Bain & Company analysts Wlademir Gomes, Louis Lim, Robert Schaus, and David Cooper, report, "The global marketplace is minting a new set of consumers that's bigger than the current shopping base of the US and Europe combined." ["Getting ready to profit from the 'next billion' consumers," Insights, 14 September 2012] Who are these billion new consumers and where do you find them? They explain:
"They're younger. They're literate. They've got increasing access to the Internet. They're in Ukraine. They're in the Philippines. They're in Algeria. They're in China and India. They're the 30-year-old Brazilian woman living with her mother in a favela, who owns a TV and a cell phone with prepaid service but has never traveled by air. They're the Russian retiree who opts for cheaper Western durable goods over new domestic brands. They're the 23-year-old Indonesian woman with low brand loyalty who buys cosmetics in small amounts but buys them frequently, and sees a TV as her next big purchase. Meet the 1.2 billion people who will move out of subsistence poverty by the year 2020. They're the world’s newest consumers, those living in households where annual disposable incomes will surpass $5,000 for the first time. It will be their initial experience with discretionary income and they'll have distinct ideas about how they want to spend it. These new consumers are already starting to develop tastes and demonstrate preferences in some categories."
Robert J. Bowman, managing editor of SupplyChainBrain, reports that there are even more emerging market consumers ready to follow the lead of the next billion. "According to Ernst & Young," he writes, "the global middle class is set to burgeon from its current level of 1.8 billion to nearly 5 billion by the year 2030." ["Tomorrow's Global Consumer: Smack Dab in the Middle," 16 January 2012] Bowman indicates that the Ernst & Young report "locates what it calls 'the next three billion' members of the middle class in India, Brazil, Indonesia, Turkey, Eastern Europe and even parts of Africa." Like the Bain analysts, the Ernst & Young analysts see the majority of these new consumers as younger than today's consumers. "One key driver is the high percentage of young people in those developing countries, says Maria Pinelli, global vice-chair of strategic growth markets for Ernst & Young. As they enter consumption age, these citizens will be demanding good, steady paychecks, which will translate into disposable income."
Billions of new consumers represent a spectacular opportunity for many businesses. The Bain analysts warn, however, "consumer products companies that don't act quickly enough will risk losing out to faster global or local competitors." They claim that even for companies that sell products that "consumers won't develop a taste for ... for years ... now may be the time to set the stage for attracting them when they're ready." To attract them, however, businesses must understand them as well as the circumstances in which they live. Only big data analytics will be powerful enough to provide the kinds of insights necessary to sell to consumers living in specific neighborhoods in urban environments in emerging markets. Simply knowing macrotrends will not be good enough.
Macrotrends do provide a good place to begin understanding the next billion or so consumers. An earlier Bain report, for example, concluded that the "new middle class will be considerably poorer than today's middle class in the advanced economies. In China, for example, peak income will average about $18,000 per year in current dollars — more like a giant Poland than another US." ["The next billion consumers," by Karen Harris, Austin Kim, and Andrew Schwedel, 9 September 2011] Among their conclusions about what this means for business, they wrote:
• "This is a large market but at a much lower price point for many purchases. Due to the new consumers' relatively lower incomes, the overall basket of goods and services will differ from what consumers in advanced economies purchase.
• "Companies will need to target emerging markets with a different cost structure. Expect price points to remain at a lower level rather than assuming migration upwards across all products.
• "Marketers will have a transient opportunity to impact the tastes of those moving into the middle class."
Most everyone knows that China and India (two of world's most populous countries) will see their share of new consumers enter the market. But the latest Bain report claims to have "found two important insights that can help companies as they pursue the next billion consumers." They are:
"First, the next billion opportunity extends beyond China and India. While China and India still will be the major developing markets, an army of about 350 million new consumers will come from more than 50 other countries, everywhere from Peru to Nigeria to Uzbekistan. That's a population as big as the US. Companies not yet on the path to leadership in China and India can consider going straight to these markets. Not only are the consumer populations on the verge of expansion, but there also are attractive opportunities to acquire local players. Second, our research found that in more product categories than anticipated, consumers behaved in a similar fashion across very disparate countries. ... That isn't the case for all categories, however, so companies need to look at their portfolio and determine which categories can be rolled out with the same strategies and which require different strategies from country to country. Understanding how shopping baskets differ across countries and income brackets can help prioritize when and how to reach the next billion."
The report goes on to stress the importance of data analysis because "each country is unique when it comes to the profile of its emerging consumer class." In addition, analysis needs to include "three dimensions: country, category and a company's own capabilities." The analysts point out, for example, that life expectancy could play a major role when companies are deciding where to invest as well as the types of products they might want to consider offering. They explain:
"Lifetime purchasing per individual among members of the next billion in Mexico and Ukraine is expected to be twice as long as it is for their counterparts in Indonesia and Vietnam — and more than three times longer than that of Nigeria. While most consumer goods firms are aware that their core market is, on average, getting older or younger, few fully quantify this by determining how many years of remaining spending there are for the average consumer. More spending years are certainly better."
The Bain analysts also report that the next billion consumers are going to be more technically savvy and literate than their current emerging market consumers. "There's no question," they write, "that consumer goods companies will have unprecedented access to the next billion as Internet penetration is booming and adult literacy rates are accelerating in most places, making it easier to establish a brand or win a loyal following than it has ever been in a developing market. But in prioritizing countries, companies are carefully evaluating how access to mind share (and thus commercial opportunity) varies, market by market." They maintain that understanding similarities and differences is important if companies are going to enter emerging markets successfully. They offer four recommendations: 1) Get in Early; 2) Look Ahead; 3) Earn Your Premium; and 4) Know What's Different.
Ernst & Young's Maria Pinelli agrees that a good understanding of local conditions is essential. "It's local production, with an intimate knowledge of consumer needs, that will have the upper hand," she told Bowman. The Ernst & Young report also emphasized that companies should be open to new opportunities. They may find that current offerings really aren't a good fit with emerging market preferences, tastes, or incomes. As a result, "a concerted effort to serve specific emerging markets is just as likely to lead to an entirely new product or service, boosting a manufacturer's total revenues."
Clearly, most analysts see the greatest opportunities in Asian and Latin American markets. But, as I noted in a post entitled The African Continent: Emerging Markets Full of Potential and Challenges, African countries shouldn't be overlooked. A Boston Consulting Group report concluded, "A new consumer class is emerging across Africa — one with increasing purchasing power and a hunger for products and services that once seemed unattainable." ["Marketing to the Emerging Consuming Class of Africa," SupplyChainBrain, 30 January 2013] The message here is simple: Companies that want to attract their share of emerging market consumers need to start their efforts quickly. Although 2020 or 2030 may seem to provide a long lead-time until these new consumers emerge, the analysts cited above agree that waiting to move is a bad strategy.