Five Rules for Winning Emerging Market Consumer

1. Five Rules for Winning Emerging Market Consumer Strategic Management Summer 2001

2. Strategic Importance of Emerging Markets • Top 10 (China, India, Brazil, Mexico and Indonesia, Korea,Turkey, Thailand, Argentina, Poland) • Total 44% of world’s economy • Responsible for 2/3 of world’s economic growth over last decade • Consumer base - hundreds of millions • Young • Growing 3 times faster than developed world

3. World Fertility Rates, 1997

4. Strategic Importance of Emerging Markets • Future growth in consumption concentrated in emerging markets • Big 5 (China, India, Brazil, Mexico and Indonesia) • Among 12th largest economies in world • Combined purchasing power half of Group of Seven (US, Japan, Britain, France, Germany, Canada, and Italy)

5. Winning Strategies in Emerging Markets • Reach the Masses • Manage Affordability • Consumer base significantly poorer than in Group of Seven • Consumers must balance price/performance equation more than Western consumer • Challenge to rethink product lines • Re-evaluate product development process • Re-evaluate investments • Avoid being a “market skimmer” with “first-world” products

6. Winning Strategies in Emerging Markets • Be Ubiquitous • Invest in Local Distribution System • Supermarket and hypermarkets miss 50-90% of the consumer base • Alliances with local producers as distributors rarely work - few incentives • Be creative • Exclusive distributors • Eliminate wholesalers - i.e. Coca-Cola in Japan

7. Winning Strategies in Emerging Markets • Create Desirability • Build Strong Brands • Branding extremely important • Aspirational attraction • Badge categories • Quality guarantee • Advertise to spread the word about your brand • Use umbrella brands where possible • Invest in local brands that have some customer loyalty - i.e. Coca-Cola’s Thums Up in India

8. Winning Strategies in Emerging Markets • Play to Win • Pick Your Markets Well • Avoid timid investments • Build leading or strong #2 position • Achieve critical mass • Demonstrate long-term commitment • Gain access to local management talent • Identify attractive product categories • Develop appropriate products for local needs

9. Winning Strategies in Emerging Markets • Be Local • Foster Emerging Market Entrepreneurs • Volatility and unconventional business practices require local expertise and skills • Raging inflation, currency swings, new taxes, changing regulations, interest-rate instability • Provide adequate global support • Provide freedom to make decisions quickly • Retool traditional planning and budgeting systems

10. Winning Strategies in Emerging Markets • Be Local • Foster Emerging Market Entrepreneurs • Compete with unconventional competition • Product counterfeiters, product diverters, informal competitors • Understand and properly manage power networks • Unique challenges to organizational structure and career development

11. 21st Century Growth • Most multinationals not well-positioned • Reflect carefully on • Uniqueness of emerging markets • How to redesign Western strategies and business models • Growth in most emerging economies • Outpaced required improvements in • Financial institutions and systems • Government institutions and policies