<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants F1 The <strong>emerging</strong> middle class – By 2030, approximately 80% of the middle class will live outside Europe and the United States Share of the global middle class in 2030 (%)* 7% 14% 6% 7% 66% Source: OECD * The "global middle class" is defined as households <strong>with</strong> daily expenditures between USD 10 and USD 100 per person. F2 Spending on consumer goods will increase significantly Total consumer expenditure in selected regions, real value, 2012-2020 (USD trillion) Emerging and developing countries BRIC 14 22 7 11 2012 2020 Source: Euromoni<strong>to</strong>r Mercosur Middle East and North Africa 2 3 1 2
Study 9 a year – in spending on leisure and entertainment. Indeed, by 2020, <strong>emerging</strong> <strong>market</strong>s will spend a <strong>to</strong>tal of USD 924 billion a year on leisure and entertainment. Consumers in the developing world will also invest strongly in improving and protecting their health. Spending will <strong>reach</strong> around USD 219 per capita per year by 2020. This is roughly USD 86 per capita more than at present, and represents a much greater per capita increase than that for fashion, communications or leisure. Of the Focus 20 countries, Argentina, Peru and South Africa will see the highest per capita expenditure. Communication technologies will have a strong impact on these <strong>new</strong> <strong>consumers</strong>. Consumer expenditure on communications will almost double between 2012 and 2020, from USD 593 billion <strong>to</strong> USD 1.1 trillion. The countries <strong>with</strong> the highest spending on advertising per capita are likely <strong>to</strong> be Malaysia, Russia and Turkey. As <strong>consumers</strong> become better educated, they also require better information. In response, Nokia has developed its "Nokia Life Tools", a product that informs <strong>consumers</strong> about healthcare, agriculture, entertainment and education issues via cell phone. For example, the company will shortly launch a diabetes program via cell phone in India. Nokia Life Tools are currently in use in India, China, Indonesia and Nigeria. In a similar vein, Johnson & Johnson launched its "Text4Baby" product in 2010. This is a free mobile information service that helps educate pregnant women and <strong>new</strong> parents about childcare issues. More than 20 million people in China, India, Mexico, Bangladesh, South Africa and Nigeria currently use the program. Bot<strong>to</strong>m-of-the-pyramid consumption Yet despite rising incomes and consumer expenditures, the majority of people in developing nations continue <strong>to</strong> struggle. The proportion of Nigerians living on less than two dollars a day is currently 85%. In India the figure is 70%, in Indonesia 46%. Overall, an estimated four billion people worldwide survive on two dollars a day or less. The poor are what we might call "bot<strong>to</strong>m of the pyramid" <strong>consumers</strong>. Thanks <strong>to</strong> <strong>new</strong> technology and novel distribution methods, they <strong>to</strong>o have become a potentially profitable <strong>market</strong> for companies. Consumer goods manufacturers are delivering inexpensive, easy-<strong>to</strong>-use products <strong>to</strong> them using low-overhead distribution. The most successful <strong>new</strong> products are often "frugal innovations" or feature frugal (or "Gandhian") engineering. This involves removing non-essential features and thereby significantly reducing the cost and complexity of manufacturing processes. 3 One good example is ChotuKool, a USD 70 refrigera<strong>to</strong>r produced by the Indian firm Godrej. The appliance uses sophisticated cooling chips and a fan similar <strong>to</strong> computer temperature control systems in place of more costly conventional compressor technology. Other affordable "Chotu" innovations are a low-cost washing machine, ChotuWash, and an inexpensive water purifier. Sometimes all that is needed is a simple change of packaging. Beiersdorf sells shampoos <strong>to</strong> the low-end <strong>market</strong> under its subsidiary Beiersdorf Hair Care China in standardized plastic bottles <strong>with</strong> simple brand labels. Bottles that have expensive labels <strong>with</strong> special, glossy colors are used only for the consumer segments in tier-1 and tier-2 cities. Sophisticated <strong>consumers</strong> can also distribute bot<strong>to</strong>m-of-thepyramid solutions. Grameen Bank, for instance, organizes clubs of 5-10 people – most often women – who share the responsibility for managing microloans. The clubs also regularly review the performance of borrowers. Another example is the brewer SABMiller. The company has sold beer <strong>to</strong> Africans for over a century, their upscale products including the European brands Peroni and Grolsch. The company now plans <strong>to</strong> cater <strong>to</strong> lower-income rural Africans who drink "informal" home-brewed beers. To this end, they developed Chibuku, a beer in a car<strong>to</strong>n, which costs up <strong>to</strong> 40% less than bottled beers, has a similar taste <strong>to</strong> home-brewed beers and is hygienically produced. The company estimates that the informal beer <strong>market</strong> in Africa is four times larger than the clear beer <strong>market</strong>. Over the next three years, it plans <strong>to</strong> expand distribution of the <strong>new</strong> product <strong>to</strong> around a dozen countries. 2) Our Focus 20 countries – the 20 <strong>emerging</strong> <strong>market</strong>s projected <strong>to</strong> see the most economic growth in the period <strong>to</strong> 2030 – are Argentina, Brazil, China, Colombia, Egypt, India, Indonesia, Iran, Iraq, Malaysia, Mexico, Nigeria, Pakistan, Peru, Russia, Saudi Arabia, South Africa, Thailand, Turkey and Vietnam. 3) See Publication 4 for a discussion of key frugal innovation strategies.
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