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.

Authors: Florian Haller, CEO Serviceplan Group, and Niklas Schaffmeister, Managing Partner Globeone

Insiders have known it all along: When foreign companies succeed in growth markets, half of the success factors are directly related to the adaptation or localization of key elements of the brand strategy. The key question is how best to adapt a brand to local expectations and requirements. Based on multiple years of consulting experience, we at Globeone have developed the so-called market-driven positioning process. This multi-stage process ensures that all relevant internal and external factors are taken into account in the analysis and development of the positioning strategy. The result is a positioning concept that is actually tailored to the needs of consumers and at the same time protects the brand itself from overstretching. The six steps can be read 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).

1. Market analysis: Gaining an overview

The problem many companies are facing is not that they miss information, but often the available information is simply not prepared in a way that makes sure it promotes the development of meaningful and realizable strategies. The first step is therefore to collect all relevant data within the organization and – if necessary – to supplement it with additional market and consumer research. From the available company data, competition analyses, market statistics and relevant media reports, an overview of the target market and initial positioning options can then be obtained.

2. Relevance analysis: Understanding what is important to consumers

The prerequisite for a successful positioning is always the local relevance of a brand or product. Therefore, in a second step, the most important decision drivers for the brand are identified. It needs to be analyzed how the brand can best support the development of certain preferences. The evaluation does not only need to take into account the functional brand drivers. It is important to include those that appeal to the customer at the emotional level as well. In our experience, many foreign companies do not begin with this relevance analysis, but instead assume a much narrower starting position from the outset. However, this carries substantial long-term risks.

3. Feasibility: Not every consumer wish fits the brand

Recognizing the needs of consumers is one thing – but serving them successfully is another. If a company has analyzed the local target market and the target group without bias, it must of course decide which consumer needs and wishes it can satisfy best. What can actually be achieved may depend not only on the portfolio but also on the current image of the brand. The image must match the brand offering, otherwise there is no convincing basis for consumers to buy. If the company or brand lacks the relevant image associations for certain products, systematic brand development is necessary.

4. Consistency analysis: Beware of excessive adjustments

Balancing the global brand promise and local positioning is incredibly important in order to avoid brand dilution. Adaptation to the local target market must not conflict with global brand positioning, because otherwise there will most likely be conflicts in brand management. In this fourth step, the consistency of the positioning route with the global brand promise must be checked. If the adjustment to the local target market threatens to be too strong, companies are generally well advised to build up a separate brand.

5. Differentiation: How to draw the best distinction

In a further step, the positioning strategies of local and global competitors must be analyzed because the composition of competitors in individual markets can vary greatly. More importantly, however, competitors themselves sometimes choose different positioning strategies for each country. Therefore, brand managers cannot blindly rely on a competitor’s positioning in one market corresponding to its positioning in another. The communication between competitors must also be scrutinized: How is positioning implemented in print media, advertising campaigns, digital channels and elsewhere? Based on this analysis, a positioning chart can then be created. It can be used to identify the positioning gaps.

6. Positioning: Finding the best value proposition

The remaining options resulting from the previous steps can now be validated for their attractiveness through detailed quantitative and qualitative tests. This last step should not be underestimated, because only the truly optimal market-driven positioning helps the brand to remain relevant in the local target market in the long term. This process can also be used to develop similarly convincing product and service concepts.

Infographic market-driven positioning