They’re younger. They’re literate. They’ve got increasing access to the Internet. They’re in Ukraine. They’re in the Philippines. They’re in Nigeria. They’re in China and India. They’re the 30-year-old Brazilian woman livingwith her mother in a favela, who owns a TV and a cellphone with prepaid service but has never traveled by air.They’re the23-year-old Indonesian woman with low brand loyaltywho buys cosmetics in small amounts but buys them frequently, and sees a TV as her next big purchase.
Meet the 1.2 billion people who will move out of subsistencepoverty by the year 2020. They’re the world’s newestconsumers, those living in households where annual disposableincomes will surpass $5,000 for the first time. Itwill be their initial experience with discretionary incomeand they’ll have distinct ideas about how they want tospend it. These new consumers are already starting todevelop tastes and demonstrate preferences in some categories.And consumer products companies that don’t actquickly enough will risk losing out to faster global or localcompetitors. In other categories, consumers won’t developa taste for your product for years. But now may be the timeto set the stage for attracting them when they’re ready.
Recent Bain & Company macro trend research highlightedthe importance of the “next billion” consumers.We’ve now dug deeper into country and category trendsto understand how consumer goods companies canbenefit from this demographic boom. We found twoimportant insights that can help companies as theypursue the next billion consumers.
First, the next billion opportunity extends beyond Chinaand India. While China and India still will be the majordeveloping markets, an army of about 350 million newconsumers will come from more than 50 other countries,everywhere from Peru to Nigeria. That’s apopulation as big as the US. Companies not yet on thepath to leadership in China and India can consider goingstraight to these markets. Not only are the consumer populationson the verge of expansion, but there also areattractive opportunities to acquire local players.
Second, our research found that in more product categoriesthan anticipated, consumers behaved in a similarfashion across very disparate countries. For companies pursuing growth, the implicationsare clear: There is an opportunity to replicate your entryand growth strategy across countries, taking a winningapproach and key lessons from one market and repeatingit in others. That isn’t the case for all categories, however,so companies need to look at their portfolio and determinewhich categories can be rolled out with the samestrategies and which require different strategies fromcountry to country. Understanding how shopping basketsdiffer across countries and income brackets can helpprioritize when and how to reach the next billion.
Preparing for the next billion starts by identifying themarkets that hold the most potential. That requires carefulanalysis across three dimensions: country, categoryand a company’s own capabilities.
Where to play?
Each country is unique when it comes to the profile ofits emerging consumer class and the other factors thatgovern the decision about where to invest: everythingfrom income growth projections to competitive landscapeto opportunities for inorganic growth. We’vedeveloped a weighted method of scoring the relativeattractiveness of each country based on the opportunitysize of the members of next billion within its borders,the group’s impact on that country’s population, itsaccessibility, the country’s overall growth rate, as wellas the country’s political and economic risk. Given theirscale, China and India still stand out as the most attractive,but others like Indonesia, Ukraine and the Philippinesare surging and rank high on the list, too—they may beworthy of consideration, particularly for companies thatmay be too late to gain market leadership in China andIndia. Let’s look at four of the key factors we considered.
How big is the next billion opportunity in each country?Population is an important factor in sizing opportunitywithin a country. But wage rates differ and life expectancyvaries. Lifetime purchasing per individual amongmembers of the next billion in Mexico and Ukraine is expectedto be twice as long as it is for their counterpartsin Indonesia and Vietnam—and more than three timeslonger than that of Nigeria.
Do the next billion represent a massive wave of changein the country or will they have a lesser impact on theoverall makeup of the country’s population? In Brazil,in the next 10 years, only 5% of the population willcross the threshold into the world of consumer goodsspending—much of the country is already there. But in Ukraine the equivalentpercentage is 33%. The next billion’s impact on the populationmakeup is important for understanding how quickly youneed to respond to win.
How accessible are these future consumers to brandmarketing and messaging? In Morocco, 49% of thepopulation uses the Internet, according to the InternationalTelecommunications Union. But in Algeria, only13% of the population has Internet access. Adult literacyapproaches 100% in Ukraine, Russia and Uzbekistan.Literacy is lower in places like Pakistan (55%) and Morocco(57%). In prioritizingcountries, companies are carefully evaluating how accessto mind share (and thus commercial opportunity) varies,market by market.
Overall market growth rate. While Indonesia and thePhilippines both score high on the attractiveness of theirshare of the next billion, Indonesia’s overall consumptiongrowth rate forecast far exceeds that of the Philippines.In other words, Indonesia has two growth engines: thenext billion who will start spending in the next decadeand growth among the rest of the population that hasalready moved above the poverty line. That means consumergoods players can move more quickly in Indonesiawhile laying plans for the emergence of new consumersin the Philippines. A country’s overall consumptiongrowth rate projection refines whereto place bets.
What to sell—and how?
Imagine the plight of two different consumer goodscompanies. The first has a large beverage portfolio consistingof three categories: soft drinks, spirits and beer.All of these are categories in which shopping patternsby income bracket are relatively consistent across the marketswe examined. Therefore, the company may be ableto deploy many common strategies from India to Russia.
Contrast this with a company that sells oral care products,over-the-counter healthcare brands and male toiletries.These categories play very different roles inconsumers’ shopping baskets by income bracket acrosscountries. Very low-income shoppers over-index (spend relatively more of their money) on over-the-counter healthcare products. Getting into a marketearly to establish brand credibility and trust at low pricepoints is important. Male toiletries account for less spendingat lower-income levels, so a strategy to trade up consumersas their incomes grow is more relevant. In oral care, lower-income consumers in some countries spend relatively moreof their money on the category, but in other countriesit’s wealthier consumers who over-index. The categoryrequires separate strategies and approaches, countryby country.
Bain research examined how shopping baskets acrossseveral emerging countries change by income bracket.We aimed to understand where and when consumersspend relatively more of their money on different productcategories. We found many similarities across countries,but also a few differences. Understanding these similaritiesand differences can inform strategy.
Get in early. Categories like biscuits make up a disproportionateshare of lower-income shopping baskets acrossmany emerging markets. You can appeal to these consumersnow by familiarizing them with your brand andgenerating trial. The rules for selling are to position thebrand as high quality and value while keeping price pointsand costs low and ensuring relevant distribution.
Look ahead. Middle- and upper-middle-income consumersspend disproportionately more on such categoriesas tobacco and soft drinks. These categories often arelarge and sometimes with high growth. Winners in thesecategories will make the brand an early aspiration forthe next billion, investing in brand equity, awarenessand broad availability.
Earn your premium. It is no surprise that shoppers inhigher-income brackets spend more on luxury comfortslike wine and convenience items like frozen food. Thisclearly follows the same pattern we have long observedin developed markets. For these categories, invest intrading up the next billion consumers with innovationthat justifies higher prices.
Know what’s different. Some categories reflect a rangeof consumption patterns based on the stage of categorydevelopment or cultural norms. Oralcare is a big portion of low-income shopping baskets inBrazil, but many of the estimated 150 million and morehouseholds in rural India have yet to use a toothbrush,relying instead on indigenous neem twigs to clean theirteeth. As you look for commonality across different countries, there’s no substitute for knowing whichcategories remain local and must be deeply understoodat the country level.
Can we do it?
From the asentamientos of Argentina to the kelurahansof Indonesia, the next billionconsumers will offer an exciting opportunity for consumergoods players. Of course, having the right talent,capabilities and processes is critical to realizing theopportunity this new populationof consumers implies. Consumer products companiesneed to make smart investment trade-offs, share winningroutines across similar markets and streamlinedecisions in an increasingly complex global market.With so much to gain, it’s no surprise that so manyconsumer products companies are actively steppingback and thinking through where and how critical workgets done.
1 In our research we conducted detailed statistical analysis using data from Euromonitor and Datamonitor. We also refer to data from the International Telecommunications Unionand Euromoney.
Oliver Merkel and David Cooper
