From a global perspective, we’ve all read a lot in recent years about how companies are wrestling with how to best adapt and extend their established brands into the emerging middle class markets in those fast growing economies such as China and India.
At the center of the strategic debate around this issue lie two fundamental questions facing global brand owners:
- In an increasingly borderless and interconnected world, how much should the brand be ‘changed’ to meet the needs of this new consumer target without harming business and reputation in established markets?
- What are the new rules for operating a global brand with potentially different products and positionings, in a fully transparent world?
From a brand owners point of view, three favored solutions are emerging:
1. The introduction of new products specifically aimed at this new consumer target, for example:the LG Lucid smartphone and the Renault Logan automobile
2. The introduction of smaller sized, modified products with fewer features or ingredients:the Knorr Economica line and single sachets of Nescafé and Nestea.
3. The re-introduction of ‘dormant’ brands: Datsun is being relaunched in China and India in 2014 with a $6,000 vehicle.
And if the brand challenges haven’t been complex enough already, there is new evidence that the situation is going to get exponentially more complicated. Why?
Because, in addition to the slowing down in emerging market growth recently, the continuing economic stagnation in many established markets, especially those in western Europe, has resulted in a significant increase in the number of consumers living near or below the poverty line:
-In the US, this includes 15% of the population (or 46.0 million people)
-In Greece and Spain, the figures are over 20% of their populations
And as this group of financially hard-hit consumers grows in established markets, ironically, their needs and mindsets are beginning to align more closely with those middle classes in emerging markets. And although these two consumer groups come from very different start points, there is no denying that in terms of attitude and behavior, they are beginning to look more similar than different.
See what I mean by things are getting more complicated?
But I hear you say, “There are already a multitude of brands in established markets that are committed to delivering lowest prices…Wal-Mart, Ryanair, Aldi to name but three.” However, it is our belief that the ‘value’ segment in markets such as the US and Europe is about to undergo a revolution. It’s all feeling a bit too comfortable given the extreme economic and market disruptions that we continue to experience.
So what does this mean?
Quite simply that many of the products and services originally designed for those emerging fast growing markets (China/India) will now be targeted at the economically struggling markets (US/Europe).
For example, we all know just how “value-sensitive” the American consumer is and if we needed recent evidence, the J.C.Penney experiment certainly is further proof. So, just looking at the 46 million ‘poverty liners’ in America for a minute:
-Why wouldn’t many of those consumers be interested in a well designed, well equipped smartphone for $99.00?
-Why wouldn’t they be interested in owning a Datsun? For many in this group, a $6,000 car is an affordable proposition.
-Why wouldn’t this group be interested in food and beverage brands that adapt their size and their features or ingredients to the new value consumer?
So where does all this leave the brand owner? With some pretty fundamental marketing questions to answer, namely:
-What is going to happen to the value segment globally? Will the segment align as we predict? Will it develop differently?
-What’s our new value strategy? Do we develop separate value brands or do we adapt our existing brands to meet these new needs?
From my experience, many brand owners are still somewhat in denial and that’s not surprising. They have spent much of the past 20 years focused on ‘trading up’ and many of us drank that particular glass of kool-aid!!
But that was before the rebalancing of the world and the economic crisis that we are still experiencing. We need to change the conversation. We need to think ‘trading down’ and while this has horrible implications for brands, the even worse implications lie in wait for those who don’t act.
Value is being redefined around the world. And the simple fact is that we need the smartest brand brains to be addressing how to meet this new and emerging global phenomenon. It’s a huge challenge but at the same time a huge opportunity for those pioneers and innovators.
Simon Williams
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