apparel, and accessorie

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.


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CONCLUSION

FIVE KEY ACTIONS FOR SUCCESS


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STUDY

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 differentsizes. 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 specialized

Bottom-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 creative

The 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 glocal

Companies 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 simpl

too expensive to supply remote regions directly. Companies needstrong partnerships with regional distributors or subcontractors.

Import and tax regulations must be clarified. Firms should

remember that bureaucracy can slow processes down consider-

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.


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Author

Co-Authors

Bernd Brunke

Partner and Member of the

Global Executive Committee, Berlin

[email protected]

Christophe Angoulvant

Partner, Paris

[email protected]

Dr. Wilfried Aulbur

Partner, Mumbai

[email protected]

Andreas Bauer

Partner, Munich

[email protected]

Benno van Dongen

Partner, Amsterdam

[email protected]

William Downey

Partner, New York

[email protected]

Duce Gotora

Project Manager, London

[email protected]

Carolin Griese-Michels

Principal, Hamburg

[email protected]

Maren Hauptmann

Partner, Munich

[email protected]


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STUDY

Daniel Himmel

Project Manager, Berlin

[email protected]

Nicklas Holgersson

Project Manager, London

[email protected]

Fabian Huhle

Principal, Munich

[email protected]

Dr. Johannes Klein

Principal, Berlin

[email protected]

Frank Lateur

Principal, Brussels

[email protected]

Per I. Nilsson

Partner, Stockholm

[email protected]

Dr. Verena Reichl

Senior Expert, Munich

[email protected]

Tina Wang

Partner, Beijing

[email protected]

Dr. Tim Zimmermann

Partner, Munich

[email protected]

Dr. Michael Zollenkop

Principal, Stuttgart

[email protected]


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STUDY

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STUDY

Pages 2: Martin Roemers /Panos

Pages 10-11: Mads Nissen/Panos

Page 14 (1): IMAGINE CHINA/GAMMA/laif

Page 14 (2): Julio Etchart/Panos

Pages 16 -17: Espen Rasmussen/ Panos

Pages 24 -25: Leo Erken/Panos

Credits

Our interviewees:

Siegfried Gänßlen, CEO Hansgrohe AG

Manfred Grundke, General Partner Knauf Gips KG

Ruth Schaefer, CEO Ruth Schaefer Intercultural

Special thanks to


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GLOBAL TOPICS

PROJECT DESCRIPTION

With our GLOBAL TOPICS initiative, we

assess the most pressing issues for

leaders in society, business and politics

and outline possible solutions.


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For more information, please visit:

www.rolandberger.com/globaltopics

If you have any questions, please contact us at:

[email protected]

Roland Berger Strategy Consultants GmbH

HighLight Towers, Mies-van-der-Rohe-Str. 6, 80807 Munich, Germany


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STUDY


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8billion emerging markets change the global innovation agenda

Documents