The New Holy Grail
Tuesday, February 12, 2008
Companies that serve the “next billion” consumers can sustain competitive advantage. Here’s how?
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As Janmajeya Sinha begins his presentation on ?The Next Billion?, the screen behind him fills up with a brown slide. ?Get used to this colour,? he tells his audience.
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?You?ll be seeing a lot of it in coming years.? It?s a dramatic bit of attention-grabbing, but the managing director of The Boston Consulting Group India says it is also a much-needed wake-up call. ?Companies should be made aware of what they are missing.?
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What they are missing is an opportunity to serve ?the next billion? consumers. That?s BCG?s catchy phrase to describe the band of consumers uncomfortably positioned between those who are part of the formal economy and those at the bottom of the pyramid.
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These households ? which earn between $63 and $700 a month ? don?t show up on the marketing radar of most companies and are beyond the purview of government upliftment programmes. And more than 90 million of these households are in India, earning between Rs 40,000 and Rs 1.8 lakh a year. Hence Sinha?s reference to brown.
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Why does this next billion (450 million in India) matter so much? Perhaps because it is economically active, spending over a third of its income on non-essential purchases ? across the world, these 200 million households spend over $1 trillion a year.
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These consumers like brands and are willing to splurge; their incomes are growing faster than the rest of the economy; and they are young, new consumers. ?There is no incumbency in this consumer group,? points out Sinha. ?Get them now, and you shape their buying behaviour for life.?
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It won?t be easy, of course. The next billion faces constraints that differentiate it from wealthier consumer groups. Perhaps the most critical one is of income ? not so much about the size of the paypacket as about its frequency.
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The lack of a steady income makes these consumers hesitate in making big-ticket purchases and, equally, makes banks wary of lending to them.
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But being on a tight budget doesn?t mean they don?t buy expensive goods. Instead, they may ration its use ? an expensive detergent for good clothes and a cheaper variant for other laundry, for instance.
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These households also face space and infrastructure constraints ? small homes between 100 and 200 sq ft, no or limited running water and frequent power cuts. They are unfamiliar with many products and are more likely to trust word-of-mouth and recommendations from friends and relatives than mass-media campaigns.
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It is also a matter of pride for the next billion to be not considered poor. Which means these consumers will not shop at stores where the staff is condescending and they will not buy cheap knock-offs of expensive brands ? they would rather shop at the neighbourhood store and save, for months if need be, to buy a costly, high-quality product.
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Clearly, companies doing business in the next-billion market need to rethink their strategies if they are to serve this consumer group profitably. They will need to design cost-efficient products that match consumers? expectations, create distribution networks that reach the farthest corners of the country and devise marketing and communication programmes that educate the consumer, while prompting him to buy.
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Over the past year or so, BCG has studied over 9,000 people across India to understand the needs and behaviour of the next-billion market in the country, especially in three fast-growing and critical areas ? financial services, telecom and consumer products. Take a look at its recommendations.
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Saleable propositions
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BCG estimates that the Rs 6 lakh crore Indian next-billion households now spend will more than double in the coming years, to cross Rs 13 lakh crore by 2015. There is opportunity here, and a great threat as well. The next-billion is a large, untapped market waiting to consume; any company that reaches down to this group will be met more than halfway.
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On the other hand, given such high aggregate demand, it is more than possible for an innovative company to succeed by catering to just this market. Some of those ideas could then be used to serve higher-income markets as well, endangering incumbent players there. Either way you look at it, then, Indian companies would do well to reach out to the next billion ? fast.
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Here?s how they can do it. Provide customised products ? cost-effective and feature rich ? but ensure these are features the consumer wants. Nokia did just that. Its bestselling 1100 handset has an anti-slip grip, is dust-resistant and even has an inbuilt flashlight ? just the features to appeal to lower-income consumers.
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Another recent launch caters to the insight that a mobile handset is a family asset for the next billion, rather than a personal possession. Therefore, this handset has five different address books and a prepaid balance tracker.
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A wide-reaching but viable distribution network is another imperative. In this, Hindustan Unilever?s Project Shakti serves a dual purpose. The rural women who sell products door-to-door in their own and neighbouring villages not only help the consumer goods company reach inaccessible parts of the country, it also creates local advocates who are better positioned than mass media to influence decisions about product purchase.
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Another strategy for expanding distribution is to partner with other industries and leverage their existing network coverage ? Corporation Bank and Airtel, for instance, have tied up with Mumbai?s dabbawalas to distribute brochures, recharge vouchers and so on.
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Finally, remember that trust plays a huge role in the next billion?s purchasing decisions. When Titan Industries decided to go after lower-income customers, it stayed away from the Titan brandname ? too uppercrust and expensive for this target group.
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Instead, it launched Sonata ? affordable watches that came with a warranty and offered enormous choice (300 to 400 models). A wide distribution network ensured that consumers who were making do with cheap, Chinese imports were now spoilt for choice.
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The clincher, though, was the brand ? Sonata called itself ?a Tata product?.
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