Emerging Markets, Consumer Insight and Business Strategy

Emerging market consumers exist in environments in which institutions designed to protect the economic and political interests of individuals are relatively immature. Civil society is less deeply rooted and safety -- physical, emotional and societal -- is usually not taken for granted. Emerging market consumers focus more on: the scale and reassurance of big brands; projection of status and adherence to tradition that characterize hierarchical societies; and "do good," rather than "feel good," benefits. Across the developing world, the watchwords are "protection" and "pragmatism." That is why Safeguard, Procter & Gamble's germ-kill soap, is popular only in places such as China and the Philippines; in economically developed countries, consumers are drawn to hedonistic benefits. These consumer commonalities lead a number of critical strategic imperatives. Marketers should:

1. Launch mega-brands rather than stand alone brands
2. Adjust product to maximize value justification
3. Arbitrage on trends driven by stage of economic development
4. Compete across, not within, categories
5. Develop rational and contextual communications

Mega-brands. Well-known brands reassure. According to the 2013 edition of Roper Reports, 79 per cent of consumers in developing Asian markets and 61 per cent of Latin American consumers "only buy products and services from a trusted brand." In Western Europe, 46 per cent of consumers agree with the same statement, while in developed Asia -- that is, Japan and South Korea -- the level slips to 42 per cent. In developing countries, 53 per cent believe "it's better buy well-known brands because you can rely on their quality" compared to only 28 per cent in developed countries. Emerging market consumers also tend reassured by familiarity. A survey by McKinsey & Company, the management consulting firm, found that 28 per cent of Chinese consumers prefer to "stick to brands I have used in the past rather than try new ones" versus only 16 per cent in the United Kingdom and an exceptionally low four per cent in Japan.

Lack of confidence in the integrity of the manufacturing process explains the reassurance consumers derive from scale as well as the weak linkage between category and brand common across emerging markets. In the Philippines, a broad array of categories -- from water to cheddar cheese to chicken cutlets -- are sold under one brand, Magnolia. This does not happen in the United States where Kraft equals cheese and Aquafina equals water. In China, Chunlan, a state-owned enterprise, produces everything from motorcycles to water heaters, while Yunnan Baiyao, originally known for its anti-bleeding ointment, now has a portfolio that spans medicated bandages and toothpaste.

"Conglomerate brands" are comforting. South Korean chaebols are corporate behemoths that rose during a period of post-war economic deprivation. Today, they control approximately 70 percent of economic activity. Samsung Corporation, the largest of these companies, still wields its eponymous brand to promote an extensive array of categories including mobile phones, consumer electronics, insurance and medical equipment. In the West, Procter & Gamble is a corporation, not a brand. Consumers know Pringles potato chips and Downy fabric softener; P&G is only a corporate stamp of reassurance.

Manufacturers in developing countries also benefit from the inherent efficiency of corporate brands. Media costs are rising faster than per capita category spending so forging brand awareness is an expensive proposition. In Australia and the United States where annual per-child spending on toys is approximately $500, Mattel has been able to establish discrete consumer franchises under the Fisher-Price, Thomas & Friends, Barbie, Hot Wheels and Monster High brands. In developing countries, establishing five stand alone brands is not feasible.

Multinational brands operating in development markets are learning quickly. Many have either expanded their footprints into contiguous categories or rebalanced focus in favor of the "master brand." Nestle's Maggi is a bouillon cube brand in developed markets, but in India, it is used to sell instant noodles, milk, sauces and soup. L'Oreal is primarily a skin care and cosmetics brand in Europe and North America, yet in China, it has diversified into shampoo, hair coloring and styling products. In China, Southeast Asia, Mexico and Southeast Asia, Kellogg is evolving from corporate to master brand with advertising and activation events that reinforce a "breakfast for better days" position.

Value Justification. Emerging market consumers are "nervously optimistic." A kaleidoscope of change heralds new, albeit uncertain, opportunity. In this context, international brands are often deployed as weapons on the battlefield of life. They are expensive compared to local competitors, but achieve success because new consumers are sensitive to "value for money" as opposed to low price. Lack of confidence in local products and services can result in a "penalty of poverty" -- that is, higher prices than in developed markets. This phenomenon has been observed categories in which contamination fears are rife such as infant formula or bottled water as well as in highly regulated sectors like financial services where microfinance interest rates are higher than those charged by mainstream banks.

Marketers should concentrate as much on increasing perceptions of value as lowering out-of-pocket expense. There are several ways of achieving this: value engineering, launching "composite" products, and adding "purpose" to "pleasure."

Value engineering. The Nokia 1100, introduced in 2003, created a new value equation in developing markets by redefining standards of durability, an area of concern amongst lower-income consumers. The model, now discontinued, became the world's best-selling mobile phone. Perceived value can be enhanced by dramatizing sensorial satisfaction. Nestlé's RMB1 wafer was originally tailored for the China market, where chocolate still suffers from being perceived as too yang -- causing an excessive "heatiness" that requires yin, or "cooling," foods to maintain internal balance. By increasing the wafer-to-cocoa ratio while lowering cost of goods, a chocolate bar was sold for the first time as every day snack, not an occasional indulgence. Nestlé three-in-one coffee has been a hit because the product has been designed for sweetness to balance bitterness. Minute Maid Pulpy enhanced value perceptions by imitating the "mouth feel" of pure juice and, in the process, became a power brand.

Composite products. "Frugal" innovation is the creation of mass market products that offer "more for less." These items often assume for form of "composite" products that boast multi-purpose, multi-benefit design. Procter & Gamble's Olay Total Effects is an affordable moisturizer with a "seven-in-one" anti-aging formulation. Pfizer's Centrum, a multivitamin supplement, has achieved success in China and India, driven by its "complete from A to Zinc" composition.

Preference for composite devices in emerging markets has shaped the strategic vision of leading electronics manufacturers. Western consumers prefer specialist devices for specialist applications -- Microsoft's Xbox is targeted specifically to games while Apple's iPad is largely used to consumer digital media and entertainment. Emerging market consumers, on the other hand, expect a single device to cover a wide range of functions. Nokia's lack of success in eroding the dominance of high-end smart phone manufacturers in Western markets masks impressive gains in feature phone sales throughout developing Asian, African and Latin American markets. The Nokia 105, for example, was designed to appeal to first-time phone buyers and builds value perceptions with a variety of preloaded functions such as an FM radio, multiple alarm clocks, a "speaking" clock, dust and water resistance, and a flashlight. The phone also has a color screen and an impressive 35-day battery life.

Purpose over pleasure. Brands should focus on external payoffs rather than internal satisfaction or release. In an insecure, competitive environment, celebrating indulgence is risky. Starbucks stores have been established as gathering sites of the professional elite eager to display new generation cool rather than a "third space" of escape between work and home. Premium yogurt should focus on "delicious digestion that gets you going" rather than pure taste satisfaction, while Wrigley's Extra chewing gum fuses great taste with oral care. Danone's premium Evian brand, popular in the West, was established on a sensorial -- that is, purity -- platform. The company's Mizone, distributed largely in Asia and South America, is a nutrient-enhanced "energy water. Mattel has repositioning its toy brands to align fun with learning or discovery.

Trend Arbitrage. Other factors being equal, economies -- and consumer motivations -- evolve in rather predictable ways. As markets progress from emerging to developed, marketers can retain the initiative by launching products in niche categories destined to achieve broad scale. In food, for example:

Emerging markets are at a "default basic" stage in which protective benefits dominate. Products are often unbranded, or locally produced and trust is established through "familiarity" -- "a brand I grew up with." Natural ingredients with traditional "do good" properties or reinforce purity or chemical-free claims do well. Health benefits are rooted in immunity or "more is better" nutritional propositions. For example, "4 times [the essential fatty acid] DHA" claim helped Mead Johnson's Enfagrow, an infant formula, build a leadership position in several markets. In China, Kellogg introduced breakfast cereal with a "well-rounded and complete nutrition" claim.

Middle-income countries are at a "modernist" stage. Chocolate and salty snacks hit store shelves as taste indulgence comes to the fore and high-calorie products proliferate. Stressful lifestyles also give rise to "convenient" products. Nutritional benefits flip from protective to transformative -- that is, taller, bigger, smarter. Non-traditional foods, from fast food to red wine, rise in popularity, especially if consumed out of home as a signal of middle class modernity. "Detox" food and beverages offset unhealthy diets. Suntory black oolong tea was launched in Southeast Asia as a post-meal drink -- an "antidote" to greasy foods -- with ingredients that slow fat absorption.

Post-modernist marketing is a reaction against over-indulgence and can be summed up as "less is more." Developed economies including Japan, America and Western Europe, are at this stage, where nutritional benefits, such as "balanced" or "light," are more nuanced. "Back to nature," illustrated by Evian's "live young" purity position or the proliferation of "green" Body Shop cosmetic counters, emerges as a powerful motivator. Consumer awareness of organic food goodness also grows, with "feel good" trumping "tastes good." Kellogg's Special K, a low-calorie grain-based cereal and snack that also advocates female confidence, is poised to become a power brand.

Companies can exploit knowledge of how markets evolve. In China, Taiwanese snack food manufacturers Tingyi Holding Corporation and Uni-President Corporation anticipated the emergence of "convenience" benefits, launching instant noodles and then cup noodles, to establish vanguard positions in the competitive mainland market. Shaklee Corporation, an American manufacturer and distributor of natural nutritional supplements, was equally prescient. The company's weight loss protein powder already generates annual sales of more than $100 million in mainland China.

It is not just food categories that evolve in predictable ways. In emerging markets, luxury "newbies" are drawn to goods as conspicuous status badges. The shiny "double G" Gucci belt buckle or diamond-studded gold Rolex are marks of sophistication. As incomes rise, luxury buyers want to demonstrate connoisseurship and refinement, so branding cues become more understated. Louis Vuitton's most premium bags, for example, don't even show the famous "LV" logo. Of course, economic development does not eliminate cultural differences. In Western countries, "private" luxury -- products or services only a few know about -- is coming of age. But in China and other Asian markets, the most "advanced" buyers demand "personalized" luxury -- noticeable product flourishes tailored according to the specifications of individual buyers. Andrew Wu, head of China for luxury group LVMH, says, "The Chinese believe there's no point in paying a lot of money for a brand if no one knows what you own." Still, understatement appeals to "advanced" luxury buyers everywhere in the world.

Cross-Category Competition. Emerging market consumers are new consumers. Advertising should work hard to convey a compelling reason to switch from one category and to another. The competitive landscape is primordial and the "frame of reference" -- the range of categories that compete with one another to fulfill a specific need -- is in flux. In markets with low coffee consumption, for example, Nescafe competes with tea and other beverages. In markets with high coffee consumption, it competes with other instant coffees. Developed market advertising targets category users familiar with existing brand alternatives so enhancing salience is key. Elsewhere, advertising should trigger more fundamental behavior change.

What constitutes an effective reason to change behavior depends on the nature of the category. Across Southeast Asia, for example, Mattel's Fischer-Price "Play IQ," is a winning proposition because the brand resolves tension between childhood advancement and fun. In other categories, from cake mix to frozen dinners, "convenience" needs rise as daily life becomes more hectic. B&Q, a home improvement retailer, provides free decoration advice at an on-premises "design center," a service traditional mom and pop shops are unable to offer. For goods consumed in public, status sells. First-time car buyers purchase the majority of automobiles, many of which cost more than 100 per cent of annual income. Auto brands must therefore announce entry into the middle class, with benefits externalized to facilitate progress up the social or professional hierarchy.

Contextual Rationalism. Coming from non-Western, non-individualistic markets, emerging market consumers are disoriented by a surfeit of new brand alternatives and have not yet attained confidence in their material stability. Communications shift the balance from emotional to rational benefits and dramatize product value within a social context.

The importance of developing market rationalism is apparent in many ways: effectiveness of in-store activation in changing buying decisions near the point of purchase; reliance on online opinion leaders and information portals in shaping preference; acute price sensitivity, especially for goods consumer in private; the importance of "reasons to believe" in increasing persuasion. Of course, emerging market consumers are not robots, but emotional differentiation can only occur once left brain imperatives have been satisfied.

Once the pragmatism of emerging market consumers has been addressed, emotional relevance deepens by highlighting how products enhance social standing. The context of external acknowledgement broadens as incomes rise. Men of modest means want to be admired by friends and immediate family. New generation Yuppies aim higher, to the business community and beyond. Relatedly, most emerging market advertising benefits more from use of celebrities or authority figures because they reduce the risk of lost face.

This article is excerpted from my upcoming book, "Twitter is Not a Strategy: Re-Mastering the Art of Brand Engagement," to be published in Fall, 2014 by Palgrave USA