“What the hell can a slum dog possibly know?” asks one of the fraudsters of the tea boy who answers all the quiz show questions in the film Slum Dog Millionaire. It is a good question that many branded goods and services marketeers have to ask as they assess potential in emerging markets. The answer is – rather a lot and, in terms of market size, we are speaking of the Majority World and a market that no brand can afford to ignore; fail to adapt to and learn from.
Success is not just about selling what works in the Shopping Malls at a lower price point or, that hard earned demand will be met by seamless supply. After all, the strength of a chain is the weakest link and that may well be pressured further when the monsoon comes…
Key questions need to be answered all over again. What makes someone buy? What benefits does the product or service generate? Is the product or service available? After all, the people of the slums and remote rural districts are more aware of their needs and product performance than most. This is the brands new world.
There are three core drivers: the nature of decisions to buy; information on real demand and, the distribution and availability of the product or service in crowded urban or remote rural areas. Then, with most of the target stores close to their customers a partnership with store owners is equally important and all of this adds up to profitability. Logistics plays a key role in all of this.
1. Decision. Buying decisions in the developed world tend to build from impulse. Branded goods focus image and obsolescence is accepted. Take Zara and their constantly changing offering. A recent BBC survey of the UK textile market estimates that an average if 14 items purchased are never even worn!
People in the Majority World are not consumers in the same way. They are used to lives of adversity or even survival and every purchase is seen as an investment. Affordability and value for money is key. Obsolescence is anathema and recycling is not just about managing waste it is about extending useful life.
In the UK, mobiles are changed every 15 months and a survey by FoneBank.com, a trade in website, found that only 20% of UK consumers recycle their mobiles, while 28% put them away in a drawer and 23% throw them away. This would not happen in emerging markets where life time value of a product is a major factor in any purchasing decision.
Branded goods and services targeting sustainable growth in the informal market have to offer:
- Empathy. Brands have to understand and identify with the reality on the ground. The brand, product or service has to be able to communicate benefits to the locals clearly. Does it offer an ability to make life easier? For example, a mobile phone can offer an ability to process orders or, access knowledge on pricing. The product has to be affordable. This does not mean lowering the price point of a product that works well in, say, Munich. It means pricing within a clearly different context.
- Enhanced quality of life. For example, Unilever’s Sunlight needed to shift from a focus on perfumed laundry to the strap line “nothing lasts longer”. There are an estimated 1.8 billion stoves for cooking throughout the Majority World; marketeers will have to work hard to convince those from the Informal market as to the benefits of products that offer health and safety benefits – if they cost more to buy and, feed with fuel.
- Enable improved profitability. The example of the Kerala fishermen who have used mobiles whilst out at sea to check on prices and auction their catch is well known. These are the kinds of benefits that enhance market success for a business. The same applies to a local store that can use the mobile to avoid stock outs. After all, a customer can’t buy what they can’t see.
2. Demand. Few companies understand the nature of the informal market. Base line numbers are key and, much work needs to be done to develop visibility into sales potential; competitive activity; pricing and ongoing distribution. Such insight is hugely valuable.
- Data. The Nielsen’s were fundamental to the Cola Distribution Wars between Coke and Pepsi. And yet, this is from stores that are easily identifiable and relatively stable. What can be done to understand Mom & Pop stores in Brasil (1 million outlets); Mexico (800k) or India.
- Context. Make sure that you understand the choreography of a market. Launching optics (controlled measures) for spirits in many cultures works. Not in a Latin culture.
- Design. Functionality rather than image works in the informal market. There are many examples. Offering returnable glass containers instead of disposable plastic. Microsoft and others looking for basic functionality PCs with battery life designed for areas with inconsistent power supply. Nokia with their mobiles designed for illiterates; iconic interface and speaking clocks – maybe with significant possibilities for those with dyslexia.
- Offer a service to meet a fresh need. SMS was not the original intention of the mobile phone operators and pricing models have had to shift to accomodate this. So too with hygiene in restaurants located in tourist areas. The Streetfresh campaign in Thailand is an excellent example whereby providing tourists with an assurance of safe and healthy eating generates a confidence to consume. This has many applications all over the emerging world. For companies selling cleaning products into this sector, there is a need to demonstrate the benefits of investing into this differentiator.During Barcelona 1992, Mars found that they could not sell their products during the summer. Kiosks forget about chocolate in the heat. So, cheap fridges were tested and then, Mars flavoured ices were established.
- Capacity to consume. Most people in the informal economy earn a daily rate and few have the capacity to save and consume the bigger ticket items. This is where innovative financial products become key. Also, sensitivity to remuneration from abroad is a factor that needs to be taken into consideration. Places like Kerala depend largely on cash sent back from workers overseas; in South Africa where it has been reported (that only 1.5% of the 1.5 million households in rural areas earn money from direct agriculture, the role of remittances is key.
- Scalability. If the product works in this market, it has to be ready to scale up.
3. Distribution. This is key. After a war or a natural disaster, supply chains are destroyed and need to be put back together. The same applies in transition economies such as those after the Berlin Wall fell – after all, the effective consumer based supply chains of the Soviet era were usually in the black economy in any case! So, as we grapple with market access, a brand needs to consider:
- Regional coverage. What are the operational assumptions governing distribution coverage? Have we factored in festivals; seasonal conditions – monsoons wreck roads and dislocate any supply chain; drop size and local distribution stocks, just-in-time may have to give rise to a just-in-case factor.
- Neighbourhood dynamics: This is often ignored. Just like Mayhews portrayal of Victorian London, few of the small stores can be a one-stop-shop. They don’t have the space. So, some outlets may offer a gathering facility for Sporting events; others, a place to gather without alcohol; others to make a phone call and so on. Other outlets operate credit for customers and, as such, offer quasi banking services. All of these dynamics need to be considered as coverage plans are developed.
- Piggy backing. It is expensive to build any supply chain from scratch. Where possible, cooperation with well established networks or, adding value to an exisiting offer works better.TVS sell motorbikes and, collaborating with e Choupal, an on line service for remote villages, they sold 37,000 more units into remote rural areas. People could access information on the products and, place their orders as needed.The Coca Cola business in Peru works with a local brand. Another example, is the the Saamaan Foundation founded by 28 year old Irfan Alam in Bihar, India. Working with Rickshaws – which is 30% of the urban transport traffic – the idea is to offer additional services such as sale of bottled water; mobile recharge; courier collection and bills collection.
- Alternative channels. The Thailand Post Office has moved from a State run and arthritic service to an innovative one looking to move more services through its existing network. Thailand Post aims to become a major logistics player but, with a focus on SMEs and individuals, does not regard DHL or FedEx – who focus the big players – as competition.Working with TruMove, they are offering top up for pre-paid customers. Each Thailand Post employee receives Bts 50 for every Bts 500 of call value they sell and, the company receives a 4.5% commission. With ideas such as these, Thailand Post is already generating up to an estimated 30% of revenues from added value services.
- Infrastructure. With success the momentum to lobby for improved facilities grows. And, collaborative efforts are more likely to succeed than competing supply chains. For example, with 30 to 40% of fruit and vegetables rotting on their way to market in India, much needs to be done to demonstrate the benefits of all types of shared facilities. For example, cooling sheds for product immediately after harvesting from the fields has a major impact upon yield.
- Execution. This is not 9 tenths of the law. It is the law. The greatest skill is the ability to make things happen and this is tested most in an environment where consistency is a constant challenge.
4. Partnership. 80% of Brasilians shop less than 15 minutes to their home. This is typical of the informal market where stores are key players within the neighbourhood. And, given the informal and off the books nature of many of these outlets, they can compete on price with the bigger outlets. especially when you factor in the costs to travel to organised outlets such as Hypermarkets.
- Outlet segmentation: The developed world focus on consumer segmentation needs to extend to the stores in which people shop.
- Range: Beer; Carbonated beverages; Snacks; Tobacco; Personal Care; Mobile Phones and White Goods are all possible ranges for local stores to offer. Often, it is worth exploring complimentary products (snacks and beverages) and explore synergies on distribution.
- Outlet sales levers: There are several key drivers of sales.
– Credit: This can be increased as volume climbs.
– Rewards: These can take many forms including skills building incentives.
– Traffic builders: Seasonal and festival support can be key.
– Promotional tools: Posters; dispensing units; displays …
– Volume incentives:
– Equipment: Fridges; Tables; Chairs; Uniforms.
- Outlet support – Sales / Merchandising: Various Reports in Latin America suggest that only 5 to 10% of outlets are worth supporting whilst up to 50% do not generate sufficient volume and profitability to merit field marketing resource.
- Outlet support – Distribution: Delivery networks are key and frequency / drop size and services offered during delivery are key factors as logistics support is implemented.
- Communication. A key success factor is likely to be ways in which distribution peaks can be smoothed and bull whip effects controlled. And this can be a function of contact strategies: face to face; telesales; on line purchasing. These days, the mobile phone can play a major role on this.
5. Profitability: These outlets need to make money – for both parties. So, educating and learning are vital elements of the relationsip between outlet and supplier.
- Channel / Outlet ROI
- Revenues: Maximisation
– Offer affordable pricing to drive volumes
– Discounts on volume sales
– Facilitate capacity to consume
– Implement promotional support
– Ensure availability of product
- Costs: Optimisation
– Proportionate order taking costs (Telesales; face to face; SMS)
– Proportionate delivery resources
– Reduce carbon footprint
– Reduced costs of information gathering
– Reduced advertising and merchandising costs
These notes are work in progress. Anybody else with examples of how distribution are increasing sales for brands and services in the informal economy?