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 / Spring 2004 / Issue 34(originally published by Booz & Company)


6 Truths about Emerging-Market Consumers

Some emerging consumers have incomes that enable them to stock goods at home and experiment more with different products and stores. Others focus on basic needs, and tend to stick with familiar brands and stores. When an economic crisis hits, newly constrained consumers struggle to determine what they can do without, while the “structurally” poor are always struggling to buy necessities.

Thinking Small
To understand the sources of small-scale retailers’ collective success, achieved despite the incursion of large chains, we developed and adapted standard marketing frameworks for evaluating their value propositions and business models. Classic marketing value drivers such as place, product assortment, price versus value, people, and services were examined along with selected ratios from the Strategic Resource Model, a long-standing method for evaluating operating performance in the retail industry.

The results of our analysis were consistent with the six myths we uncovered in focus groups and secondary research. They reveal much about why and how small retailers have retained a strong market share.

First, most small retailers have a stronger value proposition for emerging consumers than do current supermarket competitors.

Location is one of the compelling value propositions small retailers offer emerging consumers, especially for daily shoppers. But other factors keep emerging consumers loyal to their local shopkeeper. These consumers don’t seem to care much about the modern layout and amenities of the supermarket; in fact, they may see the organized, pristine environment as a cost retailers pass on to them. Meanwhile, they aren’t concerned by the typical small store’s randomly shelved merchandise, out-of-date promotional messages, narrow aisles, and dim lighting. What emerging consumers do care about is hygiene, and most sole proprietors we talked to were careful to provide it. As one pulpería owner in Costa Rica told us: “I know that my customers value a clean store and that they measure cleanliness just like they do at home, by looking at the floor.” (He put in a tile floor that keeps its shine without wax and is easy to clean at a low cost.)

Traditional stores and self-service retailers know how to optimize the mix of products for their micromarket, offering only the main categories, brands, and sizes their unique customer base demands. A traditional or self-service store’s typical assortment includes fresh foods, drinks, basic dry goods, and a limited selection of cleaning products, personal care items, and luxury foods like canned fish, deli meats, cookies, and condiments. In most countries, leading brands dominate this assortment, especially in the traditional stores, where approximately 80 percent or more of the SKUs are first-tier brands, compared with 60 to 70 percent of the SKUs in chain stores (which stock comparably more value brands and private-label products).

Additionally, small-scale retailers offer a high proportion of smaller sizes and “fractionated” single-unit packaging. In many countries, the smallest size of powdered laundry detergent available in large chain supermarkets is 500 grams. Small retailers commonly carry sizes as small as 150 or 250 grams.

In categories that matter greatly, such as fresh foods, street vendors trump supermarkets by offering better prices because they can buy direct from farmers, and by lowering prices over the course of the day. Emerging consumers also appreciate that the open-air retailers offer several grades of fresh products, at different stages of maturity, whereas supermarkets offer only the highest grade.

Local shopkeepers also benefit from their personal touch. We interviewed many shopkeepers who claimed to recognize, even know by name, more than 60 percent of their customer base. Most said they shared neighborhood news with their customers and many made it a point to greet and talk with nearly every customer who entered the shop, inquiring after their families.

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  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
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