Marketing value in developing markets

The theme of understanding the consumer brings us back to the opening of this piece (published here last Saturday), on marketing to consumers in frontier, developing or emerging markets (FDEs).

Consumers in developing countries are the same, and want the same things, as consumers in developed markets. They want products and services that will improve their lives, while offering value for money. Consumers in FDEs are often earlier on a value chain than elsewhere in the world.

Consumers in FDEs need basic services: infrastructure, clean water, electricity, hospitals. As the market moves to a developing status, there is an increased demand for basic products and consumer durables. And as a market emerges, we see demand for automobiles, better housing and eventually banking services and credit cards.

An obvious caveat is that no market fits neatly into any one category. In Thailand today we can see four stages of development occurring simultaneously: from Bangkok, which has first-world, developed-market status, all the way to Isaan near the Laos border, which is still in the frontier market stage. 

The sophisticated marketer must take this into account, and very often produces and sells two (or even three) products in the same segment, differentiated on product quality as well as price. Kingdom Breweries, a micro-brewery in Cambodia, sells expensive, high-quality beer to high-income Cambodians and expats/tourists, while selling a lower-priced product designed to appeal to a less affluent target market in the countryside.

Earlier it was noted that many times the local marketer fails to understand his own market, while the outsider, using the latest research techniques, often has clearer consumer insights. This is not always the case.

Let’s consider the example of a highly successful company in a developing market: Focus Media China was conceived of by Jason Jiang, a young Chinese national, in the early 2000s. Coming from an advertising background, he noticed that it was difficult to reach the Chinese businessman with television advertising. This target group usually worked late at night, and if they were not working, they were invariably out drinking with associates or customers. On the rare occasions when the businessman was at home in the evening, the housewife controlled the remote on the TV. Even if the businessman could grab the control, there was little he wanted to watch, programming in those years being mass-market-oriented, with no news, sports or business channels focused on his interests.

For obvious reasons, this target audience was highly sought after by certain groups of advertisers including real estate, banking, automotive and cell phones. How to reach this unreachable target and grab those lucrative advertising dollars? 

The simplest ideas are usually the best, and Jiang noticed what many others saw but failed to understand. He realised that the businessman was most often in his office, and to get there he had to take the elevator in his building.

For two reasons, elevators in Chinese office towers take longer to arrive than in the West. First, there are more people per floor in China than elsewhere, due to a higher density of people per building. Second, Chinese buildings are designed with fewer elevators. These two factors combine so that, while in the West an elevator usually arrives within seconds after the call button is pushed, in China it takes an average of 2.2 minutes.

Jiang put all this together and arrived at a simple answer – install TV screens in the elevator lobbies of office buildings and run advertising content.

A little over US$1million was raised in a series A round, through a total of 10 investors; series B raised about $6.5 million and series C, a year before an IPO, raised $20 million. As vice-chairman of Focus Media, I helped to list the company on NASDAQ. Listing valued Focus Media at slightly below $700 million; about 18 months later the company was valued at $8 billion.

This tremendously successful investment and subsequent listing provides a number of lessons:

Developing market successes are often concepts that would not work elsewhere, as FDE markets are on a different life cycle. The Focus Media concept has been tried and failed in many Western markets. In Asia today, there are Focus Medias in most countries, with varying degrees of success. The concept seems to work well in Vietnam, and Focus Media HK and Singapore successfully listed on the Hong Kong Stock Exchange in 2011.

Understanding the customer is key to any success. In the case of Focus Media, Jiang had to understand two customers: the advertiser as well as the businessman.

Usually, it takes a local person to undercover the success factors of a new idea. Foreigners very often cannot deeply penetrate the local culture enough to gather the right insights. (This is potentially contradictory to the earlier statement that multinationals use the latest research to understand the local mindset. One needs to differentiate between the gathering of facts and the interpretation of those facts into consumer insights.)

Outside investors bring operating experience, knowledge of money markets, and best practices that local management does not have. Jason Jiang had foresight to hire the outside experience he knew he and his team lacked.

Putting this all together, what should potential investors do pre-investment as part of their non-financial due diligence on a target company?

Determine depth of consumer understanding: How well does the target company (TC) truly understand its consumer (or potential consumer)? Is the TC producing and selling products to meet consumer needs, and does the TC understand that as the market develops those needs will also develop?

Look at down-the-road product development: Does the TC have in its product development pipeline new products that address the previously mentioned emerging consumer, and will its new products be able to hold off the onslaught of products from outside?

Price ranges: Are products/services being developed that will address the needs of different income-earning classes, since in FDEs consumers will get wealthy at different rates of progress?

Sales/distribution: Are sales and distribution methods up to date? How much money will be needed to upgrade them (and the factory)?

Brand building: Is enough money set aside for advertising? Does the TC have a strong brand in the hearts and minds of its consumers?

People: Does the TC have a marketing/sales director? How strong is she or he? How well does she or he understand the consumer and marketing process? What about top management? Are they only bottom-line focused, or do they also have a strong insight into their customer base?

So why did sales plummet for the liquid detergent in Poland when advertising increased? Under the Communist regime, products were produced by decisions of the soviet, not necessarily according to consumer demand. There were often shortages of basic consumer durables as well as non-durables. An average product sold simply because it was the only one available; a good product sold out quickly. It was the inferior products that stayed on the shelves.

When a product did not sell, the only way to move it was to advertise. Polish consumers learned through bitter experience that only inferior products were advertised. The more we advertised, the more we shouted to the consumer, “Our product is bad! No one wants it!” So no one did. The pendulum swung, however, as the few daring souls to try our product recognised its superiority, told their friends, and eventually our product became the number one selling detergent.

 

Eric Rosenkranz is chairman and founder of e.three, a strategic advisory helping companies in Southeast Asia develop growth-oriented strategies. He can be reached at [email protected]. 

 

This is the second part of a two-part article. The first part appeared in The Nation on March 30.