In their search for new revenue and new users, growing businesses look to emerging markets because they now represent fantastic opportunities for growth.
Not only have Indian and Chinese GDP growth rates handily outpaced western rates for over 20 years now, this enormous increase in prosperity has lifted millions of people out of poverty and towards the middle class. Infrastructure is also improving, whether it is transport, broadcasting or internet.
As the most recent wave of digital startups reach their saturation points in Western markets, they will follow in the footsteps of consumer product brands towards emerging markets. Look at this map of Spotify’s global availability:
The big, familiar Western markets are nearly gone. Making their service turn a profit in China or India could make Spotify’s current balance sheet unrecognisable.
But for every company that successfully moves their offering to emerging markets, many fail. Emerging market consumers sometimes seem to defy logic sometimes, and offer more contradictions than certainties. India has hundreds of millions of desperately poor citizens, yet it also have more millionaires than the USA. China’s GDP per head is a fraction of the UK’s, yet it is also the second-largest market for luxury brands, after only Japan. How can we hope to make sense of this market? Well, first if we want to target “India”, the first question must be “Which India?”
A model to help understand the diversity of emerging market consumers
We need tools to help us pull emerging market consumers apart, so we can plan and target our products and experiences better. To make relevant products, we must understand our users’ expectations and desires. Through her work, Rama Bijapurkar introduced me to the Value-Orientation model of market demand, which she based on work by the Indian National Council for Applied Economic Research (NCAER).
The model breaks the market into five “consuming classes”, which have very different expectations and desires for their purchases. The circle size reflects the total proportion of this consumer class in India.
In characteristically blunt style, they name the poorest group Destitute. The live hand-to-mouth and have not yet entered consumption per se. This group attracts the attention of development agencies. I don’t mention them further in this blog post because this framework doesn’t cast much useful light on them. In terms of insight however, this group receives a lot of attention from the IT for Development (ICT4D) community and initiatives like openIDEO.
Aspirants reflect people who earn enough that they can begin consumption as we understand it, that is buying some products and services rather than making everything themselves. According to Bijapurkar, this group fuelled a lot of growth for FMCG brands in the 90s through product innovations like small packs of tea, detergent, shampoo. They remain occasional consumers; they might shampoo their hair on special occasions but use soap for everyday.
With more money we find Climbers, one of the largest groups of consumers according to the NCAER. While this group have relatively more money, their desires still comfortably outweigh their ability to buy. This turns them into “benefit seekers” who acknowledge their limited amount of money but nonetheless want to get the greatest benefit into their lives. Bijapurkar has a wonderful example of this.
Nirma was a brand of detergent launched in the mid-eighties that was one third the price of Surf. It offered “adequate quality at affordable prices” and to customers who did not want to pay more than they were prepared to pay for a [cheaper] laundry soap, a detergent powder at that same price point was benefit maximisation – even if the detergent had 65% soda ash, was harsh on hands and may have ruined clothes in the longer term. The consumers’ answer was that they used stick to stir the bucket of detergent so that their hands were protected.
Into the Indian middle-class we find Consuming Class, people who are comfortable with consumption and carefully weigh the costs and benefits of their products. While the Climber might be delighted to realise the benefit of white clothes through laundry powder at all, for the Consuming Class the idea of using a powder that could ruin your hands and clothes might be a ridiculous idea because they are willing to spend more if they get better value for money.
For the final class, rather fantastically titled Rich, Bijapurkar suggests that instead of “value for money” we can understand the Rich as offering “money for value.” That is, they have so much money that they could buy anything they wanted, and when you can have anything it can become tiresome to find something worth having. These consumers could be anywhere in the world, they just happen to be in India. An anecdote from my own life: once I somehow got an upgrade all the way to Qantas First Class, seat 1K. I was overwhelmed by the luxury: real espresso coffee; my seat got turned into a bed with a lambswool comforter underneath my sheet; a seven-course meal; and so on. When we arrived at Heathrow I was second out the plane after the lucky occupier of seat 1A. As we walked up the gangway, she rang a friend and gave a verdict. “It was OK, but it’s no British Airways First Class.” This woman had spent perhaps £4000 on her return flight, and had walked out the door slightly disappointed.
Applying the Value-Orientation model to product making
So what does this mean for those of us who want to make beautiful, relevant and successful products? The Value-Orientation model is useful for product strategy because it can directly link to market strategy outcomes – who we are targetting and how we are going to make money from them – into product decisions like feature sets, perceptions of power vs simplicity and branding. Let’s now think about how to use these classes and expectations in technology products. One of the industries that has blazed a path ahead in emerging markets is mobile phones, so here I will quickly illustrate these categories using mobile phones. I will pick two classes to illustrate the variety of value mindsets: luxury and popular, mass-market products.To substitute for any real understanding of the marketing or product drivers for these phones, I’m just going to use their advertising as shown on their current websites.How well do these ads align with Bijapurkar’s Value-Orientation framework?
This ad from Vertu perfectly illustrates an appeal of “money for value” for the Rich. The promise of this phone is clear: give us ten grand, and nothing will ever feel the same. We will change your life. Bijapurkar may as well have written this ad.
At the lower end, let’s consider two phones: Nokia 105 currently on sale in India for Rs 1249, about US$23 or £15, and the Micromax X104 currently on sale for about Rs 1100. The phones are very similar not just in price point: they have colour screens of 1.4″ or 1.7″ ITU-style input and no touch. They are cheap phones to be sold in very large numbers.
If we look at the ads for them, the Nokia 105 is “good-looking, long-lasting”. In order of listing, its other benefits are that it has a long battery life, it’s durable, it can help you with education and it comes with games.
The Micromax X104 has a more open tag line of “Big things come in small packages”. The other benefits in order are a music player, digital camera, a long battery life, expandable SD card memory, Dual-SIM and Bluetooth connectivity.
Let’s not pretend that these phones are functionally equivalent. The X104 has been on the market longer and likely started at a higher price point and has moved down now as Micromax make their last revenue on the device. But they are currently on the market for about the same price, so if we were an Aspirant or a Climber we would be considering one of these phones. Which one would we prefer?
The slogan of the 105, “good-looking, long-lasting” feels very modest. In particular, “long-lasting” makes me think of hot water boilers and tractor tyres. It promises a durable phone, which addresses a hygiene factor concern. But if a Climber wants white clothes and doesn’t mind some drawbacks, this isn’t likely to be a significant driver.
The slogan of the Micromax “Big things come in small packages” hints that it is capable of many great things, that it isn’t held back by its humble appearance. The copy lists real-life benefits in a practically breathless tone: “Let your heart beat to the music,” “Capture all your favourite moments,” “Never spend a dull moment again.”
To my eyes at least, the Nokia 105 is presented as a refined, simple choice. The Micromax 104 feels more technical and exaggerated, but also more excited and more powerful. The Nokia is probably more environmentally friendly, may have a better warranty, may have better signal. But the Micromax ad spits out an endless list of lifestyle benefits it will provide to you, and because of this it is much more aligned with Bijapurkar’s analysis of what low-income consumers in India want. The Micromax promises to get your laundry whiter-than-white, even if you need to use a stick to do the washing.
As a rich white westerner who worked with a lot of other rich white westerners, I have had to learn how to appreciate that other people bring different expectations about what they want for their money. I chose examples from both luxury and discount product categories to try to de-familiarise our assumptions about value. Value can be only things that change your life, or it can be being able to claim that you are able of doing something at all. There is a lot more to value than value for money.