Middle classes offer growth

11 April 2011

NEW YORK: Brands stand to gain substantial benefits by targeting emerging market consumers in the "middle of the pyramid", McKinsey has argued.

The consultancy predicted spending generated by this middle class audience should rise from $6.9tr (€4.8bn; £4.2bn) at present to $20tr in 2022.

Based on qualifying criteria of claiming salaries between $13,500 and $113,000 a year, in purchasing power parity terms, McKinsey estimated there are already 2bn people meeting such a description from fast-growth markets.

More specifically, members of this group deliver three-quarters of consumption across the featured nations, and display a range of increasingly common characteristics concerning their habits.

Firstly, there is a convergence of tastes, partly fuelled by digital media, as the middle class in developing economies have yielded 240m new broadband users since 2005, all now easily able to connect with the rest of the globe.

In a further demonstration of this trend, reality series Pop Idol originally aired in the UK, spawning American Idol in the US, and then versions in Latin America, South Africa, India, Indonesia, Kazakhstan and the Middle East.

Elsewhere, there is an apparent openness to new technology, as shown by the fact 70% of people in emerging markets possessing Bluetooth-enabled mobile handsets use it, measured against scores of 45% in mature markets.

"Because the emerging middle class is so plugged in, it is brand conscious and willing to try foreign labels," the study added. "However, local brands have earned a great deal of goodwill."

In Brazil, 40% of shoppers agree indigenous products are superior to overseas rivals, reaching 36% and 33% respectively for India, 30% and 27% in South Africa, alongside 29% and 26% on the part of Mexicans.

Ratings in China stood at 23% for domestic goods and services versus 22% regarding alternatives supplied by foreign operators, although Russia saw 21% back indigenous items and 23% champion those from abroad.

Among the firms proving especially prosperous is Chinese food and beverage expert Wahaha, fusing a low-cost approach, "trial-and-error" innovation, a wide distribution network and patriotic appeal.

Asus, the Taiwanese IT specialist, also created a pioneering netbook computer priced at under $300, some 40% cheaper than the next-best offering, as well as boasting strong design credentials.

"A close study of the local competitors could take multinationals a long way in succeeding in tapping this opportunity," McKinsey said.

"Choosing the right business models involves developing a perspective on whether and to what extent consumers tastes are global or local and then combining that knowledge with a clear view on the affordability and accessibility of a given product."

Supporting expansion plans with sufficient resources is equally essential, as evidenced by LG in India, pushing "aggressive year-round advertising" and rolling out a varied portfolio having initially struggled to gain ground.

Hewlett-Packard appointed highly experienced senior executives to handle its activity in China, while Procter & Gamble has given the world's most populous nation a prominence typically reserved for entire continents.

P&G also afforded its Chinese country head greater decision-making capabilities than is normally the case, a move mirrored by General Electric, which has adopted a similarly nuanced R&D strategy.

"Serving the emerging middle class involves changing the rules of the game in ways both obvious and subtle. Still, it is not only potentially rewarding, but absolutely essential," the report concluded.

Data sourced from McKinsey; additional content by Warc staff