Please discuss the following article in terms of Passenger Transportation
The new language of emerging markets
By Niraj Dawar and Amitava Chaftopadhyay Nov 09 2000 13:38:02
Amitava Chattopadhyay is the L'Oreal Chaired Professor of Marketing, Innovation and Creativity at Insead.
Lured by the prospect of a billion breakfast eaters, Kellogg, the US cereals giant, ventured into India in the mid 1990s. Three years later, sales stood at an unimpressive $10m. Indian consumers were not sold on breakfast cereals. Most consumers either prepared breakfast every morning or grabbed some biscuits with tea at a local roadside stall. Advertising positions common in the west, such as the convenience of breakfast cereals, did not resonate with the mass market in India. People who did find the convenience appealing were unable to afford the price.
These results led the company to re examine its approach. In 1999 Kellogg changed its marketing by introducing breakfast biscuits under the Chocos brand. At Rs5 ($0.10) for a 50g pack and with extensive distribution that includes roadside tea stalls, they are targeted at the mass market and expected to sell in large volumes.
Like Kellogg, many multinationals have rushed into emerging markets agog at the billions of consumers liberated from planned economies and protectionist barriers. But there is a growing realisation that these consumers have not reciprocated the multinationals' embrace. Local competitors are stronger than expected and competition for the top tier of the market is fierce as multinationals compete for the same pie.
Local managers of global companies now realise that the 3 to 5 per cent of consumers in emerging markets who have global preferences and purchasing power no longer suffice as the target market. Instead, they must delve deeper into the local consumer base to deliver on the promise of tapping into billion consumer markets.
Most multinationals have resisted targeting the local consumer. They have argued that the mass market in a single emerging economy is not large enough to justify localisation. Further, multinational managers rationalise, emerging, market consumers are becoming more like their developed counterparts. Thus, the multinational is better off offering global products and waiting for consumers to evolve towards these.
These are powerful arguments. However, that emerging markets are considered small is a self fulfilling prophecy. Products transplanted from affluent markets only appeal to an elite, which is no more than 5 per cent of the market. Delving into the population base to establish mass market positions creates the economies of scale necessary to justify localisation. And localisation along factors common across emerging markets allows costs to be spread over much larger volumes. Emerging market veterans such as Unilever and Colgate Palmolive have amply demonstrated the viability of mass markets in emerging economies, as well as the benefits of rapidly transferring knowledge gained in one emerging market to others.
The second argument, that emerging market consumers are becoming more like their affluent market counterparts, is true if one focuses on the income gap. But the rate of change is not as rapid as some contend. In most emerging markets, the mass market will remain poor well beyond the planning horizons of most multinationals. Further, even as they grow more affluent, it is far from certain that Chinese and Indian consumers' preferences will converge with those of Europeans or Americans.
Standard marketing strategies must be questioned in emerging markets, but lessons can be drawn from companies that have designed programmes from the ground up. These can be analysed using some of the pillars of marketing: segmentation, price, product, distribution and communication.
Multinationals bring to emerging markets not just their products, technology and skills, but also, implicitly, their understanding of market structures from developed country contexts. This knowledge base often encourages assumptions that are at odds with reality in emerging markets. At the root of the mismatch are assumptions about segmentation. Fine grained segmentation only works if the costs of segmentation are low and the returns are high. Take the example of soap. In developed markets, hundreds of brands offer finely differentiated benefits on dimensions such as fragrance, freshness, skin type, naturalness, softness, gentleness and lather.
Such segmentation is expensive in terms of product development, branding and distribution costs. These costs are justified if consumers are able and willing to pay for specialised products. But the mass market in emerging economies is unable to afford this. Segments are far coarser. In Indonesia, 88 per cent of the market is classified as "regular' soap, with another 11 per cent accounted for by deodorant soap and the remaining 1 per cent is moisturising soap. The average price of soap in Indonesia is less than a third of that in the US,
Low wages mean that time has a low opportunity cost. Thus labour saving benefits, which are fundamental to ready to eat foods, new formats for washing powder, shampoo conditioner combinations and household appliances, are unlikely to sell well in undeveloped markets.
While the opportunity cost of time is low for most consumers, it is high for a small but significant segment. For this small segment, products that save labour might be attractive. However, segmenting the market by cost of time is not useful because time can be bought. In other words, richer consumers substitute others' time for their own, and the market for time savings is served through inexpensive services rather than products. Premium priced, non stick cookware from DuPont has little appeal if consumers who can afford it rely on hired help for cooking and cleaning. In China, DuPont has struggled to raise market share beyond 2 per cent.
This does not mean the products are not viable, but rather that they need to be positioned differently. For example, fast food is popular not because it is fast, but because it is trendy. Similarly, washing machines may not have much appeal as labour saving devices when potential consumers are used to hiring people to do laundry by hand. But the machines can be positioned as reliable (hired help is often not), or on performance. These benefits complement rather than compete with labour. Sometimes consumers will both buy a washing machine and hire someone to work it.
Some local and international companies have demonstrated that well targeted, indigenously developed and locally produced products can yield profits in mass markets. One lesson is that practices in developed markets, such as rapid product development, continuous product innovation and accelerated obsolescence, do not work well in emerging markets.
Here, consumers dislike products that evolve too rapidly, making their recent purchases obsolete. Instead, consumers need basic, functional, long tasting products. Volkswagen's Beetle was the largest selling car in Brazil long after it had been phased out in affluent markets and despite assaults by carmakers. with newer models. It was known to be a dependable workhorse with readily available and inexpensive spare parts.
Low levels of income also mean that the cost of time for the consumer is low and, therefore, a company's cost of creating some of the benefits of a product is higher than their value to consumers. Since consumers can substitute their time for the benefit at a lower opportunity cost, engaging consumers' energy as a substitute for including benefits can allow companies to market a product at a price affordable to the mass market. For example, in its early efforts in emerging markets Whirlpool made little headway with highly priced, automatic washing machines. Only after it introduced cheaper twin tub machines that used consumers' labour did its sales take off. Interestingly, Whirlpool had to acquire the "obsolete" technology from Korea.
Part 2: Price
The new language of emerging markets (Part 2)
By Niraj Dawar and Amitava Chattopadhyay Nov 09 2000 13:57:54
Prices need to be set in the context of local consumers' purchasing power, rather than in relation to international standards. Purchasing power parity (PPP) exchange rates estimate the value of a currency in terms of the basket of goods that it buys (compared with the cost of a similar basket in a reference country and currency) rather than in terms of the existing market exchange rates. By this measure, most emerging market currencies are severely undervalued relative to developed country currencies, meaning they buy more than one would expect from the exchange rate.
International companies are attracted to many emerging markets precisely because of the size of the market in PPP terms. One company found that in China, for example, the number of consumers in the $10,000 to $40,000 income range is less than 3m at market exchange rates, but over 80m at PPP rates. But companies often fail to recognise that this market is only accessible if product prices are established relative to local purchasing power rather than by converting international prices at market exchange rates.
In other words, companies need to work back from PPP numbers when pricing products. Using exchange rates translates into overpriced products, making them accessible only to the wealthiest consumers. For example, the PPP of the renminbi in China is around 4 to the US dollar, while the market exchange rate is more than RMB8 to the dollar. A product that sells in the US for $10 will be priced using the market exchange rate at RMB80. In reverse PPP terms, this is the equivalent of pricing the product at $20. Clearly, expectations of large PPP based markets are incompatible with prices based on exchange rates.
Thus, strategies that favour thin margins and large volumes tend to succeed. Pricing needs to dominate marketing and drive product, packaging, distribution and communication decisions. Unilever's Lifebuoy soap, popular in Africa, India and Indonesia is priced low and made using inexpensive local ingredients and packaging. By volume, Lifebuoy is the world's largest selling brand of soap.
Multinationals, stuck with international pricing strategies, often resort to price promotions to capture volumes. Such promotions can yield dramatic, if temporary, sales increases. These large volume increases reveal a potentially large market that remains untapped, just below the actual price points. To generate sustainable volume sales, a permanent product entry at the lower price is required. Thus, Gallo, the Italian rice and pasta maker, introduced the Nobleza Gaucha brand in Argentina to capture volumes with razor thin margins, while maintaining the price premium of its flagship Gallo brand.
Failure to capture volume segments leaves an opportunity for local companies, as Unilever discovered in the Indian detergent market. Nirma, an initially ignored local brand, went on to topple Unilever's Surf from its dominant position.
In contrast to concentrated retailers and distribution in developed markets, the trade in emerging markets is fragmented. While chains such as Ahold, Carrefour, Nanz, Metro and Wal mart operate in many emerging markets, they have yet to develop a retail format with mass appeal. Overall, chain stores account for less than 3 per cent by value of retail markets in China and India.
Multinationals sometimes rely on these chains as their primary channel, but it is unlikely that chains will provide access to mass markets. High population density, small homes with little space for storage, lack of refrigeration and low car ownership mean consumers buy daily and locally. As a result, retail outlet density is very high. These conditions prevent retail formats of developed countries from delivering products economically. Therefore foreign retailers cannot be the pillar of mass market distribution.
At the same time, using small, independent stores poses a challenge to international companies because they lack the expertise to deal with a fragmented trade. It is estimated that there are 9m small, independently owned grocery shops in China, which have limited working capital and typically occupy fewer than 300 square feet. To access even the first tier of these outlets, and to establish a brand presence, companies need large, dedicated sales forces and a lot of capital.
Beyond the first tier of retail outlets, many companies use multiple levels of wholesalers and distributors to capture shelf space one store at a time. This many layered distribution channel puts a large distance between mass markets (especially rural markets) and manufacturers, impeding learning and marketing adaptation. Notwithstanding the challenges, some international companies have successfully developed distribution systems. Unilever's network in India, which provides it with a formidable barrier to entry, serves 800,000 retail outlets directly and relies on wholesalers and distributors to reach another 3.5m.
Despite being fragmented, shops have considerable power. Store formats do not allow consumers to browse. Typically, the consumer deals directly with the shopkeeper (often the owner), whose advice carries weight. The owner's relationship with consumers is based on an understanding of their buying habits and is often cemented when the retailer extends credit. These relationships give trade outlets tremendous clout in recommending brand, making trade marketing an essential element of any manufacturer's programme.
Building relationships with a fragmented trade requires an understanding of their interests. For example, it is counterproductive to push inventory on them because most have little working capital. Rather, successful manufacturers develop new revenue activities for the retailer.
United Phosphorous (UPL), an Indian crop protection company, is a good example. It realised that farmers were not using pesticide, or were applying it inappropriately due to a lack of equipment. The cost of pumps and dispensers (up to $3,000) placed it out of reach of small farmers and rural retailers. So UPL arranged for bank loans for rural retailers to buy the equipment and demonstrated to these retailers the revenue possibilities from renting the equipment to farmers. The result was an added revenue stream for retailers and additional sales of pesticides for UPL.
Mass media, the mainstay of communication in developed markets, are less effective in emerging markets. Large populations in rural areas are dispersed across vast distances in small, isolated groups, with limited access to broadcast media. There may be many languages and varying levels of illiteracy. To overcome these challenges, Unilever pioneered video vans. These vans tour villages screening films in the local language, interspersed with advertising for Unilever products. The company also demonstrates products because instructions on the pack may not be read by consumers who are either illiterate or do not understand the dialect.
Reliance on mass media is also ineffective because of shopping patterns. Consumers in emerging markets shop daily, which gives them 365 chances a year to switch brands. Attempting to encourage repeat purchase by reaching buyers during the short purchase cycle, by showing point of sale advertising and by marketing heavily to retailers, is indispensable. This requires significant changes in western style campaigns. For example, outdoor advertising accounts for 7 per cent of media expenditure in India, but only 0.8 per cent in the US.
Last, but not least, reliance on mass media in developed markets is based on television and press advertising being less expensive than face to face contact. But in emerging markets, the face to face method has always been more economical. When Citibank launched its credit card in Asia, it found the cost per customer of door to door sales was lower than magazine inserts, direct mail and application forms placed on sales counters. Personal selling also delivers more customised and interactive messages. This is important at an early stage in a product's life cycle and leads to better conversion rates than, say, television advertising.
Consumers in emerging economies will remain an elusive target unless multinationals develop value propositions that appeal to the mass market. These companies should understand that mass markets in emerging countries are unlike markets they have traditionally served. Behaviour is moulded by low incomes. Consumers are unlikely to respond to marketing transplanted from developed markets. Instead, marketing needs to be built locally. Yet such a strategy challenges marketing practices and the tensions that arise can be painful. Perhaps one way of justifying the pain is to abandon country focused strategies and consider an emerging market strategy. This approach highlights the common features of emerging markets and their real size. Thus it enables accurate assessment of the costs and benefits of localization.
http://pages.stern.nyu.edu/~msiegel/newlanguage.doc© BrainMass Inc. brainmass.com October 17, 2018, 1:11 am ad1c9bdddf
In terms of passenger transportation the standard marketing programs that work in Europe and the United States do not work in emerging countries. For one thing, most emerging economies have several alternate means of well developed passenger transportation system. Further, the passenger transportation system is heavily regulated by the local government and is controlled by trade unions. Entry of foreign firms faces strong resistance. Rail transport is government owned.
The segmentation of the market based on the Western model does not work. An operator cannot segment the market based on income or the type of traveler. Each lucrative route is demarcated by the government, the fare is ...
This answer provides you an excellent discussion on Passenger transportation
Air Transportation & Severe Weather
Please help with the following questions.
Airports in the Midwest have shut down due to severe, multistate blizzard conditions, stranding several hundred passengers. Also stranded are critically needed medical supplies for Intensive Critical Care Units; supplies usually shipped by UPS air carriers.
1. Passengers: (a) Would you reroute them? (b) If so, how?
2. Medical supplies: What would be your first course of action? Second?View Full Posting Details