January 2013

Roland Berger Strategy Consultants

Study
In-depth knowledge for decision makers

80%

In 2030, about 80%

of the global middle
class will live outside
the developed world.

Asia, Africa and other

emerging regions

20%
Europe, US

Consumers how to reach emerging market consumerswith new strategies

global topics
8 billion

In 2030, about 80% of global middle-class

consumers willlive outside the US and Europe.
This publication will highlight prominent trends
that influence what consumers inemerging
markets buy.

Study 3

global topics
8 billion
Consumers how to reach emerging market
consumerswith new strategies

Introduction

p4

Product portfolio and brand positioning

Meeting the needs of diverse consumers

p6

Marketing and distribution

Think local but act global

p 22

Conclusion

p 28

Roland Berger Strategy Consultants

introduction

Key questions for reaching CONSUMERS

in emerging markets

Study 5

In 2030, about 80% of global middle-class consumers will live

outside the US and Europe. In this fifth publication, we highlight
the trends that are likely to influence how these consumers
inemerging markets weigh up their purchases, chooseparticular
items and complete their transactions.1
We examine four areas in particular: product portfolio, brand
positioning, marketing and distribution. In each area, we ask
somekey questions:
Rapidly growing economies attract competitors and empower
consumers. How can companies identify new consumer profiles
and design versatile product portfolios?
How do brand reputation and consumer values influence
consumers' buying behavior?
What techniques ensure that marketing messages really
resonate with consumers in emerging markets? How
cancompanies use new mobile technology and networks
tobuildtheir market share?
Distribution strategies need to closely reflect local
conditions.What distribution strategies work in countries
withpredominantlylow-density rural populations?

1) Some of these consumer trends are also discussed in publication 1. We

willrepeat these briefly wherever necessary to show the impact of the trend
onacompany's strategy.

Roland Berger Strategy Consultants

Product portfolio and brand

positioning Meeting the
needs of diverse consumers

Socio-demographic change IS DRIVING consumer power

Study 7

Socio-demographic change IS DRIVING

consumer power
In publication 1, we saw how population growth at extraordinary
levels almost everywhere except Europe will profoundly shape
tomorrow's global economy. According to forecasts, between 2012
and 2030, some 1.2 billion of the world's 1.3 billion new citizens
will be born in emerging or developing countries. That's equivalent
to 95% of all births.
What does this mean for specific regions between 2012 and
2030? A predicted 600 million people in Asia, 500 million in Africa
and about 90 million in Latin America and the Caribbean will be
added to the local population. Europe will be tiny by comparison,
with only 1 million new people, representing 0.1% of the new
globalpopulation.
Emerging markets will be extremely young in terms of
demographics. In 2030, 40% of the population will be under 25,
compared to just 26% in developed nations. This fact will have a
profound influence on consumption patterns.

f1 Every minute, fifty households in developing countries join the

middle class. By 2030, an estimated 66% of the world's middle

class will live in Asia, compared to just 21% in Europe and the
United States. Indeed, China's burgeoning middle class is already
bigger than the entire American population. As for the rich, the
number of millionaires in China surpassed that in America some
time ago. Other countries not least Indonesia, India, Pakistan
and Nigeria, along with other African nations are also seeing an
expanding middle class with money to spend. These upwardly
mobile sectors of society share a common wish: to create for their
children and grandchildren a world of affluence, political stability
and opportunities.
Disposable incomes are also on the rise. By 2020, many emerging
countries will see more than 80% of their population with annual
disposable incomes in excess of USD 10,000. More than 25% of
households in Saudi Arabia, Turkey, Argentina, Iran, Russia and
Malaysia will command incomes above USD 50,000 a year.

Changing spending patterns

f2 Total consumer spending in the developing world will nearly

The number of young people in emerging markets who enjoy a

better education will also increase. In the period up to 2020,
private expenditure on education in emerging markets is set to
grow nearly 7% per annum, reaching a level of USD 143 billion.

double over the next eight years, from USD 14 to 22 trillion. Per
capita consumer expenditure is forecast to reach USD 3,319 a year
in 2020. This growth will be largely driven by improved education
and rising incomes. In particular, BRIC countries will see consumer
spending grow from USD 7 to 11 trillion, Mercosur countries from
USD 2 to 3 trillion, and in the Middle East and North Africa from USD
1 to 2 trillion. Per capita consumer expenditure is forecast to grow
at least 3% annually in each region by 2020. Mercosur will see
thehighest per capita spending with USD 10,112, followed by the
BRICcountries with USD 3,619 and the Middle East and North
Africa withUSD3,615.

Take China, for instance. Chinese society places a strongemphasis

on education. The 2009 Pisa world education rankings put China
infirst place in all three educational categories: reading com
prehension, mathematics and science. Many other developing
countries, India and Brazil in particular, are also set to see
anincreasing number of university graduates. Since 2006, the
number of students in China and India has grown by over 7% a
year. China now produces half a million new engineers each year f3 Traditional consumer goods segments such as fashion, leisure and
communications are likely to enjoy per capita growth of about 30%
while engineering skills shortages in Germany are leading to
by 2020 in emerging and developing countries. European fashion
anestimated annual economic loss of USD 2.3 billion for German
chains such as Zara are already a familiar sight in major cities
business.
across India, Indonesia, the Philippines, Saudi Arabia, Thailand and
South Africa. Per capita clothing expenditure is forecast to reach
Young people with better education and skills also have a greater
USD 183 a year in 2020, or a total of USD 1.2 trillion including
chance of employment. Over the last 25 years, the number of
USD 800 billion in our Focus 20 countries alone.2 Russia, Brazil and
people living in poverty in emerging and developing countries has
Turkey will be home to consumers spending the most on fashion.
fallen by half. Education has played a major role in this
China, India and Vietnam will see a sharp increase more than 8%
development, improving lives on the ground.

Roland Berger Strategy Consultants

F1

The emerging middle class By

2030, approximately 80% of
themiddle class will live outside
Europeand theUnitedStates
Share of the global middle class in 2030 (%)*

14%

7%

7%
6%

66%

Source: OECD
* The "global middle class" is defined as households with daily expenditures between USD 10 and USD 100 per person.
F2

Spending on consumer goods will

increase significantly

Emerging and developing countries

14
22

Total consumer expenditure in selected regions,

real value, 2012-2020 (USD trillion)

BRIC

7
11

2012

Mercosur

2
3

2020
Middle East and North Africa
Source: Euromonitor

1
2

Study 9

a year in spending on leisure and entertainment. Indeed, by

2020, emerging markets will spend a total of USD 924 billion a
year on leisure and entertainment.
Consumers in the developing world will also invest strongly in
improving and protecting their health. Spending will reach around
USD 219 per capita per year by 2020. This is roughly USD 86 per
capita more than at present, and represents a much greater per
capita increase than that for fashion, communications or leisure.
Of the Focus 20 countries, Argentina, Peru and South Africa will
seethe highest per capita expenditure.
Communication technologies will have a strong impact on these
new consumers. Consumer expenditure on communications will
almost double between 2012 and 2020, from USD 593 billion to
USD 1.1 trillion. The countries with the highest spending on
advertising per capita are likely to be Malaysia, Russia and Turkey.
As consumers become better educated, they also require better
information. In response, Nokia has developed its "Nokia Life
Tools", a product that informs consumers about healthcare, agri
culture, entertainment and education issues via cell phone. For
example, the company will shortly launch a diabetes program via
cell phone in India. Nokia Life Tools are currently in use in India,
China, Indonesia and Nigeria.
In a similar vein, Johnson & Johnson launched its "Text4Baby"
product in 2010. This is a free mobile information service that
helps educate pregnant women and new parents about childcare
issues. More than 20 million people in China, India, Mexico,
Bangladesh, South Africa and Nigeria currently use the program.

Bottom-of-the-pyramid consumption
Yet despite rising incomes and consumer expenditures, the
majority of people in developing nations continue to struggle. The
proportion of Nigerians living on less than two dollars a day is
currently 85%. In India the figure is 70%, in Indonesia 46%. Overall,
an estimated four billion people worldwide survive on two dollars
aday or less.

distribution. The most successful new products are often "frugal

innovations" or feature frugal (or "Gandhian") engineering. This
involves removing non-essential features and thereby
significantly reducing the cost and complexity of manufacturing
processes.3
One good example is ChotuKool, a USD 70 refrigerator produced by
the Indian firm Godrej. The appliance uses sophisticated cooling
chips and a fan similar to computer temperature control systems
in place of more costly conventional compressor technology.
Other affordable "Chotu" innovations are a low-cost washing
machine, ChotuWash, and an inexpensive water purifier.
Sometimes all that is needed is a simple change of packaging.
Beiersdorf sells shampoos to the low-end market under its
subsidiary Beiersdorf Hair Care China in standardized plastic
bottles with simple brand labels. Bottles that have expensive
labels with special, glossy colors are used only for the con
sumersegments in tier-1 and tier-2 cities.
Sophisticated consumers can also distribute bottom-of-thepyramid solutions. Grameen Bank, for instance, organizes clubs of
5-10 people most often women who share the responsibility
for managing microloans. The clubs also regularly review the
performance of borrowers.
Another example is the brewer SABMiller. The company has
soldbeer to Africans for over a century, their upscale products
including the European brands Peroni and Grolsch. The com
panynow plans to cater to lower-income rural Africans who
drink"informal" home-brewed beers. To this end, they developed
Chibuku, a beer in a carton, which costs up to 40% less than
bottled beers, has a similar taste to home-brewed beers and is
hygienically produced. The company estimates that the informal
beer market in Africa is four times larger than the clear beer
market. Over the next three years, it plans to expand distribution
of the new product to around a dozen countries.

2) Our Focus 20 countries the 20 emerging markets projected to

The poor are what we might call "bottom of the pyramid" con
sumers. Thanks to new technology and novel distribution
methods, they too have become a potentially profitable market
forcompanies. Consumer goods manufacturers are delivering
inexpensive, easy-to-use products to them using low-overhead

see the mosteconomic growth in the period to 2030 are

Argentina, Brazil, China, Colombia, Egypt, India, Indonesia, Iran, Iraq,
Malaysia, Mexico, Nigeria, Pakistan, Peru, Russia, Saudi Arabia,
South Africa, Thailand, Turkey and Vietnam. 3) See Publication 4 for
a discussion of key frugal innovation strategies.

Annual per capita consumer spending by segment, real value, 2012-2020 (USD)

Spending will grow in many segments

Food

Housing

Transport

Health

Fashion

Communication

Leisure

F3

CAGR
558
662

2.2%

399
574

4.7%

270
440

5.5%

133
219

6.4%

135
183

3.9%

100
175

7.3%

98
142

4.7%
Source: Euromonitor

Roland Berger Strategy Consultants

Low-income consumers can also be attracted by new service

portfolios. The Mexican cement manufacturer Cemex, for instance,
sells a versatile support package to low-income families to help
them build homes inexpensively. For just USD 14 a week, the
company provides inspections, materials warehousing, advice
from professional architects and the required cement products.
Unilever's African portfolio includes both affordable products and
training services. It offers low-cost food items, water-thrifty
washing powders and grooming products that suit local tastes. In
addition, it provides professional training to African entrepreneurs.
In 2011, the company opened an academy in Johannesburg that
each year will train 5,000 hairdressers who plan to open their own
salons. The academy also functions as a forum for testing new
products, business models and distribution methods.
In some areas, new methods of delivery have emerged, such
asmedical services provided to poor rural communities by mobile
clinics. The Sanjeevan Mobile Clinic operating in parts of India
resembles a large bus. But inside it contains a fully equipped
doctor's office with X-ray, ultrasound, mammography or electro
cardiogram machines, a second treatment room and a small
darkroom to develop X-rays. It even has its own generator so it
canoperate independently of the local power grid. Each mobile
clinic can service hundreds of temporary treatment sites. In
oneyear, for example, a single such vehicle traveling across the
Uttarakhand Province in northern India set up more than
800medical camps, helping some 60,000 patients. Siemens
hasequipped 18 of these mobile surgeries over the last 7 years.

Urbanization

Looking at specific regions, Latin America will have the highest

share of urban residents as its cities grow to include 80% of the
total population by 2030. The share of urban residents in Africa will
increase from 39% to 48%, in India from 31% to 40%, in China from
49% to 69%, and in the rest of Asia from 44% to 56%. By 2025,
China will have no fewer than 139 cities with over a million
inhabitants, the largest number of such agglomerations of any
country in the world.
Urban house and household sizes are also changing. In India, for
instance, per household floor space has doubled every 14 years to
its current level of 31.5 m2. This is still two and a half times less
than China's 85 m2. According to projections by Credit Suisse, India
must construct three million houses and China five million houses
every year through 2030 to accommodate future population
growth.
Although global sanitary conditions have improved considerably
over the past several decades, 2.6 billion people still have no
access to toilets and 70% live in cities without proper sanitation
facilities. Lack of sanitation causes environmental pollution, social
problems, unsafe surroundings and substantially more potential

F4

In several Focus 20 countries, a large

share of the population needs better
access to sanitary facilities
Percentage of the urban population that

Since 2008, over half the world's population has been living in
cities. Enterprising companies will discover that urban landscapes
offer many new business prospects. Supply chains, trade,
transportation and Internet connections are expanding, often
rapidly, to serve ever more city dwellers.

currently has no access to sanitary facilities (%)

Nigeria
India

f5 The scale of this rapid change is startling: Some 200,000 people

will move to cities every day through 2030. Emerging markets will
see most of this migration. Between 2010 and 2030, the global
share of people inhabiting cities will climb from 45% to 55%. Most
will be in the developing world. Thus, 3.9 billion or 80% of 4.9
billion city dwellers worldwide will live in emerging and developing
countries as the world's total urban population grows by more
than 1.3 billion.

China
Indonesia

64
46
42
37

Source: Euromonitor

Study 13

F5

By 2025, 80% of cities with more

than a million inhabitants will
beoutside the developed world
Number of urban agglomerations with over a million inhabitants, 2025

57

50

74

81
China
India
US
Nigeria

Source: UN World Urbanization Prospects: The 2011 Revision

305
139
54
45
21

Roland Berger Strategy Consultants

for epidemics. Indeed, one child dies every 15 seconds as a result

of consuming water polluted with human excreta. Diarrheal
diseases cause up to 50% of all deaths in emergency, refugee and
IDP camp situations more than 80% of them children under two
years of age.

Potential solutions
These health and environmental challenges stimulate innovation.
For example, Swedish architect Anders Wilhelmson designed
"Peepoo", a personal, single-use, self-sanitizing, fully biode
gradable toilet that prevents feces from contaminating the
immediate surrounding area and ecosystem. After use, Peepoo
turns into valuable fertilizer that can improve livelihoods and
foodsecurity.
In India, 40% to 60% of the urban population live in poorlydeveloped,
unhygienic conditions. In an effort to improve standards, an
inventive Indian real estate company introduced a program to
offer small land parcels with decent infrastructure and with a
pricetagof just USD 6,500 each. The examples of successful
innovation don't stop there, either. Three years ago, Tata Motors
launched the world's cheapest car, priced at just EUR 1,500. The
company has now designed the Nano house, a 20 m2 coconut
andjute fiber unit that can be erected in just a week and is built to
last only a few years. Tata's plan is to offer affordable shelter to
poor people around the world. It believes that governmentsponsored mass residential developments for slum dwellers and
the homeless will be one of its biggest markets. In developing
theNano house, Tata consulted local decision-makers, ensuring
that the product met local requirements. The company is now
analyzing user feedback from a pilot project in rural India. It plans
toprice the new home at about USD 700 roughly what
industrialized world consumers might pay for a new iPad.
The design of low-cost housing also needs to take climate change
into account. A German initiative, ASH (Africa Sustainable House),
has developed the world's first low-cost, climate-friendly home
forAfrica and Asia. Delivered in containers, the units are con
structed on site in a single day. They are fitted with a solar module
for lighting and radio reception, and even include air conditioning.
Novel building materials can also make housing affordable.
Taiwanese architect Arthur Huang developed a method of creating
construction materials out of plastic waste. The EcoArk, built from
1.5 million plastic bricks, was shown in November 2010 at Taipei's
International Garden Festival. Even plastic bottles can be used

tobuild houses. Assisted by experts in London, a Nigerian building

project initiated by the non-governmental organization DARE
(Development Association for Renewable Energies) is creating
homes out of plastic bottles that can withstand earthquakes,
fireand even bullets. By using unconventional building materials,
DARE seeks to address two problems simultaneously: plastic
bottles that pollute roads, sewers and gutters are recycled into
buildings, and at the same time help alleviate housing shortages
in Africa's most populous country.
Demand for prime location luxury buildings in emerging markets
isgrowing almost as fast as local incomes. The international
property consulting firm Knight Frank regularly surveys top real
estate advisors to ask which nationalities will become the most
important prime property buyers over the next five years. Chinese,
Russian, Middle Eastern, Latin American and other high-growth
economies consistently lead recent predictions. For example,
emerging market cities such as Nairobi have seen prime property
prices soar more than 25% above 2011 prices, while Bali and
Jakarta have seen prices increase about 15% more than
inLondon or Vancouver.
The more people congregate in cities, the more critical it becomes
to find ways to control streams of goods and waste. One promising
method suggested by research into contemporary urban data
management is "smart" city designs that apply innovative IT
applications in building design, city planning and infrastructure.
These aren't just drawing board recommendations, either.
Singapore has become a model of urban IT prowess. The city
collates and interlinks data on water and power supplies, traffic
volumes for shipping, aircraft, cars and taxis, temperature and
telephony, all in real time. The scope of the IT system is such
thata subway train driver knows capacity loads, why trains are
slowing down and whether it's advisable to wait longer at a
particular station.
The modern city dweller will increasingly require a smartphone
tonavigate the modern urban data jungle. A "virtuous commercial
circle" will evolve as more data stimulates greater demand
formultifunctional smart technologies. The potential for highly
individualized distribution and marketing is almost unlimited:
some vending machines in Asia even scan a person's face
tocustomize advertising.

Study 15

Getting to know CONSUMERS

in emerging markets

F6

The pace of change is speeding up. Living standards and the built
environment are evolving faster than ever and markets are
increasingly diverse in terms of educational levels, incomes and
geographies. Consumer diversity creates a puzzle for marketing.
How can companies identify niches for their new products and
services? Their first step must be to analyze consumer habits and
brand values. With this in mind, Roland Berger designed a cus
tomizable tool, the RB Profiler, to measure how consumers
perceive brands. Using a specially developed questionnaire, the
RB Profiler investigates 20 fundamental values that influence
allaspects of customer behavior. The RB Profiler analyzes what
people's requirements are and how they view brands, generating
arange of consumer profiles. Companies can use these profiles
todevelop product positioning options and compare the perfor
mance of their current products with targets. At the same time, the
tool's intuitive format and statistical validation encourages organi
zational buy-in and efficient application in marketing.

Chinese consumer value profiles with prototype customers,

The people behind the profiles A possible

translation of two typical consumer value profiles
megacities vs. tier-3 cities

Susan Gan, single, 35,

from Guangzhou, megacity
Works as a systems administrator
for a major Chinese company
Main source of news: Internet
Newspaper: National daily
Credit cards owned: Two
Use of credit card: Several times a week
Travels for leisure: Twice a year
Clothes shopping: Once a week
Preferred grocery shopping: Mall
Accommodation: One bedroom flat near the city center
Hours spent on watching TV a day: 1

f6 Here's an example of the tool in action: Between 2000 and 2030,

China's urban population will nearly double, growing from 36%

to69% of the total population. This new urban population will
demonstrate significant differences in terms of tastes and
aspirations. A Roland Berger study using the RB Profiler asked
Chinese consumers about their brand perceptions and
differentiation, consumption behavior, purchase patterns and
lifestyle. The study showed that consumer preferences vary
significantly according to urban size and geographical location.
Looking at the differences in more detail, it appears that
smallertier-3 cities exhibit different values and priorities than
megacities, reflecting their regional orientation. Typical tier-3
cities include Tongcheng in Anhui province, with roughly 744,000
inhabitants, and Fengcheng on the Yellow Sea coast, with a
population of approximately 630,000. To illustrate how the RB
Profiler works, figure 6 translates the profiles for megacities and
tier-3 cities intotwo prototype customers, Susan Gan and Neil
Zheng. Thedifferences between the two are immediately obvious.

Hours spent on using the Internet a day: 3

Likes: Risk-taking, innovative things, trendy features, just-in-time,
price-defined buying decisions

Neil Zheng, married, 43,

one child, from tier-3 city
Runs a small stationery shop

Main source of news: TV

Newspaper: Local daily
Credit cards owned: None
Use of credit card: Never
Travels for leisure: Once every three years
Clothes shopping: Twice a year
Preferred grocery shopping: Supermarket and own plot to grow vegetables
Accommodation: Small house in the suburbs
Hours spent watching TV a day: 3
Hours spent on the Internet a week: 1
Likes: Fitness, family, elegance

Number of brands among the 500 most valuable worldwide, 2012

Among emerging markets, China has the largest

number of valuable brands

China

Brazil

Russia

Mexico

Hong Kong

United Arab Emirates

Malaysia

Chile

Saudi Arabia

South Africa

F7

27
10
8
4
3
3
2
1
1
1
Source: Interbrand

Roland Berger Strategy Consultants

Brand positioning Simple but creative

The "country of origin" effect
Rising incomes in emerging countries encourage consumers to
change their brand purchasing behavior. A welcome consequence
of this for Western companies is their increasing preference for
established Western brands. Local brands are often left far behind
in the competition. For example, no local brand features among
the leading fashion brands in Saudi Arabia, and only one domestic
brand in India makes it into the top 10 beauty brands.
f7 Manufacturers in emerging countries own just 12% of the world's

500 most valuable brands. China leads the pack, with 27 inter
nationally distributed brands, followed by Brazil, with 10 brands.
Inthe long term, brands from emerging markets are likely to
become more prominent in Europe as manufacturers shift their
attention from domestic to world markets. Products that are

successful in emerging markets can often also be sold globally.

For instance, Chinese automakers notably the company behind
the Qoros brand are confident that they can expand into Europe
following the example of global Chinese brands in the IT sector,
such as Lenovo.
Brand origination is a matter of considerable importance in
emerging markets. The "country of origin" effect means that
people associate particular countries with certain product
characteristics. Consumers worldwide, for example, frequently
associate German products with quality, reliability and durability.
In the past, consumer goods manufacturers such as Coca-Cola
transferred their successful national brands, logos and advertising
to their worldwide subsidiaries. But building brand awareness
today calls for more imagination. Western companies must
adaptto local and regional conditions. Often the most innovative
marketing technique is the simplest. In several emerging
countries, for example, Coca-Cola gives paint in its signature red

F8

Top-selling brands in emerging countries

Sales by brand, 2012 (retail value, USD million)
Top-selling fashion brands in Saudi Arabia No homegrown brands
Mothercare
Next
Zara
Aldo
Bossini/Sparkle
Marks & Spencer
Clarks Footwear
Bershka
Milano
Calvin Klein

231
191
164
159
121
70
60
60
47
47

Source: Euromonitor

Top-selling beauty brands in India Dabur is the only Indian brand

Fair & Lovely
Colgate
Lux
Lifebuoy
Godrej
Dettol
Santoor
Dove
Clinic Plus
Dabur

465
353
336
305
257
244
208
196
159
156

Study 19

F9

Emerging countries lead the

ranking of global happiness
Happy Planet Index (index value):
The index's top 10 are emerging countries

Costa Rica
64.0

top
ten
Vietnam
60.4

Colombia
59.8

Jamaica
58.5

Panama
57.8

El Salvador
58.9

Nicaragua
57.1

Belize
59.3

Guatemala
56.9

Venezuela
56.9

Source: Centre for Well-being, new economics foundation

#46 Germany 47.2

#105 US 37.3

Roland Berger Strategy Consultants

color to village residents to decorate the outside of their houses.

Another inexpensive Coca-Cola marketing initiative turns shipping
containers, again painted Coca-Cola red, into storehouses or retail
stores.

Ecuador and Bolivia have embarked on a similar path. The

indigenous principle of "sumak kawsay" (meaning "good living")
was enshrined in the Ecuadorian constitution in 2008 and in the
Bolivian constitution a year later.

Hindustan Lever uses other techniques to build brand awareness. f9 We are seeing increasing efforts to measure well-being across the
globe. The London-based "Centre for Well-being" compiles a Happy
The company frequently employs street performers magicians,
Planet Index to record life expectancy, experienced well-being
singers, dancers and actors to promote soap and toothpaste.
andpeople's satisfaction with the environmental impact of the
Lever and Ogilvy Outreach, a marketing arm of Ogilvy & Mather,
goods and services consumed. Costa Rica scores highest, followed
recruits the local performers, adjusting their scripts in line with
by Vietnam. Most of the other top 10 are emerging countries in
local dialects, education levels and religions. A series of such
SouthAmerica. Germany and the United States, with their large
performances in northeastern India saw consumer awareness
ecological footprints, rank 46th and 105th respectively.
ofBreeze, a low-cost 2-in-1 soap, rise from 22% to 30%. A similar
program to promote Rin Shakti, a moderately priced detergent
barand powder brand, boosted recognition from 28% to 36% over f10 According to a recent goodpurpose study by Edelman, consumers
in "rapid growth economies" (RGEs) such as China, India,
asix-month period.
Indonesia, Malaysia, UAE and Brazil have much higher expec
tations of brands and corporations with regard to social issues. As
Increasing relevance of values and sustainability
the middle class grows and acquires more purchasing power,
consumers in RGEs demonstrate a commitment to "social
Religious values are important for many consumers. Increasing
purpose" across many different activities, such as buying, sharing,
numbers of religious people will drive the market for "valuesdonating and volunteering. This commitment is considerably
oriented" products. By 2030, when the global population is
stronger than that found for many consumers in "bear" markets
forecast to exceed 8 billion, approximately a quarter of people will
such as Western Europe.
be Muslim. Pakistan will likely overtake Indonesia as the world's
largest Islamic country, with a predominantly Muslim population
expected to exceed 256 million. Christianity will remain the world's
dominant religion, however, with the Christian population expected
to be 2.2 billion by 2030. Most new Christian converts will live in
emerging countries. Together, Islam and Christianity will account
for over half the global population (53%) by 2030. The impact
onconsumer preferences will be significant Muslim women's
fashion and non-pork meat products are two commonly cited
examples.
Values in a broader sense religious, environmental and social
will play a major role in consumers' purchase decisions and brand
loyalties. We are already seeing a strong move in some countries
to integrate non-economic values into their economic perspective.
Bhutan, for example, first formulated a new official measure of
living standards, Gross National Happiness (GNH), to measure
economic progress as early as 1979. The four pillars of GNH are:
Pursuing equitable and equal socio-economic development
Preserving and promoting cultural heritage
Conserving the environment
Ensuring good governance

Study 21

F10

Buying socially
responsible goods is
growing in importance
inemerging markets
On average, how
often do you buy a
brand that supports
a good cause?

Every 6 to 12 months

At least once a month

Bull markets*

62%

22%
Bear markets**

84%
56%

At least once a year

At least once a year

19%

37%

*) Consumers in emerging markets are "bullish" on purpose! They have high expectations of brands when it comes to social issues
**) Bear markets are industrialized countries. Here, the consumers don't have such high expectations of brands regarding social issues
Source: goodpurpose

Roland Berger Strategy Consultants

Marketing and distribution

Think local but act global

Meeting consumer requirements

Study 23

Online shopping and marketing on the rise

The trend toward more sophisticated information networking is
certain to spread to emerging and developing nations. These
countries have seen the number of Internet users increase
annually by almost 50%, from 80 million in 2000 to 1.2 billion in
2010. Projections anticipate 2.5 billion Internet users in emerging
countries by 2020, almost three times as many as in more
advanced nations.
Mobile telephony highlights how emerging country populations
rapidly take to network technologies. In most emerging countries,
the majority of people are under 25, meaning that they grew
upusing cell phones. By 2020, it is anticipated that developing
nations will have 6.5 billion cell phone users, compared to just
1.2billion in industrial countries. In less than ten years' time, 84%
of the world's population will own a mobile device.
Social networking is also spreading quickly. By mid-2012, there
were more than 43 million Facebook users in Africa, including
12million in Egypt, 5.4 million in South Africa, 5.2 million in
Nigeria, 4.5 million in Morocco, 3.8 million in Algeria, 3.2 million
inTunisia, 1.6 million in Kenya and 1.4 million in Ghana.
Internet use in general is on the rise in the developing world.
Numerous African network providers are currently competing
formarket share. Newspapers recently reported that one in
fourKenyan residents now accesses the Internet at least once
aweek.4
Communication technology can also transform how business is
done. In Kenya, the "m-pesa" (the "m" stands for mobile and "pesa"
is Swahili for "money") is a versatile way of paying by text
message where there is no Internet access. "m-pesa" gives even
the poorest people access to banking services. Fifteen million
Kenyans make use of the system, which has been copied from
Kabul to California. The World Bank estimates that financial
transactions of the m-pesa type currently top USD 7 billion. Mobile
payment systems also allow administrators to track national
budget expenditure, such as the funds allocated to districts or
towns.
Consumers in emerging markets are looking for greater choice,
convenience and informed purchasing. More and more they are
finding their needs met by online shopping. Perhaps surprisingly,
in many emerging markets consumers allocate a high percentage

of income to this channel of consumption. A recent WorldPay

study finds that Indians spend 36% of their disposable income
purchasing products and services online. The Chinese spend
slightly less, at 31% of disposable income, and Brazilians 27%.5
Some 43% of all consumers in the Arab world buy online, and one
inevery three Internet users in these regions does so at least
once a month. More than 60% of those buying online report that
they use the Internet to research product features and prices
before deciding what exactly to buy. The top products sold online
are games, software, electrical goods and clothing, just as in
developed countries.
The range of products and services offered online in developing
countries is broad. In 2010, Iran launched its first online super
market, Meydoonak.com. The site offers 2,500 grocery and
household items at competitive prices. Homegrown Indian startups including fashionandyou.com, myntra.com, snapdeal.com,
dealsandyou.com, yebhi.com and HomeShop 18 are introducing
India's growing middle class to Western brands. And the growth of
mobile device use in emerging markets such as China, India and
South Africa is driving Este Lauder's development of m-commerce
sites, along with mobile- and tablet-friendly versions of its brand
websites.
How do the consumers themselves view these developments?
Asurvey by WorldPay finds that half of all users see mis
appropriation of data and credit card fraud as the biggest
obstacles to online shopping.6 At the same time, websites are
emerging where consumers share their information about
productquality and prices. These websites arealso valuable
sources ofinformation for consumer-savvy companies. By
analyzing candidconsumer opinions, platforms such as the
Indianwww.consumercomplaints.in can help consumer
goodsmanufacturers improve their product and marketing
strategies.

4) Germany's Sddeutsche Zeitung (2012)

5) WorldPay (2012) 6) Discover Digital Arabia (2012)

F11

Morocco
4,481,100

Algeria
3,826,940

Senegal
664,800
Nigeria
5,184,620
Ghana
1,436,380

Number of Facebook users in Africa, 2011

Facebook users in Africa

Congo (Zaire)
795,300
Angola
516,780

South Africa
5,431,280

Tunisia
3,214,880
Egypt
11,658,000

Ethiopia
688,040
Uganda
485,480
Kenya
1,634,940
Tanzania
585,660

Source: Allfacebook.de

Roland Berger Strategy Consultants

The advertising landscape is also changing rapidly in emerging

countries. Advertisers are figuring out how to deliver relevant,
measurable advertising to their next billion consumers. Mobile
marketing spend will likely grow sixfold to more than USD 6 billion
by 2016 in markets such as China, India and Brazil. By contrast,
Europe's mobile marketing projections for 2016 are roughly the
same as they were in 2012, at just USD 1 billion.

F12

Mobile advertising on the rise

Mobile channels as percentage of total digital advertising budget

f12 What lies behind this cultural divide? The principal reason is that

mobile devices are the primary digital platform in emerging

countries, while PCs are more common in economically advanced
countries. For example, Indian advertisers will be spending
approximately 51% of their total digital advertising budgets on
mobile channels by 2016, while US companies will spend just 11%.
Over 80% of cell phone users in emerging markets use prepaid
phones. Additional cell phone minutes are being offered as
areward for customers completing surveys, receiving adver
tisements or purchasing products. Customers appear to be happy
with this arrangement, too: In Brazil, 74% of prepaid users take
apositive attitude toward receiving advertising on their mobile
devices in return for free airtime minutes, according to one
recentstudy.

Indian companies

51%

Distribution Go "glocal"
Products must be delivered not only to emerging middle-class
consumers in cities but also to consumers in rural regions. In
2030, the share of the rural population in developing countries will
still be 45% (compared to 19% in developed countries). Companies
need to adapt their distribution strategies to local conditions. For
example, in countries where low-density rural areas predominate,
firms should prioritize specific geographical areas and work
closely with distribution partners. Often it will be too expensive to
supply remote areas directly, especially at the market-entry
stage.
Large and less developed markets such as China are best
approached city by city, using distributors to provide services
such as physical distribution and cash collection. Beiersdorf, for
example, serves smaller tier-2 or tier-3 cities through a number
oflocal and regional distributors and sub-distributors in China.
Distributors typically work on a non-exclusive basis.
Simple distribution technologies such as ordering products by cell
phone can help overcome deficiencies in the rural infrastructure.

US companies

11%
Source: Digital Capital Advisors

Study 27

Direct ordering reduces costs and saves time. On occasion,

companies will find it profitable to invest in novel distribution
methods that combine different products and services to
reachaparticular consumer segment.

Getting it right Some examples

Some companies are most definitely getting it right. Here are some
examples from across the developing world that can serve as an
inspiration to others.
Project Shakti, jointly created by Unilever and an Indian consulting
company, is an innovative delivery and procurement model. By
hiring women from microfinance groups as last-mile distributors
for Unilever household products, the initiative improves the rural
reach of fast-moving consumer goods. Bank loans are secured
through microfinance, with Unilever guaranteeing the loans
against default. The project currently employs over 45,000 female
partners in rural areas across 12 different states, and accounts
for20% of Unilever's total rural sales.
On the other side of the world, Avon saleswomen travel the
Amazon and its tributaries in ferries, small boats and canoes to
serve remote Brazilian mining towns located up to 1,500 kilo
meters from anything resembling urban civilization. The
saleswomen's persistence in overcoming distribution barriers
hashelped propel Avon into a leading position in the Brazilian
cosmetics market. In South Africa, Avon delivers merchandise to
post offices for sales representatives to pick up. Where no bank is
available, Avon organizes payment through the post office or a
major retailer.

Coca-Cola has evolved a "hub and spoke" distribution model to

reach rural markets. Twice a week, the company depot supplies
largedistributors who act as hubs for small distributors. Rural
markets frequently lack electricity and refrigerators, so Coca-Cola
alsoprovides low-cost ice boxes a tin box for new outlets
andathermocol box for seasonal outlets.
Heineken and Guinness have developed new products for local
markets in emerging countries. A core part of their strategy is to
master lower-cost production and develop distribution systems
linking independent wholesalers, retailers and street vendors.
These networks provide products and income to millions of people.
Another strategy for many retail brands has been to secure a
strong local partner to help pave the way for international growth.
J.Crew, a retailer from the United States, has entered into a
partnership with Hong Kong-based specialty store operator Lane
Crawford to expand into Asia. From the end of 2012, their women's
ready-to-wear clothes and shoes, men's apparel, and accessories
collections will be available at certain Lane Crawford stores in
Hong Kong and China.
Samsonite also uses local distribution partners to supply its
products to remote areas. Recently the company opened a
flagship store at the airport in Urumqi, a tier-3 city in China.
Similarly, Procter & Gamble uses many local shops and employs
popular Bollywood actors to endorse its products. Half a year
afterits release in October 2010, Gillette Guard held 50% of the
market for razors.

Roland Berger Strategy Consultants

Conclusion

Five key actions for success

Study 29

In the coming two decades, consumers in emerging countries will

experience change at rates unparalleled in economic history. The
range of goods and services available, the extent of the urban
environment, and for many the size of disposable incomes will
grow at a speed surpassing that seen in all previous major
economic phases.
How should companies respond to these changes? What strategic
steps must they take to benefit from the opportunities offered by
new consumer markets in the developing world? We summarize
the key actions needed below.

Analyze trends and market environments A world of change

A prerequisite for understanding consumer behavior is to see how
fundamental megatrends such as population growth, urbanization
and globalization are driving the development of emerging
countries. Tools such as scenario planning can help companies
develop detailed pictures of the future and identify the main
factors influencing consumer behavior. Extended market analyses
add detail to these scenarios.
Understand consumers in emerging markets Not a closed book
Significant differences in consumer behavior will persist both
between rural and urban areas and between cities of different
sizes. Companies can use tools such as the RB Profiler to derive
detailed consumer profiles and identify brand preferences.
Theyshould also remember that ethical and religious values in
emerging countries will favor more socially oriented, ecological
consumerism.
Create the right portfolio Broad but specialized
Bottom-of-the-pyramid consumers prefer cheap products that
aresimple to use. This may mean offering products in different
sizes and packaging formats. The company's familiarity with local
and cultural preferences is also crucial. The product portfolio
mustmeet the needs of both poor customers and the growing
middle classes. To satisfy the requirements of both groups,
companies need critical mass, solid financial resources, a broad
product mix and strategic partnerships with local manufacturers.
They must also clarify patent issues in emerging markets,
asseveral countries still fail to provide sufficient protection for
foreign brands.

Find the right marketing strategy Simple but creative

The marketing strategy and message have to speak to local
consumer needs. Here, again, companies must strike a balance
between rural and urban customers' preferences. Sometimes
simple marketing strategies are the solution. Urban, middle-class
consumers prefer online shopping and use social media such
asFacebook, so targeted mobile marketing strategies can often
beeffective here.
Adapt your distribution strategy Go glocal
Companies face a wide range of challenges when it comes to
designing distribution strategies that adequately reflect local
conditions. Especially at the market entry stage, it is often simply
too expensive to supply remote regions directly. Companies need
strong partnerships with regional distributors or subcontractors.
Import and tax regulations must be clarified. Firms should
remember that bureaucracy can slow processes down consider
ably. Sometimes a strategic alliance with competitors can create
an opportunity to distribute products in new regions or cities.
Forthe urban middle class, whose purchasing behavior is very
similar to consumers in industrialized markets, innovative
technology-intensive strategies may prove the most effective.

Roland Berger Strategy Consultants

Author
Bernd Brunke
Partner and Member of the
Global Executive Committee, Berlin

Benno van Dongen

Partner, Amsterdam

benno.dongen@rolandberger.com

bernd.brunke@rolandberger.com

William Downey
Partner, New York

william.downey@rolandberger.com

Co-Authors
Christophe Angoulvant
Partner, Paris
christophe.angoulvant@rolandberger.com

Duce Gotora
Project Manager, London

duce.gotora@rolandberger.com

Dr. Wilfried Aulbur

Partner, Mumbai

Carolin Griese-Michels
Principal, Hamburg

wilfried.aulbur@rolandberger.com

carolin.griese@rolandberger.com

Andreas Bauer
Partner, Munich

Maren Hauptmann
Partner, Munich

andreas.bauer@rolandberger.com

maren.hauptmann@rolandberger.com

Study 31

Daniel Himmel
Project Manager, Berlin

Per I. Nilsson
Partner, Stockholm

daniel.himmel@rolandberger.com

per-i.nilsson@rolandberger.com

Nicklas Holgersson
Project Manager, London

Dr. Verena Reichl

Senior Expert, Munich

nicklas.holgersson@rolandberger.com

verena.reichl@rolandberger.com

Fabian Huhle
Principal, Munich

Tina Wang
Partner, Beijing

fabian.huhle@rolandberger.com

tina.wang@rolandberger.com

Dr. Johannes Klein

Principal, Berlin

Dr. Tim Zimmermann

Partner, Munich

johannes.klein@rolandberger.com

tim.zimmermann@rolandberger.com

Frank Lateur
Principal, Brussels

Dr. Michael Zollenkop

Principal, Stuttgart

michael.zollenkop@rolandberger.com

frank.lateur@rolandberger.com

Roland Berger Strategy Consultants

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Global diversity rankings by country, sector and occupation

Study 33

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Roland Berger Strategy Consultants

I. Razak (2009)
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Study 35

Credits

Special thanks to

Pages 2: Martin Roemers / Panos

Pages 10-11: Mads Nissen/Panos
Page 14 (1): IMAGINE CHINA/GAMMA /laif
Page 14 (2): Julio Etchart/Panos
Pages 16-17: Espen Rasmussen/Panos
Pages 24- 25: Leo Erken/Panos

Our interviewees:
Siegfried Gnlen, CEO Hansgrohe AG
Manfred Grundke, General Partner Knauf Gips KG
Ruth Schaefer, CEO Ruth Schaefer Intercultural

Roland Berger Strategy Consultants

Global Topics
project description
With our GLOBAL TOPICS initiative, we
assess the most pressing issues for
leaders in society, business and politics
and outline possible solutions.

Roland Berger Strategy Consultants

For more information, please visit:

www.rolandberger.com/globaltopics
If you have any questions, please contact us at:
Global_Topics@de.rolandberger.com
Roland Berger Strategy Consultants GmbH
HighLight Towers, Mies-van-der-Rohe-Str. 6, 80807 Munich, Germany

Study 38