Developed vs Developing Markets

The needs of the emerging or developing world represent huge potential markets for food, clothing, shelter, consumer electronics, appliances and other goods. Many market leaders are rushing into Eastern Europe, China, and India. Colgate now draws more personal and household products business from Latin America than North America

The developed nations and the prosperous parts of developing parts of developing nations account for less than 15% of the world’s population. Is there a way for marketers to serve the other 85%, which has much less purchasing power? Successfully entering developing markets requires a special set of skills and plans. Consider how the following companies are pioneering ways to serve these invisible consumers:

Grameen Phone markets cell phones to 35,000 villages in Bangladesh by hiring village women as agents who lease phone time to other villagers, one call at a time.

Colgate Palmolive rolls into Indian villages with video vans that show the benefits of tooth-brushing; it expects to earn over half of its Indian revenue from rural areas.

An Indian-Australian car manufacturer created an affordable rural transport vehicle to compete with bullock carts rather than cars. The vehicle functions well at low speeds and carries up to two tons.

Fiat developed a “third-world car,” the Palio, that far outsells the Ford Fiesta in Brazil and that will be launched in other developing nations.

Corporacion GEO builds low income housing in Mexico. The two-bedroom homes are modular and can be expanded. The company is now moving into Chile and southern U.S. communities.

A Latin American building supply retailer offers bags of cement in smaller sizes to customers building their own homes.

These marketers are able to capitalize on the potential of developing markets by changing their conventional marketing practices to sell their products and services more effectively. It cannot be business as usual when selling in developing markets. Economic and cultural differences abound; a marketing infrastructure may barely exist; and local competition can be surprisingly stiff. In China, PC maker Legend and mobile phone provider TCL have thrived despite strong foreign competition. Besides their close grasp on Chinese tastes, they also have their vast distribution networks especially in rural areas.

Smaller packaging and lower sales prices are often critical in markets where incomes are limited. Hindustan Unilever’s 4-cent sachets of detergent and shampoo have been a big hit in rural India, where 70% of the country’s population still lives. When Coke moved to a smaller 200ml bottle in India, selling for 10 to 12 cents in small shops, bus-stop stalls, and roadside eateries sales jumped. A western image can also be helpful as Coke discovered in China. Part of its success against local cola brand Jianlibao was due to its symbolic values of modernity and affluence.

Recognizing that its cost structure made it difficult to compete effectively in developing markets, Procter & gamble devised cheaper, clever ways to make the right kinds of products to suit consumer demand. It now uses contract manufacturers in certain markets and gained eight points in Russia for Always feminine protection pads by responding to consumer wishes for a thicker pad. Due to a boom in consumer spending, Russia has been the fastest growing market for many major multinationals including Nestle, L’Oreal, and IKEA.

The challenge is to think creatively about how marketing can fulfill the dreams of most of the world’s population for a better standard of living. Many companies are betting that they can do that.

After launching Buick in China in 1999, GM poured more than $2 billion into the region over the next five years, expanding the lineup to 14 models, ranging from the $8,000 Chevrolet Spark mini car to high-end Cadillacs. Although competition in the third largest car market is fierce, GM was able to secure 11% market share in 2004 and reap sizable profits. But initial gains in the Chinese market do not necessarily spell long term success. After investing to establish the markets, foreign pioneers in television sets and motorcycles saw domestic Chinese firms emerge as rivals. In 1995, virtually all mobile phones in China were made by global giants Nokia, Motorola, and Ericsson. Within 10 years, their market share had dropped to 60%. To secure and build on its gains, General Motors pledged to invest another $3 billion in the region to boost capacity and build its reputation.