Set to add almost 2 billion new consumers to the global economy within a few years, the markets known as BRICs represent huge business opportunities to those who get their communications right
Last week’s World Economic Forum at Davos, in Switzerland, was dominated by talk of the rise of Asia’s economic might, and in particular that of India and China. One commentator was reported to have said, “Twenty per cent of the population of the world has 80 per cent of the income … India and China are no longer willing to sit on the margins.” And they are not alone.
The acronym expected to be a key marketing buzzword of 2006 is BRICs – the emerging markets that are Brazil, Russia, India and China. While it is predicted that these countries will emerge as major world players by 2050, they are already making headlines.
In terms of investment prospects, as the BRICs markets become increasingly wealthy, wages and consumer spending should rise. Brazil, Russia, India and China could contribute 1.8 billion new consumers to the global economy within 25 years, according to Schroders. And as these countries grow richer, there is a potential goldmine in the big changes that usually accompany the growth of middle class populations – which are predicted to increase four-fold in the next decade.
Consumer aspirations in these markets are changing rapidly, creating many opportunities for international companies. It is likely that the burgeoning middle class will mean increased demand for branded goods. But how can we predict what is round the corner in terms of consumer potential in the BRICs markets?
A good place to start is by looking at the current behaviour of the wealthiest – or “super consumers” – as an indicator of future spending habits, trends and preferences. In one sense, we can treat super consumers in the same way we would early adopters.
It is commonly accepted that the continuing success of a product is often determined at launch, and that early-adopter behaviour can provide significant insights into overall consumer acceptance. In the same way, the super consumers can act as valuable indicators and, as such, are critical to a brand’s long-term viability and overall success.
The good news is that opportunities exist for companies operating in almost all sectors. And while the super consumers are the first to try new products and brands, uptake will inevitably be translated into the mass market as the wealth divide narrows. The financial services sector is certainly expected to develop as consumers are given access to a growing portfolio of products and services to choose from.
There has already been a visible increase in the use of financial products in the past few years, albeit at differing rates. In Brazil, for instance, credit card ownership has more than doubled since 2000. Predictably, it is the top tier of consumers who currently represent the most attractive target for marketing financial services products.
The super consumers are also more likely to be concerned with planning for the future than the average BRICs consumer. In India, almost half (48 per cent) of super consumers have a life assurance policy compared with a third (30 per cent) of the general population. In China, 26 per cent of super consumers plan to take out some form of insurance in the next 12 months compared with just one in ten of the population at large.
Increasing levels of disposable income also offer significant growth opportunities for the leisure industry. The leisure habits of super consumers in each of the four BRICs markets are remarkably similar. In all markets, they can be found frequenting coffee shops and fast food restaurants, and enjoy spending their free time going to the cinema or theatre.
There is enormous potential for the travel industry too – although foreign travel by the BRICs consumers is currently relatively low, aspirations to travel are certainly prevalent. In India, for example, just two per cent of the population travelled abroad in the past year, although 54 per cent say that they would “love to travel abroad”, and this figure increases to 70 per cent among super consumers.
Super consumers are consistently more likely than average to use global brands, and this behaviour is consistent across the BRICs markets and across many categories. Brands such as Coca-Cola, Gillette, NescafÃ© and Colgate are fast becoming household names for the wealthier consumers living. And it appears that a certain status is attached to owning these brands. In China, 40 per cent of super consumers say they prefer to buy foreign brands, even though they are more expensive. The appeal of international brands even extends as far as supermarket chains, which is illustrated by the growing popularity of stores such as Wal-Mart, Metro and Carrefour.
In terms of their attitudes, super consumers in all of the BRICs countries display a very progressive outlook, boding well for the future prospects of organisations entering these markets. They are the first to adopt the latest technology and try new brands. They feel financially secure and are willing to pay a premium for what they perceive to be quality products.
Interestingly, they also appear to be particularly brand loyal, claiming that once they find a brand they like, they tend to stick to it. So get your marketing campaign right, and the business opportunities presented by these emerging markets could be huge.
China: A blank canvas for Western marketers, says JWT’s Tom Doctoroff:
The opportunity presented by the emergence of China on the global economic map is phenomenal. It could dwarf the US, with over 100 million middle class consumers – a figure set to double by 2010.
China is also a blank canvas for Western marketers, a world where the concept of branding is still nascent. Consumers have no experience of navigating the Western brand landscape, and those who succeed in the “Wild East” do so unfettered by their past. Buick is perhaps the best example of this. In China, Buicks are cool – the marque has been reborn as a brand that owns the category benefit of status projection. Why not? The brand’s history means nothing to the Chinese.
This is not to say that it is easy to succeed in China – realistic expectations must be set. Comparison between the marketing opportunities in China and those of 1950s America is a huge oversimplification. For a start the Chinese market is viciously competitive. First, and most fundamental, there are too many agencies – over 100,000 of all shapes and size. This surfeit means cut-throat competition, low fees and plummeting profit. Client-agency relationships are a promiscuous series of affairs where short-term contracts are awarded to the cheapest bidder. Making matters worse, most multinational shops are hobbled by under investment, a severe talent shortage and shoddy creativity.
Second, the “real” China advertising market isn’t that big. Reported figures highlight an ad spend well above $20bn (&£11.35bn), but this is inflated. All advertisers enjoy hefty discounts, anywhere from 25 per cent to 70 per cent off book rates. To boot, the “accessible” client base – local and multinational companies that will pay a premium to achieve deep brand equity – account for no more than 20 per cent of revenue. True, this “normal market” accounts for an increasingly large slice of the pie and is served exclusively by multinational agencies, but the potential of the People’s Republic of China is relatively small by Western standards and will remain so for some years.
Any market’s potential hinges on the strength of local brands, yet the majority of state-owned enterprises (SOEs) are not structured to build equity. No Chinese brand is actively preferred by consumers – most are seen as, at best, “reliable” commodities. Why? Firstly, senior management are not market driven. Secondly, the hierarchy within SOEs impedes the flow of ideas between market-savvy young guns and chief executives, most of them imperial, self-protective Communist Party apparatchiks. And marketing is subordinate to sales. The latter controls budgets while the former churns out promotional ads. Finally, there is a lack of understanding of how to measure the success and depth of brands.
This doesn’t mean there are no lip-smacking opportunities. China is deregulating. Its World Trade Organisation commitments will facilitate a more diverse playing field. Independent newcomers such as Bartle Bogle Hegarty, Wieden & Kennedy and Nitro, plus a raft of integrated communication specialists, have entered the market free of joint venture shackles. Their presence will spur many of us to lift our game.
Meanwhile, Chinese enterprises must reform. PRC’s most daunting structural challenge is production overcapacity. From air-conditioners through computers to apparel, supply far outstrips demand. Still bloated from the effect of a decomposing command economy, China is awash with goods. To survive, companies have no choice but to end the vicious cycle of plummeting prices and surging red ink. They must build consumer loyalty, forge a sustainable price premium by cultivating brand equity, and invest profits in future growth. In the past couple of years, even SOEs (such as Konka, 999, China Unicom) and “government supported” companies (such as Lenovo) have begun to restructure.
Finally, and most powerfully, Chinese consumers represent a potent force who are brand-friendly. Strands of Chinese thought – Confucianism, legalism and Doaism – reject individual identity as a threat to stability. The Chinese are torn between Confucian demands to conform to the mandates of a hierarchical social structure, and the pressure to climb a narrow ladder of success. The pull between ambition and regimentation yields a mixture of huge egos and weak self-esteem. Individual identities are repressed. In this fear-based, ultra-aggressive context, brands are instrumental identity surrogates. Consumers latch on to them as status projectors, particularly publicly-displayed ones.
Brands are also embraced because they alleviate the disorientation of an overwhelmed – albeit optimistic – new consumer set. Fifteen years ago, there was only one way to make a phone call – by public phone. Now there are more than 300 mobile devices to choose from.
Tom Doctoroff is chief executive officer of JWT, Greater China, and author of Billions: Selling to the New Chinese Consumer published by Palgrave Macmillan