Future bright for global brands

30 November 2010

BEIJING: Global brands stand to gain substantial benefits in emerging markets, as they offer quality, certainty and frequently enhance status, Credit Suisse has argued.

The financial services giant presented the view that leading multinational products possess several advantages among shoppers in developing nations.

"Brands can act as a sign of quality and reliability of a product, which reduces the risks of follow-up costs due to repair, idle time or loss in value," Roger Signer, a Credit Suisse analyst, said.

This is the case for big-ticket items like cars, but also regarding categories where safety is paramount, such as baby food.

Vinay Dixit, McKinsey's senior director, Asia consumer centers, revealed goods meeting these criteria can command higher prices in countries like China.

"If consumers see justifications for price increases, such as value and product safety, they will be willing to pay for it," he said.

Dixit's viewpoint is seemingly confirmed by the experience of Heinz, which has witnessed surging demand for infant formula after numerous scares in the sector.

"We know… that consumers in China on baby food will pay more for products that they perceive as premium products that offer benefits from a nutritional aspect to their children that other products don't make," said Bill Johnson, its ceo.

Elsewhere, Credit Suisse suggested the new middle class in Asia, Latin America and other geographies hold vast promise for luxury specialists.

"It is about making a statement about one's personality," said Signer. "This reason experiences strong tailwind from the rapidly growing middle class in emerging markets."

Montblanc, which manufactures exclusive pens, watches, jewellery and leather goods, has seen China become its largest single outlet, and believes further opportunities await.

"We have continued to expand in the past years to other markets, and India has been a very important market - it is a market where we see, as well, strong potential for us," said Lutz Bethge, Montblanc's ceo.

"There are a number of the former Soviet Union republics, such as Azerbaijan, that also do well for us."

More fundamentally, Credit Suisse said brands simplify the shopping process, cutting search costs while saving money and time.

 It divided the best products into two categories, firstly in the form of "developed brands" like AT&T Coca-Cola, GE and Wal-Mart.

These brands have created high barriers to entry, enjoy near-universal recognition, boast impressive margins and have invested significantly in advertising and promotion.

Muhtar Kent, ceo of Coca-Cola, argued earlier this year that its bond with consumers and a truly worldwide reach were central to its prosperity.

"The Coca-Cola Company is present in 206 markets, providing over 1.6 billion servings of refreshments each day through a global franchise system that engages with more than 20 million customers each week," he said.

"As more consumers come into the middle class … we believe that there is no better system investing more in these markets and providing meaningful innovations than the Coca-Cola Company."

The second group was "emerging brands" – like Samsung, China Construction Bank and Sberbank – and were generally based in fast-growing nations, typically securing success at home before moving abroad.

Samsung recently rolled out a new sustainability communications drive, Green Memory, to support its eco-friendly portfolio and initiatives, in anticipation that this could yield international interest.

"We sought to make information about our power-saving efforts more accessible, not only to key manufacturing customers but also to consumers," said Dong-Soo Jun, evp, memory sales and marketing, Samsung Electronics.

"We believe that given adequate knowledge … a growing number of end users will choose to buy green IT products.'"

Data sourced from Credit Suisse, Bloomberg, Seeking Alpha; additional content by Warc staff