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In major growth markets, the mid-price market segments are growing at practically the same pace as incomes. In order to capture larger market shares in dynamically growing product categories, an increasing number of companies are relying on a strategy known as “category flooding”. They aim at several target groups at the same level of the income pyramid, but also address other levels of the income pyramid. By offering more than one brand in the same category, they can achieve greater market share. You know: who only uses one single brand cannot increase sales above a certain level. The main reason for this natural “cap effect” is that consumers have different psychological needs and expectations compared to their preferred brand. Since brands also have a kind of personality, there are correspondingly many people who do not want to commit themselves to a certain brand. Therefore, it is sometimes advisable to build up different brands that operate in the same market and serve the same functional needs, but have a range of brand personality profiles or different brand emphases. This strategy is used in particular in rapidly growing consumer goods markets where financially strong global champions such as Procter & Gamble, Unilever and Pepsi Foods are fighting for market leadership.
The flooding of categories should ultimately lead to such a dominant role in a specific market that consumers cannot evade the company’s brands. Even if they reject a particular brand, they are likely to buy a sister brand without knowing that it is manufactured by the same company. Of course, category flooding also takes place at different price levels. This enables companies to target more affluent consumers with a premium brand while offering consumers in the mid-market or mass market normal or cheap brands. Three methods are particularly popular to reach your goal. Dr. Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group) describe in detail the category flooding in our new Springer publication “Successful brand development in the major emerging markets” (written in German).
Method 1: Tetra-Pack’s success with different package sizes
Coca-Cola markets Thums Up in India as a major local cola brand with a local flavor. Strategically, Thums Up focuses on traditional consumers, while Coca-Cola itself mostly appeals to younger and more modern consumers. In the more traditional and lower income groups, Coca-Cola also offers beverages such as Minute Maid with guava flavor, which can be enjoyed with
a “Made with Nature” promise and should promote a healthy lifestyle. To appeal to less affluent consumers, Minute Maid is available in a smaller Tetra-Pack format with less content. The small package is offered at a price of less than a quarter of the larger package. Minute Maid Guava was initially only available in selected cities in Punjab, Delhi, Uttar Pradesh and Kolkata (formerly Calcutta).
Method 2: With the multi-segment strategy to market leadership
The flooding of whole categories can also be observed with toilet soaps. Unilever offers Liril and Dove in the premium segment, LUX as a mid-range brand and Lifebuoy in the low-price segment. This strategy helped Unilever to become the market leader in this category in India and to achieve similar success in the detergent category.
Method 3: Expand the portfolio with acquisitions of local competitors
In the categories of household applications and appliances, the acquisition of local competitors – and their integration into the existing portfolio – is a widespread strategy in large emerging markets such as Brazil. Two major groups, US-based Whirlpool and Mexico´s Mabe, control more than 60% of the national market in Brazil. Whirlpool acquired the local brands Brastemp (market leader in household and kitchen appliances since 1973) and Consul, the first Brazilian refrigerator manufacturer. Both domestic companies merged to form Multibras in the early 1990s. Under the leadership of Whirlpool, Brastemp and Consul fundamentally changed their corporate culture. They strengthened their consumer orientation and became more innovative. Today they are an integral part of the worldwide Whirlpool Group. In the Brazilian market, where competition is becoming increasingly fierce, companies such as Bosch, Elektrolux and General Electric have also taken over local manufacturers. Consul and Brastemp enabled Whirlpool to flood the category “white goods” – i.e. household appliances of all kinds – and to be successful even in a weakened economy. Consul is the brand for the mid-market segment, while Brastemp was positioned as a premium brand. Brastemp is mainly marketed with quality and innovation as its most important features, while Consul is advertised for simply being part of the household. The advertising messages refer mainly to the functionality and simplicity of the products.
The flooding of categories can appeal to very different groups with different consumer motives. Two of the most important groups in the major growth markets are almost always in the target radar of marketing departments. One is a rather young, career-conscious group with a good education and rising incomes. It has a tendency towards a more prestigious consumption because it aims for a higher social status. This target group clearly prefers well-known foreign quality brands. The other important group is older, less brand-oriented and less demanding buyers.
Increasing competition, escalating advertising costs and rapidly growing product categories are confronting marketing managers in major growth markets with the challenge to design the best brand architecture. Depending on the choice, it can help a company grow in the fastest and most profitable way. First, it is important to analyze the circumstances in the target market and the brand status of your own company in this market. A company must then select the strategy that suits it best. If the company brand, usually the company name, already has a high degree of recognition and a high reputation or a larger country of origin bonus, it makes sense to take full advantage of this value. There are usually two ways to do this: either a strict branded-house strategy or the house-of-brand strategy with strong support from the corporate brand. This is described in detail in our new Springer publication “Successful brand development in the major emerging markets” (written in German) by Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group).
Branded house strategy particularly widespread in the B2B sector
A branded house strategy combines numerous, often very different products under the umbrella of a single, strong brand. All business units or brands share the same vision and values. While this requires closer cooperation between the company headquarters and the various business units, it also opens up the opportunity to strengthen customer loyalty, as it is likely that consumers will be attracted by the umbrella brand. This strategy is particularly common in the B2B sector or in industries such as consumer electronics, where companies such as Apple, Samsung and Sony give an individual product (such as the iPhone or the Galaxy series) their own name but associate them closely with the company’s umbrella brand. In the B2B sector, the logistics provider FedEx is a good example of this approach. It identifies the various business units as variations of the corporate brand such as FedEx Ground, FedEx Freight or FedEx Service.
House-of-brands strategy: the corporate brand only has a supporting function
In contrast, the different product lines or business areas represent their own brand identity and positioning within the framework of a house-of-brands strategy, with the corporate brand appearing with little or no support. Here, customer loyalty lies more with the individual brands (below the company brand), which are carefully tailored to the specific emotional and functional needs of the target group. Procter & Gamble is a good example of this approach, as the numerous brands like Pampers, Duracell, Gillette and Tide only display their own brand identity. But especially in emerging markets, these separate brands will be supported by P&G at least indirectly, as the “umbrella brand” gives them additional prestige in terms of quality and trust.
Local constraints such as joint venture obligations increase organizational complexity
In many cases, however, it is not easy to apply a strict branded-house strategy, as many global companies operate as joint ventures in some markets. This increases the organizational complexity and limits the brand strategy. In China, for example, the complex structure of the local automotive industry significantly reduces the visibility of the brand and the feasibility of brand strategies. Consumers themselves are hardly concerned about the different joint venture brands; they are concerned about “their” BMW or Volkswagen. And it is a big difference for them whether a vehicle was imported or manufactured locally. For this reason, many competing brands have externally managed to integrate their respective joint venture partners relatively seamlessly into the general umbrella brand. Like other foreign car manufacturers, Volkswagen still faces obstacles. But the company recently made greater progress with its joint internet brand portal, where consumers can find all Volkswagen products in China in one place for the first time, regardless of whether they were imported, whether they were Shanghai-Volkswagen, or whether the vehicles were produced by FAW-Volkswagen, the joint venture between Volkswagen and First Automotive Works.
The trend towards greater use of corporate brands is supported by increasing competition and the unabated rise of advertising costs in growth markets. This forces companies to increase their profile, visibility and brand strength in a faster and more cost-efficient way. A single (corporate) brand can achieve this strength faster than a portfolio of differentiated brands. Since there are still many products with poor quality around in the emerging markets – and the average consumer is addressed more by reputation and “brand origin” than by a specific positioning – it is obvious why corporate brands play a much greater role in the environment of a growth market.
In recent years, offering very different product categories under one brand umbrella has become increasingly popular. Xerox expanded its core brand from copiers to computers. General Electric also sells financial services. We can book rooms in luxury Versace hotels, or surf the Internet with Ferrari notebooks. We can even wear shoes or watches from Caterpillar, Porsche or Jeep.
This horizontal brand expansion, i.e. the expansion of a brand into what at first glance appear to be untypical product fields, is also a popular strategy in emerging countries. The reason is simple: it not only helps to accelerate market access and reduce costs, it also uses the leverage of well-known brands in rapidly growing new product categories. One of the most important drivers for the expansion of a single brand into other categories or even industries is the fact that building brands and their distribution channels in large countries such as China or India is very costly. Companies often shy away from making additional investments in a second brand if this is not supported by strong strategic considerations.
Dr. Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group) explain in our new Springer publication “Successful brand development in the major emerging markets” (written in German) what is important for horizontal brand expansion.
More confidence in manufacturers with several brands
There is also scientific evidence for this behavior. Research shows that Chinese consumers generally trust better-known brands more than others. First and foremost, because the brand helps to convey greater confidence in product quality and product safety. More than one in three consumers in China believe that companies active in many product categories are more trustworthy than those that are limited to only one or two product segments. This confidence is twice as high as in the US (18%).
This attitude on the part of many consumers in major growth markets gives companies the opportunity to expand their brands in these markets to a very large extent. Perhaps that’s why Coca-Cola presented a casual clothing collection for young and fashionable consumers during Fashion Week in Rio de Janeiro. The beverage company wanted to strengthen its position as the world’s most valuable brand and called on Brazilian designer Thais Rossiter to create a mix of retro, sporty and urban design full of pictorial and floral prints from various sources. The collection ranged from glamorous evening gowns to nylon shorts – all bearing the Coca-Cola trademark.
Haier: First refrigerators, then also electric kettles and computers
China’s largest household appliance manufacturer Haier also extended its core brand, refrigerators, to televisions, kettles, mobile phones and even computers. However, this horizontal brand stretching was also used as an example of overstretching. But this does not seem to have had too negative an effect on Haier, as the company is still the world’s number 1 manufacturer of white goods.
Horizontal brand expansion has particularly good prerequisites in the major growth markets, because consumers here are not yet so strongly committed to certain brands and as they are keen to experiment. In addition, companies active in several product categories between Rio, Shanghai, Mexico City and Mumbai usually become more trusted.
In order to increase sales, many international companies are building up a differentiated brand portfolio in the major growth markets, consisting of a brand for the upper market and separate brands for medium and lower segments. This strategy, which is based on many brands, is mainly found in the consumer goods sector and has proven to be very effective if properly implemented. In countries such as China, where regulations often require joint ventures in the development of domestic brands, companies are occasionally forced to develop additional brands for political reasons.
In contrast to the vertical brand expansion described in our previous section, which deals with the development of the middle-income segments through the expansion of a premium brand, this is a broad positioning for several or all important consumer segments, including the entry-level segment of a rapidly developing middle class. This strategy is appropriate if several or all important segments in an emerging market show strong growth and consumers are switching dynamically to higher segments due to their income situation. This is described in detail in our new Springer publication “Successful brand development in the major emerging markets” (written in German) by Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group).
Nothing works without the important entry-level segment
In January 2013, Volkswagen’s Head of Development Ulrich Hackenberg reported that the Wolfsburg-based company was planning its first low-cost vehicle in China as a separate brand together with one of its two Chinese joint venture partners. In March 2013, the joint venture partners BMW and Brilliance confirmed reports of the establishment of a joint sub-brand with the Chinese name “Zhi Nuo”, which can be translated as “The Promise”. For BMW, the new brand was part of an expansion plan into local markets and a further step towards obtaining approval for a second joint venture production plant in Shenyang.
Utilizing the first mover advantage and developing additional dynamics
The Unilever Group in Brazil wants to benefit from the opportunities in the mid-market segment in the detergent products segment by positioning itself with OMO as a premium brand, but also with ALA as a brand that has been specially developed for the lower and middle-income groups. In the case of Brazil, these groups live mainly in the north-east of the country. Unilever’s internal campaign name for this region-specific brand extension was “Project Everyman”. Product customization for ALA aimed to better meet the needs of consumers with lower incomes. These included smaller plastic bags instead of the normal three-kilogram pack from OMO, but also different scents such as lavender, which promises happiness in the local culture and is said to attract men, as well as an easily recognizable packaging due to the low literacy prevalence in the region. In the ten years before 2007 Unilever had succeeded in achieving 81% market share in Brazil in the detergent powder sector.
The company developed a portfolio that covered virtually all major segments of the market from the premium brand OMO to Minera (washing powder and household soaps) and down to Campeiro (the cheapest washing powder brand). Before Unilever began to expand into the north-east of the country, it carefully studied local demographic conditions. There are 48 million low-income consumers living in the country’s North-East, or 28% of Brazilians. The usage behavior was relatively easy to determine: Clothes were washed more frequently because people had fewer clothes per person. They mostly used launderettes or even water basins where they could meet and talk to their friends while washing. The entry into this rural market offered the opportunity to develop additional dynamism, benefit from the first mover advantage and become a market leader in consumer marketing for low-income people.
Realizing the full sales potential
Consumer goods giant Procter & Gamble (P&G) pursued a similar strategy of portfolio expansion in the Chinese detergent market in order to realize its full sales potential. The brands Ariel and Tide are available for this purpose. P&G’s flagship detergent brand Ariel is positioned in the premium segment, while Tide is focused on the mass market. In order to achieve a clear differentiation between the two brands, P&G relied on two brand ambassadors who could not be more different. The company was able to win the famous Taiwanese singer, actress and TV presenter Xu Xidi for Ariel. It is considered very quick-witted and somewhat snappish and thus appeals to modern urban Chinese consumers. In Ariel’s TV commercials, Xu Xidi often appears with a playful and funny undertone and shows off her humor to its best advantage. Slogans such as “five-star purity” further underline the premium positioning of the brand.
Tide, on the other hand, is advertised by Chinese TV star Hai Qing. She is known as Everybody’s Darling and is famous for her numerous roles in Chinese soap operas. Through the cooperation with Hai Qing, Tide reaches the rather conservative mass market. As brand ambassador for Tide, she organizes cooking lessons and gives household tips at events or in the social media. The advertising campaigns often show them in a traditional environment together with mothers and children. P&G’s product policy reflects the positioning of both brands. Ariel’s packaging sizes are significantly smaller than Tide’s when defining the segments along approximately the same price level. This makes Ariel the ideal product for Chinese consumers who find large packaging uncomfortable and are more focused on quality, while Tide is the preferred choice of more price-oriented consumers.
In order to exploit the entire sales potential in the major growth markets, separate brands are required for separate markets. The brands must be clearly distinguishable and their respective merits should be communicated in the language and with clear reference to the respective income groups.
Business in growth markets has become increasingly important for multinational companies over the past decade. However, many companies are focusing too much on the premium segment when expanding into new markets, neglecting the large mid-market segment. Western managers like to underestimate how much purchasing power there is between the top ten percent of the population, the “super-consumers”, and the lower-income consumers in rural areas of the respective hinterland.
The potential of the upper middle class and the economy class is enormous. Therefore, smart brand stretching provides an effective opportunity to expand a brand’s reach and sales beyond the premium segment. It is often used as a strategy in growth markets because it also allows much faster access to the market and causes significantly lower communication costs. For example, it is not necessary to inform and educate consumers about a completely new brand. This is described in detail in our new Springer publication “Successful brand development in the major emerging markets” (written in German) by Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group).
Market analysis: Relevant segments and customer requirements
Many questions must be answered before a brand is stretched. First of all, the market opportunities need to be analyzed. How large are the relevant middle segments? How intense is competition there? What are the prevailing customer wishes and trends? And one of the most important aspects: What are the expected profit margins? Another crucial factor to consider is the cost of manufacturing and organization and the company’s ability to adapt. In our experience, this is the most difficult and tricky aspect. Many companies worldwide are doing outstanding work when it comes to developing complex, high-performance products. But precisely because of their engineering skills and the way they think and work aimed at optimizing quality, it is difficult for them to make products less complex, less powerful and more cost-effective. Finding back to the strategic flexibility of “learning” and reinventing important aspects of a business model is important in building a strong and sustainable position in the growing mid-market segments of emerging markets.
Reach: Including neighboring income groups
In emerging markets, vertical brand stretching is very often used to increase product reach. This innovative strategy has been used in the automotive sector for many years. One speaks of a vertical brand expansion, if one looks at the price and/or the quality of the core brand down or above to reach additional market segments. Mercedes, for example, uses this procedure for vertical brand stretching from the S-Class to the A-Class. Volkswagen also uses the entire range of models from the luxury flagship Phaeton to the miniature car up! Cunning marketing managers see brand expansion as the fastest way to leverage the value of a core brand to be attractive in more market segments.
Identity: The core brand and the new brand must be different
However, vertical brand stretching should include more than just pricing. It can also include a change in product composition or packaging to appeal to a wider range of customers and increase sales. To avoid over-emphasizing the core brand, it is advisable to distinguish between the core brand and the new brand in terms of taste, smell, functions, performance, applications, packaging and brand communication. If the price were the only difference, customers from higher income groups could be tempted to switch to the cheaper brand, which would lead to a loss in sales. The “Crest” toothpaste produced by Procter & Gamble is a good example of how successful brand differentiation can work. To further expand in the mid-market segment in China, Procter & Gamble changed the composition and packaging of the brand. The premium version “Pro Health Complete 7” is aimed at upscale consumers. It has been positioned to combat seven oral hygiene problems caused by modern lifestyles. The property and claim to restore natural tooth whiteness has been reserved exclusively for Crest’s premium products. On the other hand, the basic properties of the cheaper products for caries prophylaxis were the focus of attention.
New research confirms that brand expansion is a key factor for sustainable growth in the major growth markets. In a featured insight, research institute Nielsen described the results of a comprehensive market study that examined 82 brand extensions in 46 different categories in the Indian fast-moving consumer goods (FMCG) market. According to the study, 30% of sales of the top 23 FMCG brands are already achieved through brand expansion. More importantly, it was found that the likelihood of successful brand extension is five times greater than that of new product launches.
Anyone expanding into new markets when building up an international brand is entering a high-speed environment with rapidly changing trends and enormous consumer dynamics. Drivers of this hyper-development can be market reforms, rapidly rising wages, or the emergence of local brand champions. In such an environment, it can make sense to adopt and revitalize an existing local brand. Building your own brand from scratch requires a lot of time and money and can fail due to false assessments. In contrast, the acquisition of an existing brand may require a repositioning, but the considerable growth of the local market will be used much faster. This is described in detail in our new Springer publication “Successful brand development in the major emerging markets” (written in German) by Dr. Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group).
As a rule, acquisitions and revitalization of local brands preferably take place in product categories such as food, beverages and other consumer goods, as tastes, habits and preferences can be very local and closely related to the local culture. Consumers here have long been familiar with the local brand. Marketing professionals point to three main advantages in connection with the acquisition and revitalization of local brands:
1. Established names with a high level of awareness facilitate market entry
The McDonough School of Business at Georgetown University has shown in a survey of product categories such as beer, hair care and carbonated soft drinks that a significant part of the success of multinational companies in international markets is due to the acquisition of local brands. If the existing brand is established, customers are familiar with it and the distribution channels are in place. The costly establishment of a reputation is unnecessary, or it is at least much more cost-effective with a reorientation. This increases the chances of success enormously and saves important time.
2. A loyal customer base with strong brand loyalty
Time is only one factor to consider. Brand loyalty is another. Many domestic competitors in rapidly industrializing economies are still weak in terms of growth. But they can often refer to a very loyal clientele. This is an important factor for internationally expanding companies, because a loyal local clientele provides the important brand loyalty without having to invest a lot of time and money. If consumers are on average older and more traditional, local brands can even evoke positive memories of their own youth long gone. However, they must be revitalized in the consciousness of consumers and supplemented by other aspects relating to the future.
3. A functioning distribution network minimizes resistance in local channels
One of the best-known examples in international growth markets is a large Indian beverage producer brewing a cola drink to suit the local taste. In 1977, when the Indian government asked Western companies to give up control of their Indian subsidiaries or leave, Coca-Cola withdrew from the country. Indian companies, including Thums Up, tried to conquer the national market for soft drinks. Thums Up dominated the market for 16 years and achieved 35% market share at peak times. But with the reforms from 1991, the government relaxed regulations. Coca-Cola and Pepsi-Cola returned to the Indian market. In 1993, Coca-Cola bought Thums Up and wanted the brand to go out of the market in order to protect its own market share. But the resistance of local traders and consumers prevented this. Following massive protests and a 30% drop in market share, production of Thums Up was resumed. Coca-Cola invested large sums in the brand and took up the earlier advertising campaign with the slogan “Taste the Thunder” again. Bollywood action hero Akshay Kuma became a brand ambassador. The actor Salman Khan, who played an air force pilot, was also engaged. Coca-Cola was thus ahead of a Pepsi advertising campaign in which “Top Gun” hero Tom Cruise appeared. Thums Up took the crown from Pepsi with a market share of 17%. And Coca-Cola was from then on able to attack its competitor in the “Cola Wars” with two different brands.
The major growth markets are more like continents than individual countries. Hundreds of languages, regional traditions, tastes and customs make them a huge conglomerate of markets. A “one size fits all” approach is doomed to fail here. However, it makes much more sense and is strategically more appropriate to concentrate on important regional areas or city clusters as a brand in order to find a starting point for the best growth opportunities. The leading cities are only one possible destination. Rapidly growing centers in the “hinterland” are another promising option within the framework of the cluster strategy. This is described in detail in our new Springer publication “Successful brand development in the major emerging markets” (written in German) by Dr. Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group).
The art of expanding along city clusters begins with a thorough analysis of the differences between the individual regions. It is not difficult to identify the clusters. They may be groups of cities linked by a particular economic structure, demographic structures, comparable consumer behavior or geographical proximity. Perhaps the biggest – but by no means the only – advantage of focusing existing resources on city clusters is the ability to leverage economies of scale and existing distribution networks. If one is successful in certain clusters, one can also build up a decisive market share, which then can be used as a springboard into other regional clusters.
1. Purchasing power analysis: how to identify the epicenters
One way to identify the most promising clusters for your company is to examine the existing and expected income levels. Are there signs that consumers are starting to buy their first car? Or is an increasing demand for imported or luxury goods ahead? How many middle class households are there and what do reliable forecasts of expected income growth say? Is consumer demand increasing in product segments that affect the company? Managers from successful companies are unanimous in their opinion that precise inquiries are very important to identify the epicenters of future growth. The smaller, suburban cities in the country are expected to generate 60% of the general growth in the fashion industry in the coming years. And by the end of the decade, almost half of consumers in rural areas should belong to the middle class.
2. Understanding consumer drivers: is it all about individuality or just being a part of it?
Brand companies must understand their target markets in detail. Shopping habits and consumer motives can even differ significantly from city to city. For young people in the primary cities it’s about individuality, they don’t want to “follow the herd”, while at the level of subordinate cities it’s more about being a part of it. The fact that the urban population in emerging countries alone is growing by around 60 to 70 million people a year underlines their importance. This corresponds to 60 times the population of Cologne or eight times the population of New York.
3. Key question for the campaign: how homogeneous is the selected cluster?
Another decisive consideration is whether the selected cluster is homogeneous in terms of the defined criteria. A well-known example are the neighboring primary cities Shenzhen and Guangzhou in China. People in Guangzhou speak Cantonese. Most of them were born in and around the city and spend a lot of time at home with their families. In Shenzhen, on the other hand, the population consists of mostly migrants from other parts of the country, and Mandarin is usually spoken there. Integrating the two cities into the same cluster would require two completely different campaigns. Once you have decided on certain regional or city clusters, you have to consider how many submarkets you want to target. The more submarkets there are, the more difficult it could be to achieve the desired efficiency.
Success story: Unilever’s mosaic approach
Large and successful companies such as Hindustan Unilever (HUL) have conducted their own cluster-based campaigns. In the case of HUL, the “Winning in Many India’s” (WIMI) program was developed. In a first step, HUL, the largest company in the country, divided India into five major regions in the field of fast-moving products (FMCG). Then, on the basis of detailed consumer knowledge, another 14 geographical units were identified, which were city clusters. The company no longer regarded India as a homogenous country with few large markets, but as a country consisting of a mosaic of markets.
The dynamics in major growth markets can hardly be surpassed. Many things change at the same time. International brands and new local champions battle it out for market share. Entire development leaps in electronics, cars and Fintech turn markets upside down. Moreover, there are consumers who learn quickly, who are not really loyal and feel confident enough to try out lesser-known brands at an early stage. This makes customer loyalty a problem. Traditional brand loyalty campaigns often fail in the major emerging markets. This is also due to the fact that consumers climb up the premium ladder quickly. They are constantly raising their expectations and want to showcase their new status.
Marketing managers have to deal with extremely mobile target groups. Brand loyalty often puzzles them: What motivates customers to remain loyal to their current brand? Does the cultural background play an important role? Many questions, but only one certainty: In an environment such as the major growth markets, product and brand managers must know their customers particularly well. They need to be as close to them as possible, communicate with them through the most effective channels and give them the full range of brand experience. Dr. Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group) provide some useful tips – all details can be found their new Springer publication “Successful brand development in the major emerging markets” (written in German).
1. Pole position first, then flatfoot: How VW pulled out of the loop in China
Volkswagen China is a good example of how important customer loyalty is in large growth countries and what pressure can build against a company. After entering the market in the 1980s, VW initially succeeded in capturing a share of more than 50 percent. But after the WTO accession in 2001, the market share of the Wolfsburg-based company fell below 20 percent. Nevertheless, VW managed to remain number one in China, despite the growing number of buyers who are willing to buy larger cars or experiment with other brands. Brand loyalty reaches about 80 percent in western car markets. In China it is only ten percent. In China, one third of all buyers now buy their second or third car. This makes customer loyalty a huge challenge. VW has responded by significantly expanding its model portfolio so that customers have a wider choice. In addition, a retention strategy was developed. This includes a standardized recording of the most important expectations and the drivers of loyalty. In addition, a strategy for after-sales management (CRM) was developed and consumer motives were analyzed in detail.
2. “Malina” and the card trick: Increasing loyalty through cooperation
There are numerous examples of successful customer loyalty programs in large growth countries. One of these is the “Malina” campaign in Russia for five partners, all of whom were market leaders in their respective product categories. Participants included the Rosinter restaurant chain, the telecom company Vympelcom and the BP-TNK service station chain. Together with Visa Card, they issued a credit card as part of Malina. All family members of the cardholders were able to collect points on a joint account and earn bonuses. In the first year after the start of the program, 2.1 million cards were issued. After two years, Malina was the leading loyalty program in Russia. Rosinter-Restaurants and TGI Friday’s, another partner of the initiative, experienced a double-digit percentage increase in the transaction volume of their cards.
3. Special privileges: How to satisfy the hunger for privileges
According to an EY survey, customer loyalty in India is only about half as high as in Europe and the US. So how can you keep customers who are willing to change? The COLLOQUY Cross-Cultural Loyalty Study, a global “commitment compass” that examined consumer attitudes in Australia, Canada and the US as well as in the emerging countries Brazil, China and India, provides helpful insights. The study confirms that consumers in emerging markets demand “special service” three times as often as discounts and privileges. And now comes the crucial point: almost three times as many buyers in emerging markets declare that loyalty to their preferred brands pays off. This is clear proof of the potential of customer loyalty programs. Preferential treatment and rewards are appreciated by customers all over the world. But nowhere is the desire for VIP treatment more distinct than in the large growth markets.
Who is responsible for an advertisement to end up precisely at the right time to reach the intended target group? An Account Manager Social Advertising of course. Get to know Katharina Steinert und Steven Carthy from Plan.Net Content Marketing in part 5 of our series Jobtitles Bingo!