Eastern Europe?s Untapped Market
Thursday, August 9, 2007
BCG calculates that 200m of the region?s 350m people live on incomes above the poverty line and below median household income ? or $500 (?360, ?245) to $1,300 a month in central Europe, and $350 to $1,050 in the former Soviet Union. Together they account for half the region?s disposable income, most of it concentrated in just three countries ? Poland, Ukraine and Russia. This is a much larger market than the 50m people on top incomes that multinationals have already successfully reached. Go to almost any capital city in the former Communist countries of eastern Europe and the former Soviet Union and you will see a full range of international luxury brands. Mercedes-Benz, Cartier and Armani appear in even the remotest places.
These products appeal to the region?s growing number of rich people. But they do nothing for those lower down the income scale. Multinational companies have been slow to reach out to these lower-middle-income consumers, who have often had to go without or make do with shoddy, old-fashioned or second-hand products.
The picture is now changing, most clearly in the car market, where the success of Renault?s low-cost Logan model has taken the industry by surprise. Since it launched the Logan in Romania in 2004, Renault has sold about 600,000. Inspired by success in eastern Europe, it has expanded production around the world.
Promoted originally as the ?5,000 car, the Logan has in fact been sold at ?7,000-?10,000. But even at this price it has brought into the new car market buyers whom car producers had not previously considered as potential customers. The race is now on to build even cheaper vehicles.
Boston Consulting Group urges multinationals in other sectors to follow suit. In a report entitled Tapping into Central and Eastern Europe?s 200m Neglected Consumers, the management consultancy says: ?Lower-middle-income consumers in eastern Europe have been largely neglected by western marketers and represent a major opportunity for growth and shareholder value creation.?
BCG calculates that 200m of the region?s 350m people live on incomes above the poverty line and below median household income ? or $500 (?360, ?245) to $1,300 a month in central Europe, and $350 to $1,050 in the former Soviet Union. Together they account for half the region?s disposable income, most of it concentrated in just three countries ? Poland, Ukraine and Russia. This is a much larger market than the 50m people on top incomes that multinationals have already successfully reached.
The report urges companies to develop ?affordable offerings? using low-cost sourcing, efficient marketing and flexible pricing.
For some groups this is hardly news. BCG cites Coca-Cola as an example of a company that already carefully tailors prices to local incomes, with the standard 2-litre bottle costing 60 per cent less in Russia than in Austria.
However, in other sectors, multinationals are much slower to adapt. BCG says that with washing machines, low-priced models are similar in price to those in western Europe. It calculates that an entry-level machine costs 20 hours? average pay in Austria, 69 in Poland, 121 in Russia and 193 in Ukraine.
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