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Accenture Outlook: Finding Growth Off the Curve

Accenture Outlook: Finding Growth Off the Curve

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Published by Accenture
With so many markets around the world simultaneously approaching critical mass, how do companies decide where and when to invest their scarce resources? Consumption curves—an old idea imbued with new power—can provide those answers and more, including how to shape markets to their advantage.
With so many markets around the world simultaneously approaching critical mass, how do companies decide where and when to invest their scarce resources? Consumption curves—an old idea imbued with new power—can provide those answers and more, including how to shape markets to their advantage.

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Published by: Accenture on Aug 06, 2012
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08/22/2012

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The journal o high-perormance businessThis article originally appearedin the 2012, No. 2, issue o 
Special Report: The new growth agenda
Finding growthoff the curve
 By Armen Ovanesso, Athena Peppes, Mark Purdy and Matthew Robinson
With so many markets around the world simultaneouslyapproaching critical mass, how do companies decide whereand when to invest their scarce resources? Consumptioncurves—an old idea imbued with new power—can providethose answers and more, including how to shape marketsto their advantage.
accenture.com/outlook
 
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“Follow the money,” the saying goes.Today, rom a global company’s per-spective, more and more o that money is ound doing business in emergingeconomies. Indeed, Accenture analysiso more than 40 o these marketssuggests that their collective householdincome will jump by more than $8.5trillion in real terms between 2010 and2020, contributing nearly 60 percent o the entire global increase in householdearnings during that period.Little wonder that in a recent Accenturesurvey o nearly 600 executives atmultinational companies, 80 percentsaid they’re primarily ocused onemerging economies or their nextstage o growth.For business leaders, the ripening o a number o emerging markets hasurther complicated an already complexsituation. Consider, or example, thattoday more than 20 emerging econo-mies—including Kazakhstan, Venezuelaand Nigeria—have more householdswith annual incomes that exceed$50,000 than China, the perennialavorite among these markets.But this is only a snapshot in time,and the larger picture continues tochange. With the rise o so many attractive emerging markets, and withthose markets hitting various devel-opment stages within dierent timerames, strategic decision making ismore o a challenge than in the past,when developed economies were theonly real game worth pursuing, or evenmore recently, when you could countthe number o promising emergingalternatives on the ngers o one hand.Today, choose wrong and you could wait years or a market to become active.Or, worse, you could enter it too late.To make sound strategic decisions,companies need a way to synthesizeall o the inormation available intoan accurate assessment o a market’spotential and, critically, how it willevolve over time. We believe that aundamental concept in economics—the industry consumption-curvemodel—provides a rigorous way to makethis critical evaluation. Consumptioncurves oer a robust approach that putsglobal opportunities into perspective,balancing trade-os across time horizonsand revealing where and when it makesthe most sense to invest.
Trading up
Consumption curves, rst used morethan 150 years ago, are economic modelsthat plot the relationship between acountry’s average annual income andthe expected sales or penetration rateso products or services in specicconsumer industries (see sidebar, page6). Used correctly, these curves canprovide a detailed understanding o to-day’s ast-evolving emerging markets.They enable businesses to exploit therecent explosion in data and analyticstechnologies, allowing them to apply tested theoretical constructs to practicalapplications in strategic planning.This story begins with the earliestormal expression o an income-con-sumption curve, developed by Germanstatistician Ernst Engel in 1857. Engelwas the rst to describe in systematicterms how expenditures on a particular good or service will vary with house-hold income. With more income, con-sumers can trade up rom buying basicproducts like soap to premium oeringssuch as shampoos or conditioners, toput this in a contemporary context.Or, i incomes rise enough, people canbegin to trade in their bicycles or motorcycles, or motorcycles or their rstautomobiles—trends currently takingplace in many emerging markets. You can construct an Engel curvethat specically addresses your industry and target markets—witheither a global or a country-by-country ocus. The latter approach can helporganizations understand the otenunique actors that infuence demandand the development o local markets,allowing executives to make more
Consumption curvesput global opportunitiesinto perspective,balancing trade-osacross time horizonsand revealing whereand when it makes themost sense to invest.
 
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inormed decisions when orginguture growth plans.For example, or non-lie insuranceproducts such as health or property/casualty coverage, the relationshipbetween household income and marketpenetration is strong. Because consumersconsider these types o insurance“luxury goods,” they become attractiveonly at higher income levels. Lower-income groups typically lack not only the unds to purchase policies but,in the case o p/c policies, even thepossessions such insurance covers.Our research also shows that timing iscritical in this industry. Conventionalinsurance products are not very attractiveor people with low incomes, and evenwhen people earn enough to aordthese purchases, insurance is a productthat can take a long time to catch on. As a result, the timing o an insuranceprovider’s market entry is particularly important. Entering when income levelsare too low can sap prots as companieswait or demand to come. But enteringtoo late oten means they must contendwith well-established competitors thathave spent time and money buildingbrands and local relationships.By developing consumption curvesor multiple markets, executives canorecast when it makes the most senseto enter a given one, based on itspopulation’s ability to purchase specicproducts. They can also discover whichmarkets are likely to grow rapidly andwhich are reaching maturity, providingthe basis or inormed choices regardingmarket selection and timing o entry.
Anticipating changes
The greatest value consumption curvesprovide is their ability to anticipatechanges in market dynamics andopportunities over time. A basicunderstanding o these models canenable companies to “track thecurve”—prioritizing and sequencinginvestments in order to claim their share o the market as householdincomes increase.In act, in our experience, successulglobal corporations are never contentto simply ollow the curve. Instead,they are able to use consumptioncurves in three more innovative andspecic ways: to aggregate pockets o demand to uncover new markets; tooperate above their consumptioncurves through the use o strong brandsor local relationships; and, most impor-tant, to develop a deep understanding o the drivers o demand that allows themto shit the entire consumption curveor an industry.
1. Aggregate curves to uncovernew markets
Consumption-curve models can helpcompanies nd opportunities thatcompetitors miss. By identiyinginteresting market groupings and“aggregating” demand across multiplemarket-specic consumption curves,they can nd opportunities others may miss. This approach enables successulorganizations to look across globalmarkets, seeking pools o demand thatby themselves might seem inconse-quential but that collectively representhuge opportunities.Examples include serving the largeand culturally homogeneous expatriatepopulations that exist worldwide, or tapping into like-minded global gamingor social networking communities.Consumption-curve modeling canhelp strategists locate and target thesedispersed markets.Our research shows that companieswith a knack or choosing ripe marketsactively look beyond the obvious whendeciding where and when to play worldwide. For example, the interna-tional growth strategy o consumer goods company Dabur India leveragesthe growing Indian diaspora. Thecompany has aggregated an attractivecustomer segment, based on similaritiesin hair-care preerences, that spansSouth Asia and the Middle East. Dabur sees this strategy as a springboard
Consumption curvesenable companiesto prioritize andsequence investmentsin order to claimtheir share o themarket as householdincomes increase.

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