So You Think You Understand Emerging Markets?
Given
the immense diversity and complexity of countries like India, it’s
better to approach them as continents. Traditional assumptions about
product development and segmentation should be left at the door.
Edible
oils constitute one of the most important components of food
expenditure in Indian households. Used mainly for cooking and frying,
India is the world’s third largest consumer, accounting for 16
percent of the country’s imports.
The
myriad different uses of edible oil in India also reflect a multitude
of different regional preferences and habits. For example, soybean
oil is mainly used in Northern and central parts of India due to the
availability of soybeans locally. Mustard oil is mainly consumed in
North-eastern and Eastern regions of India as its pungency is
desired, particularly for seafood. Palm oil dominates Southern India
due to the warmer climate and sunflower oil is popular amongst the
affluent classes.
In
addition to regional preferences, the volume of consumption also
differs markedly. In the North, food preparation is more elaborate
during the weekends and oil consumption is heavier, especially in
winter. In the West, due to a mixture of oily/heavy items as well as
simple items, oil consumption is moderate, while in the East,
primarily rice diets mean less consumption compared to the North. In
the South, main meals are also less oil-dependent. Adding the vast
differences in income across all regions and the multitude of castes,
language, dress, forms of worship and kinship and mixture of rural
and urban residents, the market is complex to say the least.
Imagine being a provider of edible oils in such a country!
Greasy
business
In
a recent
case study
based
on the experiences of a global food and agriculture company, which
we’ll call Healthy Oils, we can see the kind of considerations
business leaders have to make in approaching emerging markets such as
India.
Healthy
Oils is no minnow. Ranking among the world’s top 100 companies,
Healthy Oils is an international producer and marketer of food and
related products with over 100,000 people located in over 50
countries. It started out selling packaged vegetable oil in India in
the 1990s. By 2011, Healthy Oils had a portfolio of four packaged
oils as well as other products.
But
the company was at a crossroads in 2012. Rehaan Roy, chief marketing
officer of Healthy Oils India, had commissioned a study to see how it
was faring in the Indian consumer market, but the report did not
paint an encouraging picture. While Healthy Oils’ four offerings in
the market were recognised by consumers looking for cooking oil, they
were not in the top five in terms of brand awareness, nor were they
top choice in the “most often used” category. Having spent a
considerable amount acquiring a suite of edible oils from other
market players and with the multi-brand strategy being to move from a
bulk business to a consumer-facing retail business, Healthy Oils
products remained second tier consumer offerings.
Roy
had a lot of questions to consider, such as who were the target
consumers for each of their brands? In which category did Healthy
Oils’ strength lie? What would drive them to the Healthy Oils
categories? And what should the brand promise and marketing strategy
be?
Leave
your assumptions at the door
As
I will soon be teaching in a new executive development
programme, Market
Entry Strategy for India,
such conundrums require a new framework of consideration. Executives
can often apply tried and tested models and assumptions, or at least
some assumptions, when expanding across borders. But the complexity
of entering India is akin to entering a continent, not just a
country. Even edible oil is not homogenous.
Cereal
brand Kellogg’s learned this lesson to its peril in 1995 when its
products were made available nationally after first entering the
market in Mumbai in 1994. Kellogg’s initial offerings in India
included cornflakes, wheat flakes and basmati rice flakes. But
despite a whirlwind of public relations activity and the full backing
of its management, the products failed to make a dent in the Indian
market. Indians weren’t used to the packaged and processed
offerings. They also had a traditional habit of boiling milk and
consuming it warm, which gave Kellogg flakes an odd taste. Consumers
were also extremely price sensitive and Kellogg’s was up against
the wide availability of low-priced traditional breakfasts. Negative
media coverage about the taste of the products also stung Kellogg’s
and sales stagnated. Much like Healthy Oils, Kellogg’s hadn’t
thought about segmentation and it made the mistake of focusing only
on the premium and mid-level retail stores. With 80 percent of
Indians living in villages outside of the big cities, it was missing
a huge opportunity.
Only
after Kellogg’s introduced multiple products and put out a wider
array of packaging sizes to cater to different consumer groups did it
start to make progress. It also made its packaging less elaborate
which allowed it to bring down price, another consumer purchase
hurdle.
Framing
the challenge
There
is no one-size-fits-all solution to adapting your products or
services to emerging markets like India. But the following steps can
at least help to frame the problem, and hopefully, the solution.
- Awareness– Adapt communication means to local conditions and tastes, such as using street theatre, radio drama, or health camps to capture the attention of the target group and provide an interesting way for them to get information and gain knowledge. Consider leveraging local partners to create awareness.
- Appeal– Make the product acceptable to the target market by understanding the living conditions and constraints faced by them on a daily basis, including the group’s beliefs, habits, social norms and cultural traditions; and adapting the product to meet the low-income consumer’s requirements or infrastructure constraints like lack of clean water, for example, in terms of formulation, size and packaging.
- Affordability– Adjust pricing to make products affordable to low-income consumers or make available financing mechanisms to the target group through micro-finance etc…
- Availability– Make the product physically available close to the target consumer by working with local partners or taking advantage of existing distribution channels of partners for the “last mile” of distribution; and more importantly, make sure the consumer gets the right product through proper training of staff.
- Alliances– Work with partners in private and public sectors (locals, regulators, NGOs) that can help deepen understanding of the market, facilitate operations, build awareness, enable availability by opening up distribution channels, and help with affordability by providing financing options.
- Adherence– Make compliance easy, in the case of pharmaceutical companies, as too complicated a drug regime can make it difficult for low-income consumers to adhere to medicine-taking, for example, too many times a day, too many pills to take etc. due to lack of education or lack of facilities like clean water.
My
ultimate advice is to get to know the market and the consumer up
close, not on a spreadsheet or a PowerPoint slide deck. I take my
executive students to have tea with consumers in their homes, get to
know distributors, legal firms and research firms to understand not
just the complexity of India, but also the constraints the consumers
face and how you can unlock their potential loyalty. Being present is
only half the battle, being engaged is the rest.
Amitava
Chattopadhyay is
The GlaxoSmithKline Chaired Professor in Corporate Innovation at
INSEAD
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