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(A division of Pythhos Technology (P) Ltd.)

A perspective from Boston Analytics

Accessing Consumers in Emerging Markets

RJ/V1.1

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Agenda

Definition and Key Characteristics of Emerging Markets

Challenges of Accessing Consumers in Emerging Markets

Key Learning

1

Agenda

2



Key Learning

The term ‘emerging markets’ is associated with progress, growth, and

opportunity

3

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Emerging markets are nations with social or business activity in the process of rapid growth and

industrialization. Emerging markets are countries that are restructuring their economies along market-

oriented lines and offer a wealth of opportunities in trade, technology transfers, and foreign direct investment

Note:

(A) Antoine van Agtmael coined the term ‘Emerging Markets’ in 1981 while launching “Third-World Equity Fund” to invest in developing-countries

Sources:

(1) Ins and outs, Acronyms BRIC out all over, September 18, 2008, Economist

(2) What Are Emerging Markets?, Chuan Li, University of Iowa

“Racking my brain, at last I came up with a term that sounded more positive and invigorating: emerging

markets. ‘Third world’ suggested stagnation; ‘emerging markets’ suggested progress, uplift and

dynamism.”, Antoine van Agtmael(A),(1)

Definition of Emerging Markets

Characteristics of Emerging Markets

High economic growth

Large population base

Transitional societies that are undertaking domestic economic and political reforms

Regional economic powerhouses

In practice, the definition of emerging economies differ according to

the source

4

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FTSE MSCI Economist S&P Dow Jones

Brazil Brazil Brazil Brazil Argentina Philippines

Chile Chile Chile Chile Bahrain Poland

China China China China Brazil Qatar

Colombia Colombia Colombia Czech Republic Bulgaria Romania

Czech Republic Czech Republic Czech Republic Egypt Chile Russia

Egypt Egypt Egypt Hungary China Slovakia

Hungary Hungary Hong Kong India Colombia South Africa

India India Hungary Indonesia Czech Republic Sri Lanka

Indonesia Indonesia India Malaysia Egypt Thailand

Malaysia Malaysia Indonesia Mexico Estonia Turkey

Mexico Mexico Malaysia Morocco Hungary UAE

Morocco Morocco Mexico Peru India

Pakistan Peru Morocco Philippines Indonesia

Peru Philippines Peru Poland Jordan

Philippines Poland Philippines Russia Kuwait

Poland Russia Poland South Africa Latvia

Russia South Africa Russia Taiwan Lithuania

South Africa South Korea Saudi Arabia Thailand Malaysia

Taiwan Taiwan Singapore Turkey Mauritius

Thailand Thailand South Africa Mexico

Turkey Turkey South Korea Morocco

UAE Taiwan Oman

Thailand Pakistan

Turkey Peru

Common

Emerging

Economies

Brazil

Chile

China

Czech Republic

Egypt

Hungary

India

Indonesia

Malaysia

Mexico

Morocco

Peru

Philippines

Poland

Russia

South Africa

Thailand

Turkey

Emerging

economies which

are common across

the sources

18

Sources:

(1) FTSE Emerging Markets

(2) MSCI Emerging Markets Indices

List of Emerging Economies

Emerging markets are growing economic powerhouses with a large

consumer base

5

Defin

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Advanced

Markets(A)

Key Emerging

Markets(B)

Other Markets(C)

Population

(in M) 2012

Cartogram of the World's Population(D),(2)

Together, India and China

account for more than one third of

the world’s population

1,020

3,824

2,107

Notes:

(A) Includes 34 countries out of 35 countries listed as ‘Advanced’ (excluding Czech Republic) as per IMF based on multiple parameters such as per-capita income level, export

diversification, degree of integration into the global financial system, human development index , etc. It includes the USA and Canada in North America, most nations in Western

Europe, Japan, Australia, New Zealand, etc.

(B) Set of 18 countries common across the lists of Emerging Markets identified as Key Emerging Markets in previous slide

(C) 137 countries including other emerging markets and the rest of the world

(D) Map represents how different the political boundaries of countries will look like if they are defined based on population size

Source:

(1) IMF World Economic Outlook Database, October 2013

Population of Different Market Segments and Countries

While their combined GDP is small, their projected growth rates are

impressive

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Growth in Real GDP (%)(D)GDP PPP(E) 2012

($ T, Current Prices) 2007‒12 2012‒17

42

31

11

2 3

6 6

5 5

GDP Per Capita

PPP ($, Current Prices)

40,814

8,016

5,171

Advanced

Markets(A)

Key Emerging

Markets(B)

Other Markets(C)

Notes:

(A) Includes 34 countries out of 35 countries listed as ‘Advanced’ (excluding Czech Republic) as per IMF based on multiple parameters such as per-capita income level, export

diversification, degree of integration into the global financial system, human development index , etc. It includes the USA and Canada in North America, most nations in Western

Europe, Japan, Australia, New Zealand, etc.

(B) Set of 18 countries common across the lists of Emerging Markets identified as Key Emerging Markets in previous slide

(C) 137 countries including other emerging markets and the rest of the world

(D) Real GDP in local currency

(E) PPP = Purchasing Power Parity

Source:

(1) IMF World Economic Outlook Database, October 2013

Demographic Dynamics of Different Countries

… and their retail markets are growing faster than their advanced

counterparts

7

Defin

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Advanced Markets

Key Emerging Markets

3,8304,760

2010 2015

North America

(4.4%)

408

590

2010 2015

Brazil (8%)

2,670 2,790

2010 2015

Western Europe

(0.9%)

India (13%)

532

933

2010 2015

Russia (12%)

2,199

5,511

2010 2015

China (B) (20%)

1,500 1,600

2010 2015

Japan (1.3%)

560

1,041

2010 2015

Indonesia (11%)

245

418

2010 2015

Notes:

(A) Figure on bars are $ Billion. Figures in bracket are CAGR of retail market between 2010–15

(B) Excluding Hong Kong

Source:

(1) Business Monitor International

Drivers of growth include:

Rising income levels

Increased infrastructure

Greater awareness

Innovative marketing

strategies

Innovative retail outlets

Size ($ B) and Expected Growth (2010-2015) in Retail Market across Geographies ($ B)(A),(1)

Agenda

8



Key Learning

Despite the size and growth of opportunities, consumer goods

companies face many challenges in emerging markets

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Geographically dispersed

population

Complex distribution networks

Lack of infrastructure

Strong local players

High income disparities

Significant share of population in

low income group

Contradictory local beliefs

Different cultural habits

Lack of common communication

platforms

Access

Acceptance Affordability

Notes:

(A) Not all challenges relate to all emerging markets; but instead represent common challenges across more than one emerging market

Source:

(1) BA Analysis

Key Challenges of Emerging Markets(A)

There are multiple challenges associated with simply reaching

consumers in these markets

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Access



population






low income group




platforms

Notes:


Source:

(1) BA Analysis


In several emerging markets, a large percentage of the population

resides in rural areas and/or is dispersed across the country

Share of Rural Population (% of Total) 2012 Distribution of Population

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26%

20%

17%

14%

68%

49%

48%

28%

26%

22%

15%

0% 20% 40% 60% 80%

Germany

UK

USA

France

India

Indonesia

China

Turkey

Russia

Mexico

Brazil

Rural/Urban Divide and Geographical Distribution of Population (2010)(1),(2),(3)

Many emerging markets are

characterized by large land

masses with a population

dispersed across it, or in the

case of Indonesia, spread

across multiple islands

Sources:

(1) World Bank Database.

(2) UN Habitat.

(3) Gridded Population of the World, The Trustees of Columbia University in the City of New York.

Se

lect K

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Emerging markets are also overwhelmingly characterized by

unorganized or traditional trade

Organized vs. Unorganized Retail Trade (2010) Definition

12

80%

80%

80%

85%

5%

20%

20%

30%

30%

33%

35%

35%

36%

53%

20%

20%

20%

15%

95%

80%

80%

70%

70%

67%

65%

65%

64%

47%

0% 20% 40% 60% 80% 100%

France

Germany

UK

US

India

China

Poland

Indonesia

Czech Rep.

Russia

Turkey

Philippines

Brazil

Mexico

Share of organized retail Share of unorganized retail

Traditional Trade (TT) or Unorganized Retail is defined as

all that trade that flows through traditional outlets, such as

kiosks, corner shops, local mom and pop stores, and

open markets, or all trade except that which flows through

retail chains, hyper markets, supermarkets, etc.

Cha

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Key Points

Traditional trade is characterized by a large complex

network of independently owned retailers and distributors

carrying local or regional brands, as well as some multi-

national brands

It can be difficult to penetrate for both national and multi-

national firms given its highly fragmented nature, yet it

serves as the conduit for reaching the largest percentage

of the consumer population

Common TT Categories

Food and Beverages Home Décor and Furnishing

Clothing and Textile Personal Care

Consumer Durables Footwear

Jewelry and Watches Books, Music and Gifts

Sources:

(1) Business Monitor International

(2) BA Knowledge Repository

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Along with traditional trade, typically comes a more complex

distribution chain in emerging market

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Advanced Markets Emerging Markets

Manufacturing Plant

National Accounts, Grocery

Stores

Mom and Pop

Stores

National or Exclusive

Distributor

Cash and Carry,

Wholesalers

Manufacturing Plant

National

Account

Large Distributor Large Wholesalers

Large Groceries,

General StoresTT Outlets

Small/Rural

Distributor

Medium

Wholesaler

Jobbers

Dis

trib

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on

Ch

ain

Account for 70-80% Sales Account for 60-70% SalesUnderstanding, navigating and

facilitating the distribution of

products becomes an essential

part of any consumer strategy in

emerging marketsSource:


Consumer products companies also face supply chain bottlenecks

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Typical Supply Chain Bottlenecks in Emerging Markets

Lack of

Storage

Facilities

Little Use of

IT Systems

and

Processes

Challenges

Physical

Conditions

Of the close to 130 m tonnes of

fruits and vegetables that India

produces, nearly 40% gets

wasted due to lack of cold

storage facilities

Poor

Transportation

Network

Poor

Transportation

Practices

Infrastructure

Processes

Roads are the dominant mode of freight transportation

in emerging economies

Most highways in emerging markets such as India and

Brazil are narrow and congested with poor surface

quality

Most villages do not have access to all-weather roads

Climate, water supply, sanitation facilities

related challenges present in mature

markets are all magnified and multiplied

in emerging markets

These factors influence continuity of

supply and drive price volatility

Trucks and vehicles used for

freight sometimes lack proper

maintenance and increase the

cost of transportation

Most transactions are on note

pads and lack usage of RFID

and other IT processes

Source:


Such challenges are reflected in the relatively poor score emerging

markets receive in terms of logistics performance

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International

LPI RankCountry

LPI

Cumulative

Score

CustomsInfra -

structure

International

Shipments

Logistics

Competence

Tracking &

TracingTimeliness

1 Singapore 4.13 4.1 4.15 3.99 4.07 4.07 4.39

2 Hong Kong 4.12 3.97 4.12 4.18 4.08 4.09 4.28

4 Germany 4.03 3.87 4.26 3.67 4.09 4.05 4.32

8 Japan 3.93 3.72 4.11 3.61 3.97 4.03 4.21

9 USA 3.93 3.67 4.14 3.56 3.96 4.11 4.21

10 UK 3.9 3.73 3.95 3.63 3.93 4 4.19

26 China 3.52 3.25 3.61 3.46 3.47 3.52 3.8

27 Turkey 3.51 3.16 3.62 3.38 3.52 3.54 3.87

45 Brazil 3.13 2.51 3.07 3.12 3.12 3.42 3.55

46 India 3.08 2.77 2.87 2.98 3.14 3.09 3.58

47 Mexico 3.06 2.63 3.03 3.07 3.02 3.15 3.47

59 Indonesia 2.94 2.53 2.54 2.97 2.85 3.12 3.61

95 Russian 2.58 2.04 2.45 2.59 2.65 2.76 3.02

Notes:

(A) Scores range from 1-5 with 5 being the highest score

Source:

(1) Logistics Performance Index: Connecting to Compete 2012, World Bank

Logistics Performance Index (LPI) 2012(A),(1)

In some product categories, local players constitute a significant

share of the market, making it harder to penetrate

16

73%

68%

48%

45%

34%

27%

32%

52%

55%

66%

0% 20% 40% 60% 80% 100%

Russia

Brazil

India

Indonesia

China

MNCs Local Companies

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Share of MNCs in Overall Snacks and Beverages Market (2010)

Source:

(1) Euromonitor Packaged Goods Passport Database

(2) “How Local Companies Keep Multinationals at Bay,” HBR, March 2008

Growth in MNC Market

Share (2001-2010)

-3.9%

0.0%

0.8%

0.9%

3.2%

Challenge: Strong Local Players

Local companies are 1. not constrained by global product

portfolios, 2. have a deep understanding of consumer needs, 3.

have recruited some of best talent in country, and 4. have longer

history of developing innovations to develop lower cost products

Wrigley became a market leader in China via a very focused and

deliberate geographic expansion strategy

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Wrigley entered the Chinese confectionery market at a time when the Chinese market was

undergoing significant cultural and economic changes

Wrigley understood it would take patience and considerable investment to grow the market given

the local conditions

Response: Geographically Dispersed Population

Background

Hangzhou

Hei Longjiang

Jilin

Liaoning

Ningxia

Beijing

Tianjin

Shanghai

Xinjiang

Xizang

Chongqing

Gansu

Qinghai

Sichuan

Yunnan

Hainan

Guangdong

Guangxi

Guizhou Fujian

Zhejiang

Jiangsu

Shaanxi

Inner Mongolia

Hunan

Jiangxi

Hubei

Anhui

Henan

Shanxi

Hebei

Shandong

The initial spread along the coast

from south to north via major cities

The subsequent spread from the

coast towards inland

Wrigley’s expansion inland, like other consumer

product firms during that time, followed China’s

liberalization policies

First SEZs established in

China

Key Points

Wrigley first entered Southern China and

then went north along the coast before going

inland; a process which took place over a

time span of ~ 10 years

– They focused on strengthening their

presence in one market before expanding

to another

– Initial focus was on multinational retailers

in major cities

From metropolitan areas they went on to

smaller cities, and further on to rural areas

Provided distributors with higher margins in

order to gain favor and help them build their

distribution networks thereby supporting the

market

Source:

(1) ISI Emerging Markets

Hindustan Unilever, a well entrenched player in India, has continually

refined its distribution strategy to reach rural areas

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Hindustan Unilever

Level of Penetration in Indian VillagesLow High

Expanding Rural Reach(Before 1998)

Started by covering villages, connected

by motorable roads, adjacent to small

towns

V1

V2

V5

Vn

D

V3

V4

D—Distributors in small towns

V—Villages connected to motorable road

Project Streamline(Launched in 1998)

Later, actively engaged sub-stockiests

who supply to outlets in adjacent

smaller villages using suitable

transportation mediums, such as,

bicycles, scooters, bullock carts, etc.

V1

V2

V5

Vn

S

V3

V4

S—Sub-stockiestsin large villages (connected to motorable road)

V—Small villages

Project Shakti(Launched in 2001)

Targets small villages with <2000

people

Creates micro-enterprise opportunities

for rural women

Women act as a direct-to-home

distributors in rural markets and earn

$15 - $20 per month

At present, it covers 15 states in India,

with 45,000 women entrepreneurs

catering to more than 100,000 villages

Food Personal Care

Sales Team 1 Sales Team 2

Sales Organization—Old Structure

Urban Market Rural Market

Sales Team 2Sales Team 1 Sales Team 3

Modern Trade

Sales Organization—Revised Structure

"Rural India is one of the biggest opportunities in the world

because it is the place where 700 million people live” –

Unilever COO India

HUL HUL

Impact

HUL has the maximum

reach (6 M retail outlets)

compared to other

consumer goods

companies in India

49% of HUL sales now come

from rural markets (2012)Sources:

(1) Hindustan Lever (Abridged), Tuck School of Business

(2) Hindustan Unilever Limited, JP Morgan India Conference

(3) Analyst reports

1 2 3

CPG companies often use a multi-pronged distribution strategy to

overcome complex distribution channel issues

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Parameters to Decide the Channel Partners

Modern Trade

Grocery & Convenience

Small Neighborhood Stores

Small TT Outlets

Kiosks

Tier 1

Cities(A) Tier 2 CitiesTier 3 & 4/

Rural Areas

Self / National Distributor(B)Regional

Distributors(C)

Jobbers/

Medium

Wholesalers

Peddlers/

MDCLarge

Wholesalers(D)

Large & Medium

Wholesalers

Regional Distributor

Outlet Type/Market

Regional

Distributors/

Large

Wholesalers

Regional

Distributors

Depending upon the

geographic market and

target outlet size companies

need to tailor their

distribution strategy

While the “cost of reach” can be

higher to smaller stores,

particularly in rural, the total cost

of doing business maybe the

same when discounting is taken

into consideration

Illustrative

Notes:

(A) For example Mumbai New Delhi in India; Shanghai, Beijing in China; GMA; Cebu; Davao in Philippines; Sao Paulo in Brazil

(B) Modern trade such as Wal-mart should be reached through the direct sales force of national distributors

(C) Regional distributor network of national distributor or independent local distributors

(D) Example: Suy Sing, Ultra Mega, Puregold in Philippines; Atacadao, Marsil in Brazil

Source:


Cadbury Adams relies heavily on wholesalers in Brazil given its high

brand equity and need to penetrate TT

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Plant

Key

Accounts

Direct Sales Model Distributor Model

Retailer Distribution

Centers

Manufacturer DC

Direct Stores

Plant

Manufacturer DC

Authorized

Distributors/Brokers

Small Wholesalers

Wholesaler Model

Plant

Manufacturer DC

60%25%15%

xxShare of

Sales

Outlets with

five or more

checkouts

Micro StoresMini Markets; TT Stores

Small

Wholesalers

Revendedo

res

Large & Medium Wholesalers

Source:


In India, Perfetti redesigned its distribution model to increase

penetration, drop size, and address working capital challenges

of retailers

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1995–2002: Focus on Widening the

Reach

2002 Onwards: Increasing the Depth of

Distribution

Perfetti Product Portfolio

C&F Agent

Distributor Super Stockist

Sub-Stockist

Wholesalers

Retailers

Pilo

t S

ale

s

Re

pre

se

nta

tive

sA

ll

Bra

nd

s

D1

C&F Agent

Super Stockist

Sub-Stockist

Wholesalers

Perfetti Product Portfolio

Retailers

P1 P2 P3

D2 D3

Key Points

Before 2002:

Perfetti’s focus was on creating reach

All distributors carried all Perfetti

variants with once a week retailer visits

Penetrating TT was difficult because of

lack of shelf space and limited cash flow

or retailers

After 2002:

Perfetti segregated its brands into

P1/P2/P3 categories and distributors

were aligned to different categories

Distributor for each category would visit

the retailers once a week which

effectively increased sales calls to two

to three times a week from only one per

week

The brands were segregated in a way

that they were available with all the

distributor groups, but the variants

would differ, which enabled Perfetti to:

– Capture higher share at retail

outlets

– Obtain a greater visibility for the

brands and the variants of the

products

Source:


Coca Cola uses manual distribution centers (MDCs) to address their

logistics issues in 25+ markets

Background

In emerging markets, where road infrastructure, terrain, retail market, cost implications and

customer needs are vastly different, Coca Cola has tailored is distribution

A central point for warehousing of

product, with a manageable coverage

area and defined customer base

(typically about 150 retail outlets)

Currently, in Africa alone there are more than 3,200 MDCs that employ over 19,000 people, generating more than

$950 million in annual revenues for Coca Cola

MDCs

MDCs are independently owned, low-cost businesses created to service emerging urban retail

markets where classic distribution models are not effective or efficient

The MDC model identifies and engages independent entrepreneurs, who receive business training

and in some situations also financing The majority of MDC owners have a minimum of primary school education and have previously been employed or

were in school before becoming an owner

Outlets served are typically low-volume

with high service frequency

requirements and limited cash flow,

requiring fast turnaround of stock

Distribution of product is mostly

manual (e.g. by pushcarts) to keep

costs at a minimum

Response: Lack of InfrastructureC

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Source:

(1) Developing Inclusive Business Models, Harvard Kennedy School and International Finance Corporation.

22

Danone is pushing its sales in South Africa and Indonesia through

mobile micro point of sales

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Danone’s traditional, higher-priced products, sold through regular distribution channels and

supermarkets, are out of reach for most South Africans, many of whom are unemployed

Response: Lack of Infrastructure

Background

Dani Ladies in South Africa

Rombong in Indonesia

In Indonesia Danone used

3,000 mobile “Rombong” micro

points of sale, developed to

distribute Biskuat and Milkuat

Market Access Approach

Danone created a product with local dairy partner

Clover that sells for 1 rand (14 cents) and set up a

separate network of distributors called ‘Dani Ladies’

"Dani Ladies" are trained to sell in open-air markets or

door-to-door in townships

Danone provides a uniform, a cooler box, a trolley,

support and training, but the saleswomen must pay for

the product in advance after a pilot credit system was

deemed unsuccessful

Sources:

(1) Danone Sustainability Report 2006

(2) Dani Ladies on front line of push to sell to poor, Reuters, June 2007

One of the obstacles to providing credit is

establishing credit-worthiness without any locally

available such service. Banco Azteca, a bank

within Mexico’s Grupo Elektra consumer durables

stores, sends out over 4,000 agents to

consumers’ homes via motorcycle for on-the-spot

credit assessments. It is deemed a success with

a >90% repayment rate

The Bel Group has designed a new product and business model

tailored to the needs of the Vietnamese market

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In 2011, Bel launched Goodi, a milk stick enriched with micro nutrients as part of a pilot

program in Vietnam. Goodi is a hybrid product containing rice, dairy proteins and enriched with

vitamins and nutrients adapted to meet the nutritional needs of Vietnamese children. Bel uses a

door-to-door direct sales model in order to promote Goodi in Vietnam

Response: Lack of Infrastructure

Background

Market Access Approach

The goal of the Goodi initiative is to:

– Bring an affordable and daily essential dairy based

nutrient to the low and middle income class consumers

in Vietnam

– Deliver the CSR concept by providing a sustainable

business model that is a source of income and “well-

being” to our local communities

Goodi recruits Goodi Nutrition Representative with

the help of local women focused NGOs and provides

them with training, uniforms, sales tools and products

to promote and sell Goodi products to their local

communities

Women benefit from the income generating opportunity

while the local community and its children benefit from

nutritious dairy based products tailored to their dietary

needs

Goodi Milk Sticks for the Vietnamese Market

Source:

(1) The Bel-Group website

Manufacturers are also sometimes required to invest in

infrastructure and product innovation in order to support the sale of

their products

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Merchandizing in Philippines

Hangers

Danglers

Jars

Frito Lays provides racks

to maximise retail

storage and displays in

Indian TT outlets Soft drink manufacturers, such

as Coke and Pepsi provide

refrigerators to TT outlets to

ensure shelf space and quality

of the product

Merchandizing support in India

Product Innovations

Unilever has developed a low-

cost climate stable margarine

which doesn’t require

refrigeration in order to combat

the lack of cold chain in Africa

Source:


Packaging

Innovations

United Spirits packs many of its mainstream

whiskeys, rums and brandies in India in Tetrapaks,

which not only enhances margins and reassures

customers of the products’ authenticity, but also

leads to less weightage and fewer breakages,

which is key given the poor infrastructure along the

distribution chain

Product

Innovations

Affordability presents a formidable challenges to MNC firms hoping to

enter or expand in emerging markets

26

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Access



population






low income group




platforms

Note:


Source:

(1) BA Analysis


Emerging markets are characterized by high income disparities…

27

43%

46%

46%

47%

47%

53%

59%

12%

11%

11%

10%

10%

9%

7%

16%

15%

16%

15%

15%

13%

12%

21%

21%

22%

23%

21%

20%

19%

9%

7%

6%

5%

6%

5%

3%

0% 20% 40% 60% 80% 100%

India

Indonesia

Turkey

China

Russia

Mexico

Brazil

Highest 20% Second 20% Third 20% Fourth 20% Lowest 20%

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Note:

(A) LYA = Latest Year Available.

Source:

(1) World Bank Database

Challenge: High Income Disparities

A significant proportion of the

wealth in emerging markets is held

by top 20-30% of the population

This can mean:

Smaller consumption base as

the majority of population

cannot consume

Significant competition for share

of wallet of the wealthiest

individuals

Multiple strategies are needed

order to address very different

markets within same country

Poorer asset basis which the

country needs to grow, i.e.,

poorer, often uneducated

human capital

Greater risk of political and

social unrest as the disparities

become intolerable

Share of Income held by Different Population Strata in Emerging Economies (LYA)(A),(1)

…and with a significant portion of the population living below the

poverty line

28

0%

5%

5%

11%

27%

43%

69%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Russia

Mexico

Turkey

Brazil

China

Indonesia

India

% Population Living on $2 or Less (PPP) a Day

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Population Living in Poverty (LYA)(A),(1)

# Below Poverty

Line (Million) (2012)

843.8

105.9

368.4

21.5

5.3

0.1

3.5

Challenge: Significant Share of Population in Low Income Group

Note:

(A) LYA = Latest Year Available.

Source:


To address income disparities, HUL offers a wide variety of brands in

same product categories targeted at different income groups

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HUL Product Portfolio Across Indian Customer Segments

Indian Customer Segment HUL Product Portfolio(1)

Top

Middle

Bottom

Surf Excel Dove Close Up Brooke

Bond Taj

Mahal

Pepsodent SunsilkFair &

Lovely

Rin LuxBrook Bond

Taaza

Wheel BreezeClinic PlusPond’s

Pears

Pri

ce

High

Low

Source:


Nearly 25 years ago, CavinKare began the now popular trend of

offering sachets to penetrate the “bottom of the pyramid”

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CavinKare

Indian Shampoo Market in 1980s

Shampoos sold in bottles

Product available at upscale stores

mostly in urban areas

Give the high cost of the product,

product was out of reach for many rural

consumers

CavinKare (1980s)

Introduced sachet format

Pricing at USD$.03 to increase

affordability for the lower middle classes

Apart from the upscale stores, the

sachets were made available at corner

stores in rural and urban areas

Free sampling, trials and

demonstrations were conducted in rural

areas

~Monthly sale in ‘000 (1990–91)

Sources:

(1) Chik Shampoo- Rural Revolution

Response: Significant Share of Population in Low Income Group

Situation Initiative

Low High

Hig

hLow

Quality and Availability of Products

Co

st

to C

on

su

mer

(Pri

ce)

Large number of

Local Players

MNC players

Market Gap

Few Larger

players CavinKare (1999)

Introduction of USD$.01 priced sachet

35

1,000

-

200

400

600

800

1,000

1,200

Before After

11%

23%

0%

5%

10%

15%

20%

25%

1999 2004

Chik Shampoo – Market Share

Impact

The practice continues in earnest today and is considered the bare minimum

price of entry to penetrate the middle and lower level income groups in

emerging markets

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CavinKare

Launched Tiger Tikki - a ₹ 1 pack of four biscuits, and `Chota Tiger` -

poppable tiger biscuits in pouch packs

P & G introduced Vicks VapoRub in a tiny 5 gm tin and Tide detergent in

30 gm sachets priced at ₹ 3

Smaller packs of products such as Parachute hair oil price at ₹ 1

Smaller packs of products such as Navaratna Oil (hair oil) and Fair &

Lovely (beauty cream), etc.

JK Dairy came up with a 50 gm sachet of Dairy Whitener ₹ 6.50

Introduced a smaller bar (18 gram) of Lifebuoy soap priced at ₹ 2

Launched Parle-G Tikki packs priced at ₹ 1

₹ 1 =

~ $.02

In many African countries,

SABMiller has introduced a

locally made beer brand

called Chibuku, which costs

only 50 cents per servingSources:

(1) HLL Launches Lifebuoy at Rs 2, The Financial Express

(2) Britannia plans to raise stake in Daily Breads to 50 pc, The Hindu Business Line

(3) Marico launches Parachute in new easy jar packs, The Financial Express

(4) Rural Marketing is Real Marketing, Pondichery University

http://images.google.co.in/imgres?imgurl=http://www.hnip.net/imgLib/20061130_Procter_g_logo_drk_blu_300.bmp&imgrefurl=http://www.hnip.net/opportunities/agencyID.144/agency.asp&usg=__b8WLsJ5WCainfBRBWNvXKdbpkuc=&h=269&w=448&sz=354&hl=en&start=1&tbnid=DrQpFdRnGHHqtM:&tbnh=76&tbnw=127&prev=/images?q=P&G+logo&gbv=2&hl=en

http://images.google.co.in/imgres?imgurl=http://www.hnip.net/imgLib/20061130_Procter_g_logo_drk_blu_300.bmp&imgrefurl=http://www.hnip.net/opportunities/agencyID.144/agency.asp&usg=__b8WLsJ5WCainfBRBWNvXKdbpkuc=&h=269&w=448&sz=354&hl=en&start=1&tbnid=DrQpFdRnGHHqtM:&tbnh=76&tbnw=127&prev=/images?q=P&G+logo&gbv=2&hl=en

Even with access and affordability, products must still be meaningful

and drive value in order to be successful

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population






low income group




platforms

Note:


Source:

(1) BA Analysis


Local beliefs can be strong and must be understood as they relate to

different MNC products

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Mexico: Wards off Hunger India: Wards off Evil

Note:

(A) The above concept has been taken from HSBC commercials to showcase that CPG MNCs should never underestimate the importance of local knowledge in emerging markets

Source:

(1) HSBC Commercials

There are several examples of MNCs who have introduced products and

suffered due to a lack of understanding of cultural beliefs and translations

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When Coca Cola moved its brand into China, it went by the name Ke-Kou-Ke-

La, which translated to either “bite the wax tadpole” or “female horse stuffed

with wax” - neither of which really described the product

After a lengthy revision of 40,000 Chinese characters, Coke revised the name

to Ko-Kou-Ko-Le, which translated to the more appropriate “Happiness in the

mouth.”

Challenge: Strong Local Beliefs


Savlon, backed by J&J, clinically proven to be a better antiseptic than Dettol

(the market leader), but without the “stinging” sensation, failed miserably in

the Indian market

Indian consumers tend to believe that the stinging sensation is a sign of the

effectiveness of the antiseptic. So if it does not hurt, it is not effective. Dettol

helped create and reinforce this believe

Sources:

(1) Savlon : Heals Without Hurting

Cultural habits not only differ in emerging markets, but can differ

dramatically within an emerging market

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Unplanned snacking

in India is heavily

dominated by

streetside delicacies

(such as chaat,

samosas, panipuri

etc) local to each

region in the country

Planned snacking is

dominated by salty

savouries (called

namkeen in local

language)

Highly Local Tastes Regional Cuisines

Regional Variations in Eating Habits of Indian Consumers

Sources:

(1) Visual LY: http://visual.ly/node/22881

Emerging markets lack the same communication infrastructure as developed

nations and sometimes require multiple specific strategies due to regional

differencesMobile and Internet Penetration (2012)(1) Language Diversity in India

36

79

81

87

13

15

38

42

45

50

- 50 100

Japan

USA

UK

India

Indonesia

Mexico

China

Turkey

Brazil

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Sources:


There are reportedly 18 major

languages and 180 minor

languages in India

Challenge: Lack of Common Communication PlatformsS

ele

ct K

ey E

me

rgin

g M

ark

ets

While internet penetration may

be low, mobile phone usage is

very high in some emerging

markets, even exceeding 100%

and thus, instead serves as a

more viable messaging

opportunity

115

96

124

71

122

86

89

93

135

- 50 100 150

Mobile Internet

In many emerging markets, educational levels fall behind developed nations,

limiting sometimes the content and context in which marketing

communications be presented

37

102%

103%

107%

99%

104%

112%

113%

113%

118%

137%

0% 50% 100% 150%

USA

Japan

UK

Russia

Turkey

India

Mexico

China

Indonesia

Brazil

% of Gross

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School Enrollment (% of Gross Population) (LYA)(A),(B),(1)

Primary Secondary Tertiary

96%

102%

105%

89%

82%

63%

91%

81%

81%

106%

0% 50% 100% 150%

USA

Japan

UK

Russia

Turkey

India

Mexico

China

Indonesia

Brazil

% of Gross

95%

60%

60%

76%

55%

18%

29%

27%

25%

26%

0% 50% 100%

USA

Japan

UK

Russia

Turkey

India

Mexico

China

Indonesia

Brazil

% of Gross

Note:

(A) Gross enrolment ratio. Total enrollment in an education group (primary, secondary, tertiary), regardless of age, expressed as a percentage of the population of official education

group age. GER can exceed 100% due to the inclusion of over-aged and under-aged students because of early or late school entrance and grade repetition

(B) LYA = Latest Year Available

Source:


Se

lect K

ey E

me

rgin

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ark

ets

Challenge: Lack of Common Communication Platforms

Wrigley understood it would take patience and a considerable

investment to create and grow the “gum category” in China given

local conditions

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Key Points:

Wrigley launched chewing gum in China – a product unfamiliar to

locals

Used simple reinforced images, the Wrigley motifs were so powerful

that they were called the Green Arrow, White Arrow, and Yellow Arrow

gums

Expanded gum category to include young adults, teens and children

Response: Different Cultural Habits

Images of China 1989

Shanghai

Tiananmen Square

Guangxi

Before the 1990s, per capita consumption of gum was 10-15 sticks per

year in China vs. 20 sticks as of date ( Comparable in the US is 170-180)

From the beginning, Wrigley has demonstrated its commitment to

China via the investments needed to create a category and establish

local production facilities. This ambitious strategy armed them early on

with tremendous market insights

Source:

(1) WM Wrigley JR. Company: Innovation in China's Confectionery Market, Ali F. Farhoomand, Candise Pong-Wa Wai, University of Hong Kong

To address regional tastes in India, some firms, such as Frito Lay,

have launched multiple localized offerings

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Brand Extensions and Localization by Frito Lay in India

19991995

In 1999, Frito Lay

launched Kurkure,

a bridge between

western snacks

(chips) and

traditional salty

snacks

2001

Ku

rku

reL

ays

Lays

Tandoori

Style

Chicken

Lays

Malai

Murgh

Tikka

Kurkure

Meethe

Chatpate

2002 20042003 2005 2006-07 2008 2009 2010

Localized Offerings

Lays

Pudina

Punch

In Mexico, Coca Cola has 15 variants of Fanta alone in order to

address local tastes

Starbucks in India as included multiple foods infused with local

flavors to its menu

SAB Miller launched Impala in Africa which is a cassava based beer

to tailor to local tastes

Source:

(1) ISI Emerging Markets

(2) Company website

In order to overcome the lack of mass advertising opportunities in

India, CPG firms have turned to various innovative means

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Colgate Oral Health Month

Targeted selected cities and

villages per month

Used themes such as ‘Mission

Towards Zero Tooth Decay’

Organized free dental camps for

oral checkups and sponsored

various initiatives to educate the

masses about proper oral hygiene

Homes are often used as

billboards in rural areas

where traditional

communication platforms

are unavailable

The Fairever Pari Mobile Road

Show

Covered 178 villages in the

western parts Uttar Pradesh

A woman was chosen as Fairever

Pari or beauty queen of the village

through interactive sessions and

games

Beauty makeover was provided to

the chosen woman

Free Targeted Sampling

Emami targeted religious pilgrims

through a series of non-urban

consumer-connect initiatives

Along with the massages, the

company provided free samples of

its products such as Himani

Navratna oil and Himani Fast

Relief ointment to them

Coca-Cola Entertainment

Campaign was run in small towns

and villages of Uttar Pradesh and

Bihar

Coke promoted its brand Thums

Up by organizing dance, theatre

and music shows, and

competitions

Source:

(1) Live Mint

(2) Financial Chronicle

(3) Business Insights

(4) Colgate Palmolive

Response: Lack of Common Communication Platforms

Agenda

41



Key Learning

Success in emerging markets requires appreciation of the local macro

dynamics which can limit easy access to consumers

42

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Access

ChallengesMNC Strategies in Emerging Markets

Geographically

Dispersed

Population

Segment the market to identify right picks: Rather than

take on the entire country, consumer product

manufacturers can prioritize the market depending on their

product and take a more organized and logical approach

to the market which greater ensures success

Complex

Distribution

Network

Develop multi-pronged distribution strategy: Companies

need to have a multi tier distribution system as per the

target segment focus, cost of servicing, and competitive

strengths in the local market

Lack of

Infrastructure

Identify new distribution format: Companies need to

augment their distribution system with innovative practices

such as enabling entrepreneurs and women to act as

direct-to-home distributors in rural areas

Modify product or create infrastructure where possible:

Innovative distribution system and packaging may be

required to withstand infrastructure bottlenecks and

extreme weather condition

Strong Local

Players

MNC consumer goods companies will be able to win in

emerging markets only if they can match their local

counterparts in terms of cost and price structures

MNCs able to manufacture locally can reduce costs and

gain more market and distribution intelligence

In addition, MNCs need to invest in local R&D and

consumer insights to react to the market dynamically with

relevant products

Affordability must be addressed if MNCs hope to penetrate beyond

top tier consumers

43

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Affordability


High income

disparities

Consumer companies targeting emerging markets very

often need to offer a variety of products focusing the needs

of consumers in different income groups

Significant share

of population in

low income

group

The ticket size for tier 4 and rural consumers typically

being small, lower priced smaller packs should be made

available at corner stores and in rural areas

CPG companies can come up with innovative financing

schemes to enhance purchasing power of lower income

groups

MNCs need to develop more localized products and innovative

marketing strategies in order to encourage greater adoption

44

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Acceptance


Local beliefs

Consumer companies targeting emerging markets need to

develop marketing strategies which are in alignment and

appeal to local market beliefs

Cultural habits

MNCs need to develop long-term investment strategies

and do their homework via market research in order to

better understand local market tastes and habits

MNCs need to develop products localized in terms of taste,

packaging & presentation to ensure acceptance among

emerging market consumers

Lack of common

communication

platforms

Marketing strategies need to be tailored to local market

media usage patterns and key sources of information and

influences

Str

ictly P

riva

te a

nd

Con

fid

en

tia

l Disclaimer: No part of this presentation may be reproduced, stored in a retrieval system, or transmitted in any

form or by any means—electronic, mechanical, photocopying, recording, or otherwise without the permission

of Boston Analytics.

All materials in this presentation have been sourced from Boston Analytics’ databases. For detailed sourcing

information contact Boston Analytics.

Contact: Kimberlee Luce

Designation: Senior Vice President

Email ID: [email protected]

Boston Analytics (A division of Pythhos Technology (P) Ltd.)

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