It may sound counter-intuitive, but the largest consumer bases belong to the new middle class of many of the emerging economies. Consider this: Ernst and Young estimate that by 2030, in China, one billion people (as much as 70% of the total population) could well be middle class.
By nature, emerging markets are fertile ground for expanding overseas sales. They include a large youth population (and a deep pool of labor); an expanding middle class; increasing urbanization, clustering potential customers into one place for effective, easy marketing; and most notably, a well-developed domestic market.
But not all currencies were created equal. While emerging market salaries are low, at least by Western standards, middle class income varies by country; in China, the middle class earns from $9,000 to $34,000 annually, a considerable difference from the American middle class, which earns from about $42,000 to $125,000 yearly.
But the facts are misleading, for the key here is purchasing power: in many emerging markets, more can be had for less. In India, the rupee’s purchasing power, coupled with the extremely low cost of living, has defied conventional measures of middle class income. Depending on who you ask, the criteria for a middle class person can range from $10-100 per person per day to $16-82 per person per day.
All this is to say that even within nations, there is disagreement between economists and analysts on what and who comprises the middle class. Still, there are characteristics common to the young, newly affluent demographics of emerging markets, thanks to globalization.
Impulse buying in emerging markets
The first characteristic is that of impulse buying, or, as the Samsung Enterprise Research Institute euphemistically terms it, “present-oriented consumer spending.” Interestingly, this trait is definitely at odds with traditional perceptions of many emerging markets, especially those in Asia, which are not known for their high rates of spending.
However, a 2013 Nielsen survey of 29,000 consumers in five emerging markets found that 44- 52% agreed with the statement “I often buy things that I do not need, impulsively.” There does appear to be a lack of research in this area, at least compared to the West, but some speculate that it is linked both to an increase in individualism among consumers in emerging markets, as well as a cultural association between luxury goods and social status.
Needless to say, this is good news for multinationals seeking to expand into fertile, untapped ground, and reveals the skeleton of an effective plan, incorporating clever marketing, the cult of individualism, and strategic sales and promotions.
Buying Western brands in emerging markets
Another characteristic, though one increasingly on the decline, is a preference for Western brands. This is particularly true when it comes to luxury goods, and reliable Western mainstays like Apple or IKEA.
Key to this preference is that of branding, which has to remain fluid in the event of local obstacles. Often, the most successful companies in emerging markets are not afraid to do a 180 degree shift, as in the case of IKEA. In much of the West, IKEA is seen as cheap, low quality furniture affordable to everyone; however, faced with high import tariffs and costs in China, IKEA shifted its production facilities to Shanghai, and re-branded itself as a sleek, modern brand for the new middle class.
But Apple is perhaps the king, given its smashing success in Asian markets, especially China. With a combination of local partners, futuristic, state-of-the-art stores, and big screens, Apple cemented their presence in the Chinese market, even tying local powerhouse Samsung in 2014 sales.
A love of powerful, local brands in emerging markets
Still, this Western product craze does not always hold true, particularly regarding everyday items. In Brazil, more established soft-drink brands, such as Coca-Cola, have faced stiff competition from local brands, potentially as a result of earlier spending habits developed by middle-class consumers–a holdover from more frugal days.
This is especially true when giant multinationals come up against regional brands with a devoted following, pitting a scrappy underdog against the heavy-handed top dog. Take the example of Inca Kola, a cloyingly sweet, beer-yellow soft drink that has captured 30% of Peru’s market (while Coke only has 20%). Critically, Inca Kola spent years tying itself to the national identity of Peru, through both its Incan logo and positive association with Peru’s deliciously varied, fusion cuisine.
The rationale boils down to exposure prior to rising to the middle class. Citizens of emerging markets tend to have brand loyalty to local brands if they were cheaper to begin with. However, if Coca-Cola was the brand of choice when they were a nascent economic nation, that will hold true when they become an emerging market.
Success in Western markets is the next best thing
However, other brands, notably Samsung, LG, Hai’er, and Huawei, are not Western, yet have managed to find considerable success in many emerging markets. From Emirates Airlines to Hai’er, non-Western companies from emerging markets have upped the ante, sponsoring football matches and innovating cutting edge products, such as wireless televisions, searing their brands deep into the consciousness of many consumers.
Even Apple, once the stalwart of China smartphone sales, is losing their market share to indigenous brands like Huawei and Xiaomi; Huawei has sold 60 million phones to Apple’s 40 million, a significant increase that would have been unthinkable a few short years ago. wIn fact, Huawei has found significant success in both Western and overseas markets, jumping to third place (after Samsung and Apple), with 108 million smartphones delivered.
The time is ripe
Because emerging markets are so volatile and home to such innovation, yesterday’s stalwart may be today’s has-been. Trends change quickly, and much of the success in the market is predicated on pre-determined preferences.
That being said, great branding, the cult of individualism, solid sales strategy, and a thorough understanding of local emerging markets goes a long way for enticing emerging markets. It’s been done in the past, and can be done once again.