NEW YORK: Brands must seek to serve ageing and upper middle class consumers in advanced markets, alongside less affluent customers in fast-growth economies, Bain & Company has argued.
In a new report, the firm predicted "pockets" of financial instability would remain going forward, but also forecast global GDP should expand by 3.6% annually in the longer term, hitting $90tr in 2020, some 40% higher than today.
The fact an extra 1.3bn households will cross the $5,000 per year earnings threshold required to take part in purchase activities beyond mere subsistence, taking the total to 4.8bn in all, could contribute $10tr to this process.
China and India are in line to supply two-thirds of growth in terms of household numbers, although per capita income in these nations is only set to stand at $9,000 and $3,000 in turn by 2020, versus $58,000 in the US and $53,000 in Japan.
"Emerging market consumers will seek a different basket of goods than those purchased by shoppers in advanced markets, due to their lower incomes," Bain & Co said. "To target the new consumers effectively, multinational companies will need a different cost structure."
Indeed, the US and other Western countries will deliver $6tr in growth by 2020, measured against $3.5tr combined for China and India, thanks to their larger proportion of upper middle class residents, and ageing populations.
In an example of this shift in action, ageing citizens in geographies like Japan and Western Europe are anticipated to drive demand for high-tech healthcare services and solutions, generating $4tr over the forecast period.
More broadly, "soft innovation" aimed at affluent shoppers, and based on creating substitutes for "common consumer purchases" - or what Bain called "everything the same, but nicer" - might yield an additional $5tr.
Recent offerings fitting this description include Apple's iPad, Twitter, Whole Foods and H&M, all encouraging original types of consumption, often at a price or entry premium, and typically "marketing or process intensive".
The coffee sector, a $135bn category, provides a further case study, having been revolutionised by higher-end lines like Starbucks' Via and Nestlé's Nespresso, boosting value sales by 80% from 2000-10, when volumes rose by a more modest 21%.
"Nearly every company will need to invest in soft innovations and the marketing, customer service and other soft skills that create them," Bain & Co said. "If they do not, they will be left behind by their competitors who do."
Elsewhere, the consultancy identified infrastructure investments and militarisation as both being worth $1tr by 2020, while rising commodity costs and spending on alternative energy were valued at $3tr.
Data sourced from Bain & Co; additional content by Warc staff