Generally speaking, the psychology of consumers in emerging markets is distinct from their counterparts in developed nations. This does not discount the importance of cultural factors in shaping buying behavior—Confucian values will always be less individualistic than Western values, no matter the per capita value of a country’s gross domestic product. But a country’s level of economic development is an important factor, and marketers should adjust their strategy accordingly.
Institutions designed to protect the political and economic and interests of consumers – for example, independent judiciaries and reliable social welfare schemes — are relatively immature in emerging markets. People are less vested in having a civil society, and they seldom take safety—physical, emotional, and societal—for granted. Consumers in these markets focus more on the scale and reassurance of big brands; projection of status and adherence to tradition that characterize hierarchical societies; and benefits that “do good” rather than “feel good.” In the developing world, the watchwords are protection and pragmatism. That is why Safeguard, Procter & Gamble’s germ-killing soap, is especially popular in places like China and the Philippines; in economically developed countries consumers are drawn to hedonistic benefits. These consumer commonalities lead to a number of crucial strategic imperatives. Marketers should:
- Introduce megabrands (brands with offerings across several related categories) rather than stand-alone brands
- Adjust their products to maximize perceived value
- Capitalize on trends driven by the country’s stage of economic development
- Compete across, not within, categories
- Develop communications that are rational and linked to social context.
Megabrands. Well-known brands are reassuring. According to the 2013 edition of Roper Reports, 79 percent of consumers in developing Asian markets and 61 percent of Latin American consumers “only buy products and services from a trusted brand.” In Western Europe 46 percent of consumers agree with that statement, while in developed Asia—that is, Japan and South Korea—the level slips to 42 percent. In developing countries 53 percent believe “it’s better buy well-known brands because you can rely on their quality” compared to only 28 percent in developed countries. Familiarity also tends to reassure consumers in emerging markets. A survey by McKinsey & Company, the management consulting firm, found that 28 percent of Chinese consumers prefer to “stick to brands I have used in the past rather than try new ones” versus only 16 percent in the United Kingdom and an exceptionally low 4 percent in Japan.
Lack of confidence in the integrity of the manufacturing process, as well as the weak link between category and brand common across emerging markets, explains the reassurance consumers derive from mass-marketed products. In the Philippines one brand, Magnolia, sells a broad array of categories—from water to cheddar cheese to chicken cutlets. 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 an ointment that stanches bleeding, now has a portfolio that spans medicated bandages and toothpaste.
“Conglomerate brands” are comforting. South Korean chaebols are corporate behemoths that arose during a period of postwar economic deprivation. Today they control, directly or indirectly, 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 spending in any category, 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 Thomas & Friends, Barbie, Hot Wheels, and Monster High brands. In developing countries establishing four stand-alone brands is less feasible.
Multinational brands operating in developing markets are learning quickly. Many have either expanded their footprints into contiguous categories or rebalanced their focus in favor of the master brand. Nestlé’s Maggi is a brand of bouillon cube in developed markets, but in India it is used to sell instant noodles, milk, sauces, and soup. L’Oréal began as primarily a skin care and cosmetics brand in Europe and North America, yet in China it entered the market fully 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 campaign for the entire cereal portfolio that promises “breakfast for better days.”
Value justification. Consumers in emerging markets are nervously optimistic. A kaleidoscope of change heralds new, albeit uncertain, opportunity. In this context manufacturers often deploy international brands as weapons on the battlefield of life. They are expensive compared to local competitors but achieve success because new consumers are more sensitive to value for money than low price. Lack of confidence in local products and services can result in what could be called a “penalty of poverty”—that is, higher prices than in developed markets. This phenomenon occurs in 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 interest rates for microfinancing are higher than those charged by mainstream banks.
Marketers should concentrate on increasing customers’ perceptions of value as much as lowering their out-of-pocket expense. Ways to achieve this include value engineering, introducing composite products, and adding purpose to pleasure.
Value engineering. The Nokia 1100 mobile phone, introduced in 2003, created a new value equation in developing markets by redefining standards of durability, an area of concern among lower-income consumers. The model, now discontinued, became the world’s best-selling mobile phone. Improving sensory satisfaction can enhance perceived value. Nestlé originally tailored its RMB1 wafer for the China market, where chocolate still suffers from being perceived as too yang—causing excessive heat that requires yin, or cooling, foods to maintain the internal balance. By increasing the wafer-to-cocoa ratio while lowering the cost of goods, Nestlé was able to sell a chocolate bar for the first time as an everyday snack, not an occasional indulgence. Nestlé’s three-in-one coffee has been a hit because the product is designed with sweetness to balance bitterness. Minute Maid enhanced the value perceptions of its Pulpy by ensuring that it imitates the mouthfeel of pure juice, and in the process it became a power brand.
Composite products. “Frugal innovation” is the creation of mass-market products that offer more for less. These items often take the form of composite products that boast multipurpose, multibenefit design. Procter & Gamble’s Olay Total Effects is an affordable moisturizer with a “seven-in-one” antiaging 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 products in emerging markets has shaped the strategic vision of leading electronics manufacturers. Western consumers prefer special devices for specialty applications—Microsoft’s Xbox is specifically for games, while Apple’s iPad largely helps consumers access digital media and provides entertainment. Consumers in emerging markets, 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 smartphone manufacturers in Western markets masks impressive gains in feature phone sales throughout developing Asian, African, and Latin American markets. It designed the Nokia 105, for example, to appeal to first-time phone buyers and build 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 and competitive environment, celebrating indulgence is risky. Starbucks has established its stores as gathering sites for the professional elite eager to display new-generation cool rather than the “third space” between work and home that Howard Schultz, CEO of Starbucks, intended. Premium yogurt should focus on “digestion that gets you going” rather than taste satisfaction, while Wrigley’s Extra chewing gum fuses great taste with oral care. Danone established its premium Evian brand, popular in the West, on a platform of purity. The company’s Mizone, distributed largely in Asia and South America, is a nutrient-enhanced “energy water.” Mattel is repositioning its toy brands to align fun with learning or discovery.
Trend Arbitrage. Other factors being equal, economies—and consumer motivations—evolve in predictable ways. As markets progress from emerging to developed, marketers can retain the initiative by introducing products in niche categories destined to achieve broad scale. In food, for example,
- Emerging markets are at a basic stage in which protective benefits dominate. Products are often unbranded or locally produced, and familiarity establishes trust—“a brand I grew up with.” Natural ingredients with traditional “do good” properties do well, as do those that reinforce claims of purity or being free of chemicals. Health benefits are rooted in immunity or “more is better” nutritional propositions. For example, claiming “4 times [the essential fatty acid] DHA” helped Mead Johnson’s Enfagrow, an infant formula, build a leadership position in several markets. In China, Kellogg introduced breakfast cereal by claiming it provides “well-rounded and complete nutrition.”
- Middle-income countries are at a modernist stage. As taste indulgence comes to the fore, chocolate and salty snacks appear on store shelves, and high-calorie products proliferate. Increasingly stressful lifestyles also give rise to convenience products. Nutritional benefits flip from protective to transformative—that is, taller, bigger, smarter. Nontraditional foods, from fast food to red wine, become more popular, especially if consumed outside the home as a signal of middle-class modernity. “Detox” food and beverages offset unhealthy diets. Suntory introduced its black oolong tea in Southeast Asia as a postmeal drink—an antidote to greasy foods—with ingredients that slow fat absorption.
- Postmodernist marketing is a reaction against overindulgence and can be summed up as less is more. Developed economies, including those of 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 claim or the proliferation of the Body Shop’s green cosmetic counters, emerges as a powerful motivator. Consumer awareness of the goodness of organic food, grows, with “feels good” trumping “tastes good.” Kellogg’s Special K, a low-calorie grain-based cereal and snack that also promotes female confidence, is poised to become a more diversified brand that plays a broader role in women’s lives.
Companies can exploit the knowledge of how markets evolve. In China the Tingyi Holding Corporation and Uni-President Corporation, Taiwanese snack food manufacturers, anticipated the emergence of convenience benefits and introduced instant noodles and then cups of 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.
Food categories are not the only ones that evolve in predictable ways. In emerging markets newcomers to luxury products are drawn to such goods as conspicuous badges of status. The shiny “double G” Gucci belt buckle or diamond-studded gold Rolex are marks of sophistication. As their incomes rise, luxury buyers want to demonstrate their connoisseurship and refinement, so branding cues become more understated. Louis Vuitton’s highest-priced bags, for example, do not carry 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 to the specifications of individual buyers. Andrew Wu, who heads the China division of the 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.”
Cross-category competition. Consumers in emerging markets are, by definition, new consumers. Advertising should work hard to convey a compelling reason for them to switch from one category 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, Nescafé competes with tea and other beverages. In markets with high coffee consumption, it competes with other instant coffees. Advertising in developed markets targets category users who are already familiar with existing brand alternatives so enhancing the salience of yours is key. Elsewhere, advertising should trigger more fundamental changes in behavior.
What constitutes an effective reason to change one’s behavior depends on the nature of the category. Across Southeast Asia, for example, Mattel’s Fisher-Price Play IQ is a winning proposition because the brand resolves the tension between childhood advancement and fun. In other categories, from cake mix to frozen dinners, convenience needs become more acute as daily life becomes more hectic. B&Q, a UK home improvement retailer, provides free decorating 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. Chinese first-time car buyers purchase the majority of automobiles, many of which cost more than 100 percent of the buyer’s 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. Consumers in emerging non-Western, nonindividualistic markets have not yet attained confidence in their material stability and are disoriented by a surfeit of new brand alternatives. Advertising can point them toward the rational benefits of the product and demonstrate product value within a social context.
The importance of developing market rationalism is apparent in many ways: effectiveness of in-store activation in providing information that can changing buying decisions near the point of purchase; reliance on authoritative online opinion leaders and information portals in shaping preference; acute price sensitivity, especially for goods consumed in private; the importance of “reasons to believe” in increasing persuasion. Consumers in emerging markets are not robots, but they can differentiate products emotionally only after their left brain – that is, logic-based — imperatives have been satisfied.
Once marketers have addressed the pragmatism of consumers in emerging markets, they can emphasize the emotional relevance of their products by highlighting how they enhance buyers’ social standing. The context of external acknowledgment broadens as incomes rise. Men of modest means want the admiration of friends and immediate family. New-generation Yuppies aim higher, for accolades from the business community and beyond. A related note: most advertising in emerging markets benefits from the use of celebrities or authority figures because they reduce the risk of buyers’ losing face.
The starting point for powerful communications is insight into the fundamental motivations for consumers’ behavior and their preferences. In my experience the best insights spring from tension between or within human and cultural truths. If a brand resolves a conflict of the heart, that brand’s role in life is greater. Prices can therefore be adjusted accordingly. Insight remains the font of robust profit margins, and it is rooted in an appreciation of sociocultural forces that drive consumers’ behavior—whether common the world over or geographically nuanced—in different markets. In a commercial universe pulsating with high-tech possibility, it behooves brand owners not to ignore this timeless marketing truth.