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Key Consumption Features of Eight Emerging Economies and Their Implications for Business

Key Consumption Features of Eight Emerging Economies and Their Implications for Business

LEE Dong-Hun

July 21, 2008

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Originally released on May 29, 2008

ABSTRACT

Emerging economies have achieved a high level of economic growth over the past ten years with private consumption growth estimated at over 7%. Along with an improvement in overall earnings and living standards in these economies, middle-income households with annual disposal income of more than USD5,000 are expected to shoot up to 170 million households in 2015 from 87 million households in 2005. As their pattern of consumption is transcending from “living for livelihood” towards “living for values,” while showing signs of global homogenization due to wider market openings in the fields of culture and media, they are now emerging as a huge consumption bloc. As emerging economies are coming into their own as consumption markets, an increasing number of multinational companies are paying attention to consumption trends in these countries.

In most of the emerging economies, albeit somewhat different from country to country, young people residing in metropolitan areas with a high level of income and education are emerging as a new central consumption group, leading the overall consumption trend. They have three characteristics in common. First, they tend to prefer Western brands as a way to express importance or individual personality. Mid- and low-priced global brands, in particular, are enjoying a rising popularity among these people. Second, along with improvements in the quality of both daily lives and distribution infrastructure, coupled with a decline in the share of food, clothing and residential expenses in total consumer spending, optional consumption, a term to describe the consumption of non-essential services such as leisure, travel and education, has risen dramatically. Finally, a new pattern of consumption (i.e., present-oriented) is forming among young people as they are increasingly geared towards “enjoying the present.”

Based on the full consideration of consumption features and retailing infrastructure conditions in these emerging economies, this paper provides businesses with five strategies to establish a clearer profile of the region. First, businesses need to develop low- and mid-priced brands in order to appeal mainly to consumers who are sensitive to both brand and price. Second, in parallel with efforts in leveraging their global brands, businesses also need to accelerate the localization of their products and services in order to better meet the social and cultural differences of countries. Third, they need to develop new business models to further compensate for the weak purchasing power of the younger demographic in emerging economies, with a strategy involving financial products. Fourth, for those plagued by weak marketing infrastructure and a lack of brand recognition, placing a marketing focus on the public interest in collaboration with government and municipal authorities would be an effective strategy. Lastly, businesses need to make active use of new media in order to acquire more attention from its younger customer base.

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