6 Truths about Emerging-Market Consumers

Strategy+Business has an article in the context of selling to Latin American consumer (and probably applicable elsewhere also):

As Latin America makes progress in solving its economic and social problems, companies seeking growth and profit in the regions consumer-goods markets will have to refocus on this vast and growing group of lower-class and lower-to-middle-class consumers we call emerging consumers. Indeed, this was a definitive finding of a Booz Allen Hamilton study of consumer behavior and supermarket retail trade trends in six Latin American countries conducted in 2003 for the Coca-Cola Retailing Research CouncilLatin America.

Companies trying to export modern supermarket and hypermarket models from developed countries to Latin America face the toughest challenges, not the least of which is surprisingly strong competition from small-scale retailers the shops, street markets, and small independent supermarkets that are an integral part of the Latin culture. Through the lens of the modern retailer, Latin Americas traditional retailers appear to be inferior; their small stores seem dirty and cluttered and possess limited stock. It is assumed their proprietors rely on informal, even illegal, operating practices, such as the evasion of taxes and labor laws, to prop up their otherwise unproductive business model. Their customers are seen as cash-strapped, unsophisticated shoppers.

Our study found these assumptions regarding low-income Latin consumers and the viability of Latin Americas small-scale retail models to be faulty. Although large supermarkets have made significant inroads in the region over the past decade, traditional retailers are holding their ground. Small retailers not only are meeting the needs of emerging consumers; in many ways, they are serving these consumers better than modern retailers do. Furthermore, informal business practices are not the main driver of the traditional stores competitive strength.

To reach these conclusions, we analyzed not only what and where emerging consumers are buying, but also why they make their choices. In the process, we discovered significant myths about the mind-set and behavior of emerging consumers, and lessons that large companies producing and distributing consumer goods for this region can learn from the success of the small-scale retail trade.

Selling to emerging consumers is no small challenge for major consumer-goods retailers and manufacturers, especially those unfamiliar with Latin Americas distinctive retail terrain. To accelerate their penetration of these markets, and to sustain profits over time, these companies must offer emerging consumers different value propositions, modify their distribution and marketing strategies, and achieve global scale and local focus. They must do all this without compromising the value and profitability of their offerings for traditional customers. And, when possible, they must seek to decrease their costs. Until companies better understand the needs of emerging consumers and adapt their business models to serve them more efficiently and effectively, their growth will be limited.

Myth #1: Low-income consumers spend little on material goods.
Truth: Although these consumers are poor, proportionately they spend more of their income on consumer goods than those in wealthier segments.

Myth #2: Low-income and subsistence-level consumers needs are simple.
Truth: These consumers buy premium-priced branded products and are sophisticated shoppers.

Myth #3: Emerging consumers are overwhelmingly attracted to the lowest shelf prices.
Truth: Emerging consumers are sensible shoppers who take into account many factors other than price in calculating their shopping costs.

Myth #4: If they did not face budgetary constraints, emerging consumers would prefer modern supermarkets.
Truth: Emerging consumers are satisfied with traditional retailers, and dont necessarily aspire to shop in modern supermarkets.

Myth #5: Emerging consumers are highly dependent on credit.
Truth: Emerging consumers use credit to extend their purchasing power.

Myth #6: Emerging consumers all belong to one segment, the popular class.
Truth: There are many meaningful subsegments of emerging consumers. Their differences, based on lifestyle and attitudes, have a significant impact on shopping behavior.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.