Developing markets represent the future for many businesses. Brazil, Russia, India, China, and Indonesia make up 60 percent of the world’s population and account for 40 percent of global GDP growth. But companies cannot treat these markets as fledgling versions of the developed economies that have been their mainstay. They must rethink how they go to market in these places, which frequently do not have a state-of-the-art marketing, distribution, or retailing infrastructure. This article is the first in a series on how consumer-facing companies can succeed in developing markets through excellence in consumer insight, channel management, and in-store execution.
Consumer insight can be the beginning of a beautiful relationship with customers—to paraphrase the last line of Casablanca. Unless companies understand consumers’ unmet needs and create goods and services that have appeal, they will not win customers. In developing markets, this capability is more important than ever because the landscape is changing so rapidly, the rules of the road are being written on the fly, and solid research—the keystone of consumer insight—is hard to gather.
Consider the case of a global fast-moving consumer goods company in India with interest in the nutritional space. When scanning the market for growth opportunities, the company realized that the disease burden in India was going through a dramatic shift. Chronic “lifestyle” illnesses such as diabetes and cardiovascular disease were expected to jump from around 30 percent of the total disease burden in 1990 to almost 60 percent by 2020. Deeper consumer research made clear the willingness of Indian consumers to trade up for products that improve their children’s health—insight that unearthed specific opportunities for targeting children.
In response, the company evaluated its global portfolio, identified specific products that would cater to the health needs of children, and accelerated its launch plan. Further research indicated the importance to consumers of including doctors and nutritionists when selecting the right brands to push, and this then formed the platform for a successful launch. Without the insights generated from local research, the company would likely have continued to apply its global launch priorities in India, hence missing out on a key opportunity to introduce relevant, high-growth products.
The rewards of figuring out what consumers want and acting on those insights can be great. But this is no easy task, given the difficulties of doing business in developing markets.
In these markets, consumer-facing companies must manage four specific challenges.
Speed of Change. Consumer demographics and preferences are in flux, including dramatic increases in wealth and purchasing power. The number of middle-class households in the Asia-Pacific region is projected to grow from 525 million today to 3 billion by 2030. The middle class in these markets is emerging everywhere, not just in the familiar big cities. In 2010, China had 88 cities with at least 250,000 households classified as affluent or middle class. By 2020, that number will triple. In India, where wealth has historically concentrated in cities, rural consumption is expected to grow by nearly 6 percent annually over the next five years.
At the same time that its size is swelling, the tastes of the middle class in developing countries are becoming more sophisticated. For example, in India, sales of packaged snack foods have been growing by more than 20 percent annually at the expense of traditional street food sold by vendors. This shift reflects rising education levels as well as marketing campaigns that promote packaged foods as healthy, hygienic, and aspirational.
Diversity. Consumer markets in developing economies are even more diverse than in developed economies, where they are hardly homogenous. Consumer insight is simply harder to come by in a place such as India, which has 22 official languages and hundreds of dialects, or in China, with 7 regional languages. Consumer behavior can also vary widely within a country: Chinese consumers in top-tier cities say they will spend more on products that have meaningful differences, but in lower-tier cities consumers are more likely to trade up for brand names. Across countries with somewhat comparable economic profiles, it is equally difficult to derive and predict consumer behavior. Text-messaging usage, to take one example, ranges from 48 percent in India to 80 percent in Russia and 100 percent in Indonesia. (See Exhibit 1 below.)
Data Limitations. Historical data and current research are scant, and when they are available they do not necessarily illuminate the key issues. In countries such as Indonesia, Brazil, and India, modern retailing—replete with bar codes, scanners, and cash registers that facilitate data mining—is only nascent. It can be challenging to generate insights by analyzing sales of mom-and-pop shops. The complex, multilayered distribution networks in developing markets further obscure the visibility that manufacturers of consumer products have of retailers and consumers.
In addition, while the statistical bureaus of most developed nations generate high-quality demographic data by postal code, this information is minimal or missing in developing markets. It is frequently out of date and difficult to obtain.
Logistical Challenges. The barriers to conducting proprietary research are high. The scale and scope of these markets—for example, 11 time zones in Russia—can paralyze data collection activities or make them cost prohibitive. Third-party research agencies do conduct primary research and focus groups, but they are spread thin. China has 45 members in the European Society for Opinion and Market Research, the leading such trade association; Russia has 38; and India, 18. The U.S., on the other hand, has 90 ESOMAR members, and the U.K. and Germany have 174 and 150, respectively.
Not surprisingly, research firms in developing markets are unable to conduct research with the same depth and breadth as in developed economies. In China, for example, even the largest agencies may need to outsource field research in smaller cities, and the quality of this research must be closely monitored. Low Internet penetration in such places as China and Brazil, where 40 percent and 60 percent of the population, respectively, are online, also limits the ability to capture quick consumer feedback and to run surveys. (See Exhibit 2 below.) Online panels—groups that agree to take part in surveys and give customer feedback—can work in developing countries, as long as researchers consider the possibility of sample bias and think carefully about the categories and research needs for which an online panel is appropriate.
The challenges of conducting research and generating consumer insights are worth overcoming. Companies that can confidently conduct research and translate their findings into appealing products, prices, and service levels will possess a weapon that is not easy for their competitors to duplicate.
An Indonesian retail bank wanting to understand why it was underperforming took the time to analyze the market and create a successful transformation plan built on the foundations of market research. It identified the two key drivers of future profitability as a growing customer base and deepening customer relationships. The company then conducted extensive focus groups and consumer surveys that helped it to understand customer perceptions, expectations, and preferences.
The bank incorporated the attributes that customers care about most into a unique value proposition and brand promise. It defined a future business model that would deliver on this brand promise, and it undertook a broad set of transformative initiatives. The consumer-research-driven strategy proved quite successful. In less than two years, the bank has seen a 40 percent increase in volume.
Companies require a strong commitment and a creative approach to conducting research in developing markets. Three steps are key.
First, cast a wide net. Companies should combine primary research with macroeconomic data. Don’t just look in the usual places, such as government agencies. There is a rich vein of privately generated research available. Over the past five years, The Boston Consulting Group has conducted extensive primary consumer research in these markets. Other organizations have completed similar work.
Some of this research may still be in raw form. With extra effort, it can frequently be converted into market intelligence. For example, the National Sample Survey of India conducts one of the largest and perhaps least-used consumer research efforts in that country.
Second, dive beneath the surface. Look beyond what consumers say and try to understand what they actually do and what their underlying desires and aspirations are. This may take a little extra effort and some creative solutions. Consumers in these markets often claim to use a product because it connotes status, but they may be overstating the truth. It is possible to cross-check statements made by consumers—for example, by looking at durable goods ownership in a market or by asking for bank statements. Companies can develop a good read on a market by studying the closets and refrigerators of a representative sample of consumers or by following them as they shop. One consumer panel in India does a “wrapper collection,” asking participants to save empty packaging and to keep a usage diary to understand consumption.
Finally, build the capabilities. Create an organizational structure to generate high-quality consumer insight in these markets. If companies cannot buy the research they need at the quality level they expect, they will need to build it themselves by investing in market research teams on the ground. If they do outsource to research agencies, they still need to oversee and spot-check the data in-house.
While these markets are large and sprawling, companies should resist the temptation to spread their research resources too thin. It makes more sense to focus on fewer, higher-impact research projects by testing a few key hypotheses than to comprehensively cover the waterfront.
Most important, the market research team needs to build credibility within the company and engage senior-executive leadership directly. If it is viewed as just another support function, the group will not have the respect and influence it needs to shape business decisions.
An apparel maker in China took this lesson to heart after it suffered several years of declining market share. Initial market research revealed that the brand had different strengths and roles with different segments of consumers and within smaller cities. Although significant opportunities existed in these cities, the company needed a much deeper understanding of the unique behaviors of specific consumer segments.
The company soon recognized that it could not conduct market research episodically in such a fast-moving market. It is now actively incorporating consumer insight across a broad range of activities from product assortment to marketing messaging. The apparel maker has also expanded the size of its business-intelligence staff in order to improve consumer-driven data-mining capabilities. Based on emerging consumer insights, the company has repositioned one of its main brands, giving it renewed focus and energy.
In developed markets, most major consumer-facing companies understand the benefits of consumer insight. The playing field is not nearly so level in developing markets. Because consumer insight can be so difficult to generate in these countries, companies that do it well will outperform those that do not. But companies cannot produce consumer insight in the same way as in their home markets. Effective research requires planning and organization, including the hiring of more research and analytical staff and paying more attention to their findings. The payoff for the extra effort, however, will be real and enduring.