Expanding Direct Marketing in Emerging Markets: Methodological Approach and Cultural Value Analysis

1. Expanding Direct Marketing in Emerging Markets:Methodological Approach and Cultural Value Analysis Richard MICHON Ted Rogers School of Management, Ryerson University, Toronto Atul TANDON CEO, Tandon Institute, Bellevue, WA

2. Outline • Managerial Issues • Literature Review • Research Objectives • Method • Economic Model • Cultural Value Model • Discussion • Conclusions, Limitations …

3. DM in Emerging Markets: Why not? • Brazil, China, Indonesia, South Korea and Russia will account for more than half of all global growth by 2025 (Sommerville, 2011). • New wealth and new middle class • Fund raising: Some countries are in a position to give back • Few companies are stupid, but many behaved stupidly in China (The Economist, 1999) • Lack of marketing infrastructure • Macroeconomic data but not no product/market info. • Imperialist approach

5. Literature Review

6. Emerging Market Research:Economics • Macro-economic Indicators • Overall Market Opportunity Index (Cavusgil, 1997) • Comparing GDPs at PPP (Arnold & Quelch (1998) • Q = (P+NP) X (DevGDP – AdjGDP)

7. Emerging Market Research:Sociology/Culture • CAGE (Ghemawat & Mallick, 2003): Cultural, Administrative, Geographic, Economic distances • Value Survey Module (Hofstede, 2001): Cultural distances: Power, uncertainty avoidance, individualism/collectivism, masculinity/feminity, time orientation • GLOBE (House et al., 2004): Global Leadership and Organizational Behavior Effectiveness • WVS (Inglehart & Welzel, 2005)

8. Emerging Market Research:Issues with Cultural Values • Measuring values or preferences? (Maseland & van Hoorn, 2009) • Some abstract constructs difficult to measure • Values should correlate with practices: negative correlations between VSM and GLOBE • WVS: 84 countries (80% of population), 250 variables, constantly updated, data at individual level, N = 270,000

9. Emerging Market Research:Marketing • Product-market subset • Business Model Success factors (Arnold, 2003) Example: Based on Mary Kay business model, Chinese women were far more motivated than Japanese to become « beauty consultants » and pocket extra income.

10. DM and Fundraising • “Generosity” index (e.g. CAF) • ODA & global private philanthropy (Hudson Institute) • Cultural clusters (Johns Hopkins’ NPS, 2004) • European Vs Anglo-Saxon countries

11. DM and Fundraising:OECD Donor Countries

12. DM and Fundraising:Donor Profiles • Compassionate conservative philanthropy (Brooks, 2006) • They are politically to the right; • They have strong family values; • They value personal entrepreneurship; • They are skeptical about governments’ intervention into economic life (and into income redistribution); • They are regular churchgoers (irrelevant of denomination).

13. Research Objectives and Methodology

14. Research Methodology:Objectives and Assumptions • Identify new or neglected potential markets for DM fundraising programs • Capacity to give (Economic Analysis) • DM Infrastructure to give (Documentary Analysis) • Propensity to give (Predictive Modeling) • Research proposition: • Individuals ready to support private philanthropy share some common values

15. Research Methodology:Setting • Empirical research: • Christian NGO raising funds in 25 countries • Exploring some 130 new markets for DM expansion • Successful DM Fundraising Markets: Australia, Canada, Germany, New Zealand, South Korea, Switzerland, Taiwan, the UK, the U.S.

16. Capacity to Give

17. Estimate urban households Estimate hhold income Estimate hhlds by income Estimate potential market Population estimate GDP per capita % income distribution per decile/quintile Hhld penetration assumptions over 5 years Average incomeper decile/quintile Estimate number of potential donors % of urban population GDP per household Average household size Hhld spending as % of GDP Define hhld income threshold Estimate potential income Number of urban households Household income Capacity to Give Sources: World Bank Development Indicators CIA World Factbook

18. Capacity to Give:Hhlds with Income Threshold > $20K

19. DM Infrastructure

20. DM Infrastructure • Infrastructure • Telephonemainlines per 1000 habitants • Cellular mobile subscribers per 1000 • Number of PC's per 1000 • Internet servers per million • Percentage of households with TV sets • Daily newspapers per 1000 (Source: World Bank, Development Indicators) • Economic Freedom: • Economic Freedom Index (Source: Heritage Foundation) • Political Freedom Index (Source: Freedom House) • Country Risk: • Country risk rating (Source: Euromoney)

21. DM Infrastructure:Ranking of Latin/S. American Markets Infrastructure Economic Freedom Country Risk All Countries RegionAll Countries RegionAll Countries Region LATIN & SOUTH AMERICA Chile 48 1 8 2 39 1 Mexico 50 3 20 4 42 2 Costa Rica 49 2 28 6 53 3 Brazil 51 4 44 9 54 4 El Salvador 74 10 36 7 56 5 Colombia 61 7 59 14 58 6 Peru 85 14 15 3 59 7 Guatemala 80 12 51 11 67 8 Venezuela 65 9 2 1 80 9 Bolivia 77 11 71 16 84 10 Honduras 81 13 45 10 85 11 Dominican Republic 64 8 40 8 87 12 Argentina 52 5 51 11 89 13 Ecuador 55 6 58 13 95 14 Nicaragua 92 15 20 4 107 15 Haiti 97 16 69 15 117 16

22. Propensity to Give

23. Propensity to Give:Target Markets • Australia • Canada • Germany • New Zealand • South Korea • Switzerland • Taiwan • United Kingdom • United States

24. Propensity to Give:Selected Indicators Source: Brooks (2006)

25. Propensity to Give: Logistic Regression and Odds Values FAMILISM Family is very important in life 1.117 Importance of child obedience .929 Child needs a home with fatherand mother .871 Divorce is never justifiable 1.114 RELIGIOSITY Religion is very important in life .867 Spend time at church, mosqueor synagogue weekly 1.026 Consider myself as religiousperson .955 CAPITALISM Owners should be able to run their business 1.084 We need larger income differencesas incentive .950 Private ownership of business should be increased 1.117 Wealth can grow so there’s enoughfor everyone 1.161 CONSERVATISM Conservative: Self positioning onthe political scale .933 People are poor because of lazinessand lack of will power 1.057

26. Propensity to Give: Top 25 Markets

27. Market Map:Capacity and Propensity to Give II I Ranking on countries propensity for private donations III IV Ranking on countries economic market potential

28. Discussion:Multi-criteria Decision Analysis Country Capacity Top 5% Propensity Infra- Freedom Risk Weighted to Give Income to Give structure Score Weights 30% 5% 35% 15% 5% 10% 100% S. America Mexico 5 4 3 3 2 3 72 Chile 3 3 3 3 5 3 62 Argentina 4 3 3 2 2 1 58 Venezuela 4 3 3 2 1 1 57 Colombia 4 3 2 2 2 2 53 Peru 3 3 3 1 2 2 51 Dominican R. 2 2 3 2 2 1 45 El Salvador 2 3 2 1 3 2 39 Costa Rica 2 3 1 3 3 2 38 Ecuador 2 2 1 2 1 1 30 Guatemala 2 3 1 1 1 2 30 Bolivia 1 2 1 1 1 1 21 Honduras 1 1 1 1 2 1 21 Nicaragua 1 1 1 1 2 1 21 Asia China 5 1 5 2 1 3 79 India 4 1 3 1 2 2 55 Indonesia 4 1 3 1 2 2 55 Philippines 3 1 3 2 2 2 52 Malaysia 3 2 1 3 1 3 43 Thailand 3 1 1 3 1 2 40

29. Discussion:Fund Raising Markets • Weberian Capitalism (Weber, 1904) • Protestant Ethic and the Spirit of Capitalism (Weber, 1904) • Private philanthropy • PE  SC  MWC  IR (Lesnoff, 1981) • Secularization of PE (Carroll, 2009) • Asian Drama: An Inquiry into the Poverty of Nations (Myrdal, 1968): Hindu fatalism, Confucian hierarchy, Buddhist indifference material gains • Confucian capitalism (Fukuyama, 1995; Lew, Choy & Wang, 2011)

30. Conclusions, Limitations and Future Research • Contribution to methodology • Importance of cultural values and predictive validity • Multi-attribute and structured approach as decision support models • Caveat: • Western business model • Modeling and human judgment • Nonprofits’ core values and compromises