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October 03, 2013

Getting to Know Emerging Markets, Part 1

Emerging markets"Emerging markets are more important than ever," according to Boston Consulting Group analysts, "and they make up a large share of many multinational companies' revenues and growth." Despite the importance of emerging markets, the analysts conclude that "multinationals have not mastered these markets." They reach this assessment based on a BCG survey that included "more than 150 top executives in multinational companies." Seventy-eight percent of the executives "expect to gain share in these markets"; but, by their own admission, "only 13 percent are confident that they can take on local competitors." ["Playing to Win in Emerging Markets," by Amitabh Mall, David C. Michael, Lori Spivey, Andrew Tratz, Bernd Waltermann, and Jeff Walters, bcg.perspectives, 13 September 2013] Trepidation about being able to take on local competitors likely comes from the fact that they understand that local competitors know a lot more about their consumers than the multinationals. The analysts note, for example: "On average, multinationals told us that only 9 percent of their top 20 executives are based in emerging markets; the vast majority of them are still located in mature markets far away."

McKinsey & Company analysts believe that any company that doesn't understand local conditions should be concerned about its ability to succeed in that market. "Emerging markets can be fertile ground for enormous sales growth," they write, "but each market has its own unique hurdles. Without a deep understanding of the local customer you are likely to trip over those obstacles — or abandon the market prematurely. ... To break into emerging markets and capture the potential, the best sales leaders have realized they have to think like a local." ["Act like a local: How to sell in emerging markets," by Maria Valdeviesa de Uster, Jon Vander Ark, and Wesley Walden, McKinsey & Company, September 2012] Understanding local conditions, culture, tastes, lifestyles, and preferences is obviously important for businesses; but, "deep understanding" can only be achieved through the use of Big Data analytics.

To make their point, the McKinsey analysts relate an apocryphal story about two sales people from a multinational apparel company who were sent into an emerging market to determine local conditions. "After scouting a few villages, the first salesman rang the head office. 'I'm returning on the next flight,' he said. 'We can't sell shoes here. Everybody goes barefoot.' Meanwhile, the second salesman was busy e-mailing the head of sales: 'The prospects are unlimited. Nobody wears shoes here!'" Which salesperson was correct in his assessment? Obviously, a lot more research and analysis was required to make that call.

The McKinsey analysts note: "Multinational corporations often make the mistake of importing approaches that work at home without making any adjustments." That could be a fatal mistake. On the other hand, they note: "Local players often underestimate both the resources and speed required to match market needs and compete with global players." In other words, both risks and opportunities are available in emerging markets. Only good analytics are going to help you turn a risk into an opportunity. In the past, only a "boots on the ground" approach was available to companies wanting to learn more about consumers in emerging markets. Recently, however, emerging market consumers have embraced mobile technologies, particularly smartphones, as their way to connect to the world. This connectivity means that mounds of data is now available for analysis. Mark Harrington, the Chief Marketing Officer at ListenLogic, writes:

"Knowing the customer' has been a battle cry for marketing for the past few decades. The difference today is that marketers can actually know their customers, without guessing, simply by leveraging digital ethnography to listen to what they're saying." ["How Marketers Are Finally Getting to Know Their Customers," Direct Marketing News, 24 July 2013]

That is true for both mature and emerging market consumers. Harrington continues:

"As social media expands exponentially, the massive volumes, incredible variety, and never-ending velocity of billions of daily discussions have become a textbook example of Big Data. As such, to harness the wealth of understanding from it — ranging from consumer insights to competitive intelligence — marketing, product, and brand teams are turning to advanced processing technology and complex concept models in place of first-generation monitoring tools and keyword lists. Brands are also relying on social media command centers to instantly distill relevant information and discover genuine insight within the mass of useless noise."

Jessica Weber and John Cheng agree with Harrington that leveraging ethnography is becoming an increasingly important tool in understanding customers. For a company going into an emerging market, I daresay it's an essential tool. Weber and Cheng write:

"Business stakeholders who are accountable for digital product innovation, strategic roadmaps, or multi-channel user experience are increasingly looking to ethnographic research. Although this research tool has its origins in 18th century anthropology — studying the customs of individuals and cultures — its application to technology innovation has never been more relevant. Applying ethnographic methods to digital experiences can yield myriad benefits that go beyond simply validating that something works or identifying opportunities for improvement." ["Making the Most of Ethnographic Research," UX Magazine, 5 August 2013]

Even though each emerging market has characteristics that make it unique, Jodie Sangster, CEO of the Association for Data-Driven Marketing and Advertising in Australia, asserts, "No matter where you are in the world, all marketers face the same issues to one degree or another." ["Where Is Global Marketing Going?" Direct Marketing News, 26 August 2013] She concludes:

"The future of all marketing and advertising around the globe is data-driven and at last, the value of measurable, accountable, customer-centric marketing has been realized. Although in the developing world there is still a focus on mainstream advertising, but with the advent of social media, increasing adoption of smartphones, and a developing multiscreen culture has resulted in a monumental shift in both thinking and marketing spend towards data-driven channels and techniques."

If you want a peek at where emerging markets are heading, look at a China. McKinsey analysts Elsie Chang, Yougang Chen, and Richard Dobbs, report, "Almost overnight, China has become the world's second-largest e-tail market, with estimates as high as $210 billion for revenues in 2012 and a compound annual growth rate of 120 percent since 2003." ["China’s e-tail revolution," McKinsey & Company, March 2013] They continue:

"Some 90 percent of Chinese electronic retailing occurs on virtual marketplaces — sprawling e-commerce platforms where manufacturers, large and small retailers, and individuals offer products and services to consumers through online storefronts on megasites analogous to eBay or Amazon Marketplace."

I believe that other emerging markets will follow this pattern because the infrastructure to support brick-and-mortar stores is expensive to build and infrastructure isn't exactly a strong suit in most emerging market countries. The good news is that all that digital activity means that there is going to be more and more data to analyze and more opportunities to get to know emerging market consumers better. If Pascal Lamy, Director-General of the World Trade Organization, is correct, emerging markets are going to be the future's movers and shakers. ["Emerging economies: 'shapers and makers' in changing landscape, Lamy tells Turkish University," World Trade Organization, 14 March 2013] He also made another interesting point. He stated:

"We are also seeing new trends in the way that goods and services are produced and traded. In essence there is a new narrative developing on trade which governments and businesses have to take notice of, and align their policies and priorities to. In WTO jargon, we have termed this 'Made in the World'. Increasingly, countries are trading in intermediates not final products. The concept of 'Made in Country X' is becoming obsolete. The old mercantalist adage of 'imports are bad and exports are good' is made irrelevant when we look at the evidence — today almost 60% of trade in goods is in intermediates and the average import content of exports is around 40%."

Although I have painted a rather rosy picture of emerging markets, there are challenges (in some cases, significant challenges) that must be addressed in emerging markets. Big Data analytics can help companies assess the risks associated with those challenges. In the second part of this series, I'll discuss how Big Data analytics can help companies gain the insights they need to be successful in emerging markets.

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