January 2013

Roland Berger Strategy Consultants

Study
In-depth knowledge for decision makers

In 2030, about 80%

of the global middle
class will live outside
the developed world.
80%
Asia, Africa and other
emerging regions

20%
Europe, US

Consumers – how to reach emerging market consumers with new strategies

global topics In 2030, about 80% of global middle-class

consumers will live outside the US and Europe.
This publication will highlight prominent trends

8 billion
that influence what consumers in emerging
markets buy.
 Study 3

global topics
8 billion
Consumers – how to reach emerging market
consumers with 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
in emerging markets weigh up their purchases, choose particular
items and complete their transactions.1

We examine four areas in particular: product portfolio, brand

positioning, marketing and distribution. In each area, we ask
some key 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
can companies use new mobile technology and networks
to build their market share?

Distribution strategies need to closely reflect local

conditions. What distribution strategies work in countries
with predominantly low-density rural populations?

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

will repeat these briefly wherever necessary to show the impact of the trend
on a company's strategy.
Roland Berger Strategy Consultants

Product portfolio and brand

positioning – Meeting the
needs of diverse consumers

Socio-demographic change IS DRIVING consumer power


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
global population.
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.
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.
Take China, for instance. Chinese society places a strong em­phasis
on education. The 2009 Pisa world education rankings put China
in first 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
an increasing 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
while engineering skills shortages in Germany are leading to
an estimated annual economic loss of USD 2.3 billion for German
business.
Young people with better education and skills also have a greater
chance of employment. Over the last 25 years, the number of
people living in poverty in emerging and developing countries has
fallen by half. Education has played a major role in this
development, improving lives on the ground.
Study 7
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
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
the highest per capita spending with USD 10,112, followed by the
BRIC countries with USD 3,619 and the Middle East and North
Africa with USD 3,615.
communications are likely to enjoy per capita growth of about 30%
by 2020 in emerging and developing countries. European fashion
chains such as Zara are already a familiar sight in major cities
across India, Indonesia, the Philippines, Saudi Arabia, Thailand and
South Africa. Per capita clothing expenditure is forecast to reach
USD 183 a year in 2020, or a total of USD 1.2 trillion – including
USD 800 billion in our Focus 20 countries alone.2 Russia, Brazil and
Turkey will be home to consumers spending the most on fashion.
China, India and Vietnam will see a sharp increase – more than 8%
Roland Berger Strategy Consultants

F1

The emerging middle class – By

2030, approximately 80% of
the middle class will live outside
Europe and the United States
Share of the global middle class in 2030 (%)*

7% 14%

6%
7%
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 Emerging and developing countries 14
increase significantly 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 1
Source: Euromonitor 2

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
see the 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
a day or less.
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
for companies. Consumer goods manufacturers are delivering
inexpensive, easy-to-use products to them using low-overhead
Study 9
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
sumer segments in tier-1 and tier-2 cities.
Sophisticated consumers can also distribute bottom-of-the-
pyramid 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
sold beer to Africans for over a century, their upscale products
including the European brands Peroni and Grolsch. The com­
pany now 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
see the most economic 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.
Spending will grow in many segments
Annual per capita consumer spending by segment, real value, 2012-2020 (USD) F3

Food

Health

Leisure
Fashion
Housing

Transport

Communication
 CAGR

558
2.2%
662
399
4.7%
574
270
5.5%
440
133
6.4%
219
135
3.9%
183
100
7.3%
175
98
4.7%
142
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
as medical 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
can operate independently of the local power grid. Each mobile
clinic can service hundreds of temporary treatment sites. In
one year, for example, a single such vehicle traveling across the
Uttarakhand Province in northern India set up more than
800 medical camps, helping some 60,000 patients. Siemens
has equipped 18 of these mobile surgeries over the last 7 years.
Urbanization
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.
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.
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
currently has no access to sanitary facilities (%)
Nigeria 64
India 46
China 42
Indonesia 37
Source: Euromonitor
 Study 13

F5

By 2025, 80% of cities with more

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

50 57

74
81 305
China 139
India 54
US 45
Nigeria 21

Source: UN World Urbanization Prospects: The 2011 Revision

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
food security.
In India, 40% to 60% of the urban population live in poorly developed,
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
price tag of 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
and jute 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 government-
sponsored mass residential developments for slum dwellers and
the homeless will be one of its biggest markets. In developing
the Nano 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
to price 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
for Africa 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
to build 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,
fire and 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
is growing 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
in London 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
that a 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
to navigate the modern urban data jungle. A "virtuous commercial
circle" will evolve as more data stimulates greater demand
for multifunctional smart technologies. The potential for highly
individualized distribution and marketing is almost unlimited:
some vending machines in Asia even scan a person's face
to customize advertising.
 Study 15

Getting to know CONSUMERS F6

in emerging markets The people behind the profiles – A possible
translation of two typical consumer value profiles
The pace of change is speeding up. Living standards and the built Chinese consumer value profiles with prototype customers,
environment are evolving faster than ever and markets are megacities vs. tier-3 cities
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 Susan Gan, single, 35,
services? Their first step must be to analyze consumer habits and from Guangzhou, megacity
brand values. With this in mind, Roland Berger designed a cus­ Works as a systems administrator
tomiz­able tool, the RB Profiler, to measure how consumers for a major Chinese company
perceive brands. Using a specially developed questionnaire, the
RB Profiler investigates 20 fundamental values that influence Main source of news: Internet
all aspects of customer behavior. The RB Profiler analyzes what Newspaper: National daily
people's requirements are and how they view brands, generating Credit cards owned: Two
a range of consumer profiles. Companies can use these profiles Use of credit card: Several times a week
to develop product positioning options and compare the perfor­ Travels for leisure: Twice a year
mance of their current products with targets. At the same time, the Clothes shopping: Once a week
tool's intuitive format and statistical validation encourages organi­ Preferred grocery shopping: Mall
zational buy-in and efficient application in marketing. 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, Hours spent on using the Internet a day: 3
China's urban population will nearly double, growing from 36% Likes: Risk-taking, innovative things, trendy features, just-in-time,
to 69% of the total population. This new urban population will price-defined buying decisions
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 Neil Zheng, married, 43,
differentiation, consumption behavior, purchase patterns and one child, from tier-3 city
lifestyle. The study showed that consumer preferences vary Runs a small stationery shop
significantly according to urban size and geographical location.
Looking at the differences in more detail, it appears that
smaller tier-3 cities exhibit different values and priorities than Main source of news: TV
megacities, reflecting their regional orientation. Typical tier-3 Newspaper: Local daily
cities include Tongcheng in Anhui province, with roughly 744,000 Credit cards owned: None
inhabitants, and Fengcheng on the Yellow Sea coast, with a Use of credit card: Never
population of approximately 630,000. To illustrate how the RB Travels for leisure: Once every three years
Profiler works, figure 6 translates the profiles for megacities and Clothes shopping: Twice a year
tier-3 cities into two prototype customers, Susan Gan and Neil Preferred grocery shopping: Supermarket and own plot to grow vegetables
Zheng. The differences between the two are immediately obvious. 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
Among emerging markets, China has the largest
number of valuable brands
Number of brands among the 500 most valuable worldwide, 2012 F7

Chile
China

Brazil

Mexico
Russia

Malaysia
Hong Kong

South Africa
Saudi Arabia
United Arab Emirates
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.
In the 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
adapt to 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 Top-selling beauty brands in India – Dabur is the only Indian brand

Mothercare 231 Fair & Lovely 465

Next 191 Colgate 353
Zara 164 Lux 336
Aldo 159 Lifebuoy 305
Bossini/Sparkle 121 Godrej 257
Marks & Spencer 70 Dettol 244
Clarks Footwear 60 Santoor 208
Bershka 60 Dove 196
Milano 47 Clinic Plus 159
Calvin Klein 47 Dabur 156
Source: Euromonitor
 Study 19

F9

Emerging countries lead the

ranking of global happiness Costa Rica
64.0
Happy Planet Index (index value):

top
The index's top 10 are emerging countries

Vietnam
60.4
Colombia
59.8
Belize

ten
59.3
El Salvador
Jamaica 58.9
58.5

Panama
57.8 Nicaragua
57.1 Guatemala
56.9

Venezuela
56.9

#46 Germany 47.2

Source: Centre for Well-being, new economics foundation #105 US 37.3
Roland Berger Strategy Consultants

color to village residents to decorate the outside of their houses. Ecuador and Bolivia have embarked on a similar path. The
Another inexpensive Coca-Cola marketing initiative turns shipping indigenous principle of "sumak kawsay" (meaning "good living")
containers, again painted Coca-Cola red, into storehouses or retail was enshrined in the Ecuadorian constitution in 2008 and in the
stores. 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
The company frequently employs street performers – magicians, globe. The London-based "Centre for Well-being" compiles a Happy
singers, dancers and actors – to promote soap and toothpaste. Planet Index to record life expectancy, experienced well-being
Lever and Ogilvy Outreach, a marketing arm of Ogilvy & Mather, and people's satisfaction with the environmental impact of the
recruits the local performers, adjusting their scripts in line with goods and services consumed. Costa Rica scores highest, followed
local dialects, education levels and religions. A series of such by Vietnam. Most of the other top 10 are emerging countries in
performances in northeastern India saw consumer awareness South America. Germany and the United States, with their large
of Breeze, a low-cost 2-in-1 soap, rise from 22% to 30%. A similar ecological footprints, rank 46th and 105th respectively.
program to promote Rin Shakti, a moderately priced detergent
bar and powder brand, boosted recognition from 28% to 36% over f10 According to a recent goodpurpose® study by Edelman, consumers
a ­­six-month  period. in "rapid growth economies" (RGEs) such as China, India,
Indonesia, Malaysia, UAE and Brazil have much higher ex­pec­
Increasing relevance of values and sustainability tations of brands and corporations with regard to social issues. As
the middle class grows and acquires more purchasing power,
Religious values are important for many consumers. Increasing consumers in RGEs demonstrate a commitment to "social
numbers of religious people will drive the market for "values- purpose" across many different activities, such as buying, sharing,
oriented" products. By 2030, when the global population is donating and volunteering. This commitment is considerably
forecast to exceed 8 billion, approximately a quarter of people will stronger than that found for many consumers in "bear" markets
be Muslim. Pakistan will likely overtake Indonesia as the world's such as Western Europe.
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
on consumer 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
in emerging 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*

22% 62%
84% At least once a year

Bear markets**

19% 37%
56% At least once a year

*) 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


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
up using cell phones. By 2020, it is anticipated that developing
nations will have 6.5 billion cell phone users, compared to just
1.2 billion 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
12 million 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
in Tunisia, 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
for market share. Newspapers recently reported that one in
four Kenyan residents now accesses the Internet at least once
a week.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
Study 23
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
in every 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 start-
ups 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 Estée 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?
A survey 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
product quality and prices. These websites are also valuable
sources of information for consumer-savvy companies. By
analyzing candid consumer opinions, platforms such as the
Indian www.consumercomplaints.in can help consumer
goods manufacturers improve their product and marketing
strategies.
4) Germany's Süddeutsche Zeitung (2012)
5) WorldPay (2012) 6) Discover Digital Arabia (2012)
 Algeria

F11
3,826,940
Morocco
4,481,100

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

Congo (Zaire)
795,300
Number of Facebook users in Africa, 2011

Angola
Facebook users in Africa

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 F12

countries. Advertisers are figuring out how to deliver relevant, Mobile advertising on the rise
measurable advertising to their next billion consumers. Mobile Mobile channels as percentage of total digital advertising budget
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 What lies behind this cultural divide? The principal reason is that
mobile devices are the primary digital platform in emerging
Indian companies
countries, while PCs are more common in economically advanced

51%
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
a reward 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
a positive attitude toward receiving advertising on their mobile
devices in return for free airtime minutes, according to one
recent study.

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 US companies

11%
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
of local 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. Source: Digital Capital Advisors

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
reach a particular 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
for 20% 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
has helped 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.
Study 27
Coca-Cola has evolved a "hub and spoke" distribution model to
reach rural markets. Twice a week, the company depot supplies
large distributors who act as hubs for small distributors. Rural
markets frequently lack electricity and refrigerators, so Coca-Cola
also provides low-cost ice boxes – a tin box for new outlets
and a thermocol 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
after its 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.
They should also remember that ethical and religious values in
emerging countries will favor more socially oriented, ecological
consumerism.
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
as Facebook, so targeted mobile marketing strategies can often
be effective 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.
For the urban middle class, whose purchasing behavior is very
similar to consumers in industrialized markets, innovative
technology-intensive strategies may prove the most effective.

Create the right portfolio – Broad but specialized

Bottom-of-the-pyramid consumers prefer cheap products that
are simple 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
must meet 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,
as several countries still fail to provide sufficient protection for
foreign brands.
Roland Berger Strategy Consultants

Author
Bernd Brunke Benno van Dongen
Partner and Member of the Partner, Amsterdam
Global Executive Committee, Berlin
benno.dongen@rolandberger.com
bernd.brunke@rolandberger.com

William Downey
Partner, New York

william.downey@rolandberger.com

Co-Authors
Christophe Angoulvant Duce Gotora
Partner, Paris Project Manager, London

christophe.angoulvant@rolandberger.com duce.gotora@rolandberger.com

Dr. Wilfried Aulbur Carolin Griese-Michels

Partner, Mumbai Principal, Hamburg

wilfried.aulbur@rolandberger.com carolin.griese@rolandberger.com

Andreas Bauer Maren Hauptmann

Partner, Munich Partner, Munich

andreas.bauer@rolandberger.com maren.hauptmann@rolandberger.com
 Study 31

Daniel Himmel Per I. Nilsson

Project Manager, Berlin Partner, Stockholm

daniel.himmel@rolandberger.com per-i.nilsson@rolandberger.com

Nicklas Holgersson Dr. Verena Reichl

Project Manager, London Senior Expert, Munich

nicklas.holgersson@rolandberger.com verena.reichl@rolandberger.com

Fabian Huhle Tina Wang

Principal, Munich Partner, Beijing

fabian.huhle@rolandberger.com tina.wang@rolandberger.com

Dr. Johannes Klein Dr. Tim Zimmermann

Principal, Berlin Partner, Munich

johannes.klein@rolandberger.com tim.zimmermann@rolandberger.com

Frank Lateur Dr. Michael Zollenkop

Principal, Brussels Principal, Stuttgart

frank.lateur@rolandberger.com michael.zollenkop@rolandberger.com
Roland Berger Strategy Consultants

Sources CTPartners (2012)

Emerging markets trend talk report
African Business Magazine (2012)
ICT: Silicon Savanna ready to take on the world DB Research (2011)
Research follows production
Allfacebook.de (2012)
Facebook user statistics Diabetes Atlas (2010)
Global estimates of the prevalence of diabetes
S. D. Anthony et al. (2006) for 2010 and 2030
Seven principles of disruptive innovation
Digital Capital Advisors (2012)
S. Arrison (2011) The evolutionary shift to mobile
100 plus: How the coming age of longevity will change everything,
from careers and relationships to family and faith Discover Digital Arabia (2012)
Online shopping in the Arab world
G. O. Barney (1980)
The Global 2000 Report to the President Economist (2012)
Consumer goods in Africa – A continent goes shopping
Battelle (2012)
Global R&D Funding Forecast (2012) Economist Intelligence Unit
– Country data (2011, 2012)
K. Below et al. (2012) – People for growth: The talent challenge
Der Aufstieg der BIC-Staaten als Wissensmächte in emerging markets (2008)

Bloomberg (2012) Edelman (2012)

Share price and index data goodpurpose® study

W. H. Buiter and E. Rahbari (2011) Y. Emmanuel and B.D. Gelb (2010)

Global growth generators: Moving beyond Better marketing to developing countries: Why and how
emerging markets and BRICs
Euromonitor (2011, 2012)
Catalyst (2005) Country and consumer data
The bottom line: Connecting corporate performance and gender
diversity Eurostat (2012)
Innovation and research data
M. Chutnik and K. Grzesik (2009)
Leading a virtual intercultural team. Implications for virtual team Experientia (2012)
leaders Designing for emerging markets

CNN Money (2011) Food and Agriculture Organization (2009/2010)

Global Fortune 500 How to feed the world in 2050

Credit Suisse (2012) Forbes (2011)

Emerging Markets Research Institute – Diversity & inclusion: Unlocking global potential
Opportunities in an urbanizing world Global diversity rankings by country, sector and occupation
 Study 33

S. S. Garr (2011) International Labor Organization (2011)

Retaining talent in emerging markets Global employment trends 2012

Gartner Inc. (2011) International Monetary Fund (2011)

Market Trends: Mobile payments worldwide World Economic Outlook databases

General Electric (2012) Internet World Stats (2011)

Global Innovation Barometer Usage and population statistics

Global Industry Analysts (2010) jana.com (2012)

Biosimilars: A global strategic business report Why mobile ads in emerging markets are the future

Goldman Sachs (2010) B. Jaruzelski, Kevin Dehoff (2008)

Global Economics Paper No. 170 and 204 The Global Innovation 1000
The power of the purse
Knight Frank (2012)
V. Govindarajan (2012) Prime International Residential Index (PIRI)
The $2,000 car
Leipzig Graduate School of Management (2010)
S. A. Hewlett et al. (2010) Future scenarios for the European airline industry
Winning the war for talent in emerging markets
T. R. Malthus (1798)
S. A. Hewlett and R. Rashid (2010) An essay on the principle of population
The globe: The battle for female talent in emerging markets
B. Minchington (2011)
IBM (2011) Employer branding without borders – a pathway
Global Location Trends to corporate success

IHS Global Insight (2011, 2012) National Science Board (2012)

Data Insight Web Science and engineering indicators 2012

J. R. Immelt (2009) new economic foundation, Centre for Well-being (2012)

How GE is disrupting itself Happy Planet Index

Innovation 360 Group (2012) OECD (2010)

The missing link between innovation strategy The emerging middle class in developing countries
and leadership in the Middle East
F. Pearce (2011)
INSEAD (2011) The coming population crash – And our planet's surprising future
The Global Innovation Index 2011
Population Resource Center (2008)
Interbrand (2012) Population and the food crisis
Best global brands 2011
C. K. Prahalad (2006)
International Institute for Applied Systems Analysis (2007) The innovation paradox
2007 update of probabilistic world population projections
Roland Berger Strategy Consultants

I. Razak (2009) L. Taylor (2011)

The correlation between population and
economic growth in Malaysia
P. Reddy (2008)
Global innovation in emerging economies –
Implications for other developing countries
Q. M. Robinson and H. J. Park (2006)
Examining the link between diversity and firm performance:
The effects of diversity reputation and leader racial diversity
Roland Berger Strategy Consultants
– Automotive Landscape 2025 (2011)
– Corporate headquarters study (2005, 2008, 2010)
– Frugal products (2012)
– Manufacturing futures – Using scenario planning to identify
opportunities in a multi-sector industry (2011)
– Modular products – How to leverage modular product kits
for growth and globalization (2012)
– Organizing and managing R&D in high-tech industries (2011)
– think: act CONTENT – Diversity and inclusion too soft a subject?
Not at all (2010)
– think: act CONTENT – Scenario planning (2009)
– think: act STUDY – Chinese consumer report (2009)
– think: act STUDY – Delivering financial services in
sub-Saharan Africa (2011)
– Trend Compendium 2030 (2011)
Roland Berger School of Strategy and Economics (2012)
Scenario update 2012
Diabetes - pharma's fastest-growing market
The German Foundation for World Population (2011, 2012)
Online project: 7 billion
United Nations Conference on Trade and Development
(2010, 2011)
World Investment Report
United Nations (1960, 2009, 2010, 2011)
The future growth of the world population (1960)
World Population Prospects – The 2009 and 2010 Revision
World Urbanization Prospects – The 2009 and 2011 Revision
W. W. Weber (2008)
Managing complexity – Lessons from Peter Drucker and
Niklas Luhmann
World Bank (2011)
The Ease of Doing Business Index
World Economic Forum et al. (2010)
Stimulating economies through fostering talent mobility
World Economic Forum (2012)
WEF Global Competitiveness Report 2011/2012
T. Yasuyuki and S. Hitoshi (2011)
Effects of CEOs' characteristics on internationalization of
small and medium enterprises in Japan

Saleschase (2012) WorldPay (2012)

Why mobile marketing in emerging markets is the next big thing Global Online Shopping Report

F. Siebdrat, M. Hoegl and H. Ernst (2009) W. Zhang (2011)

How to manage virtual teams Understanding China's economic trajectory

Simon Kucher (2011)

Dax Management: Sehr international aber kaum weiblich

Spiegel Magazine (44/2011)

Das große Schrumpfen

Süddeutsche Zeitung (6/2012)

Die digitale Revolution erobert Afrika

Credits
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
Study 35
Special thanks to
Our interviewees:
Siegfried Gänßlen, 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