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6 Truths about Emerging-Market Consumers

Generally, focus group participants said supermarkets are too impersonal. Some complained of feeling embarrassed or being mistreated when they found themselves short of cash at the register. Others described their treatment in large chain stores as “professional” but not “caring” or “personal” — the words used to describe their experience with small-scale retailers. Emerging consumers said a personal relationship with the proprietor and staff of the local store bolstered their self-esteem and well-being. In large markets, some consumers said they encountered staff who were impatient with them when they asked to have items weighed; some felt they were being overly scrutinized by security personnel. Some said they got the cold shoulder from other customers in the store. In the small, local shop, people said there was no problem in exchanging items, whereas the formality of the exchange process in large stores was intimidating.

  • Myth #5: Emerging consumers are highly dependent on credit.
  • Truth: Emerging consumers use credit to extend their purchasing power.

Generally, people in the low-income segments try not to spend beyond their means, and they pay cash as one way to control their expenditures. Credit is viewed as more appropriate for major purchases (e.g., appliances, school uniforms) than for funding day-to-day consumables.

That said, emerging consumers frequently go to the checkout counter only to find out they are just short of the amount needed to pay for even a small purchase. To make up this small-change gap, they rely on a “virtual wallet” service often offered by neighborhood retailers. The virtual wallet is an informal form of short-term credit for very small amounts of money. Local shopkeepers (but not chain markets) generally offer this service to their regular customers. Under fiado, a type of virtual wallet offered by small-scale retailers throughout Latin America, the shop owner records in a notebook the amount of the purchase under the customer’s name. No cash is exchanged. The customer returns later to pay down the balance, or retire the debt. There are no interest charges, but when customers take too long to pay, or default on their debt, they’re likely to have their names (and the amount in arrears) posted on a sign in the neighborhood. Social incentives are strong for the system to work for both parties.

Technically speaking, the virtual wallet is short-term credit, but it is perceived as an extension of the personal relationship between the consumer and the shopkeeper, rather than as a transaction or service. It helps customers avoid embarrassment if they are unexpectedly short of cash. And it enables parents to send their children to make daily purchases with the smallest amount of money possible, which is considered a good way to control impulse spending on candy and snacks.

The type of credit used by emerging consumers varies from country to country. Checks are generally more common in Brazil than in other countries, and some emerging consumers do have checking accounts. Chains and some small independent supermarkets will allow customers to post-date checks, thereby granting short-term credit. Consumers who participated in our focus groups very rarely used credit cards.

  • Myth #6: Emerging consumers all belong to one segment, “the popular class.”
  • Truth: There are many meaningful subsegments of emerging consumers. Their differences, based on lifestyle and attitudes, have a significant impact on shopping behavior.

In developed markets, “yuppie,” “buppie,” “DINK,” and “BOBO” whimsically refer to recognized middle- and upper-income sociodemographic segments. Low-income consumers are typically lumped into the “blue-collar” or “working-class” segments — and in Latin America, the “popular class” — as if there were no notable differences among them. This is the wrong way to evaluate emerging consumer characteristics. Even though emerging consumers may have a relatively homogenous profile in terms of demographic and socioeconomic variables, their behaviors can be differentiated by psychographic variables that range between two extremes: practicality-control-traditionalism and emotion-impulse-innovation.

 
 
 
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Resources

  1. James A. Gingrich, “Five Rules for Winning Emerging-Market Consumers,” s+b, Second Quarter 1999; Click here.
  2. Alonso Martinez, Ivan De Souza, and Francis Liu, “Multinationals vs. Multilatinas: Latin America’s Great Race,” s+b, Fall 2003; Click here.
  3. C.K. Prahalad and Stuart L. Hart, “The Fortune at the Bottom of the Pyramid,” s+b, First Quarter 2002; Click here.
  4. David Luhnow and Chad Terhune, “A Low-Budget Cola Shakes Up Markets South of the Border,” Wall Street Journal, October 27, 2003