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Companies from around the world are charging boldly into Africa, Brazil, China, India, and other parts of Asia. However, they have been reluctant to push beyond the familiar affluent customers they have long served in developed markets.
They are largely ignoring a vast, untapped and rapidly growing group of consumers. More than one billion people in rapidly developing economies (RDEs) have emerged as a distinct segment poised for continued growth and voracious consumption. For companies that can figure out ways to serve them profitably, the next billion represent an enormous opportunity to generate new revenue and create innovative products, services and ways of doing business that will provide lasting advantage in all markets.
Categorized by income, the next billion sit just above the poorest of the poor and just below the "top of the pyramid." Collectively, they spend just over $1 trillion a year. If these consumers were a nation, it would be the tenth-largest economy in terms of GDP, coming after Spain but ahead of Brazil, Russia, India, South Korea and Mexico. In its development, the next billion nation is today where India stood in the 1990s and China in the 1980s — on the cusp of high growth and voracious consumption.
Yet the next billion pose a conundrum for businesses. They are brimming with real demand for products and services. These consumers are willing to tolerate the usurious rates, shoddy products, substandard service, and limited choice that pervade the informal channels on which they're forced to rely. But today the next billion are unprofitable to serve on the basis of conventional business models. Companies can profitably reach these consumers, but only by reorienting their products, marketing, distribution, and organizations.
In Brazil, two-thirds of the country's 53 million households fall into this segment. China and India have far more households – 214 million and 91 million respectively – that qualify as members of the next billion. Their monthly household incomes vary widely based on country and location, ranging from $100-$700 in Brazil, $63-$375 in China, and $74-$333 in India.
A diverse segment, these consumers nonetheless share several important characteristics:
- they spend up to a third of their earnings on non-essential items such as perfume, choc-olate and televisions — evidence that they are making product and brand choices
- their incomes are growing faster than their countries' underlying economies
- they harbour aspirations similar to the segment above them
- they are young, with 40 years of consumption ahead of them
These are discerning consumers. They will not settle for cheap, stripped-down versions of mainstream offerings. They value and will pay for convenience, flexibility, and timeliness. Still, the needs of the next billion are distinct from those of existing customers. They usually have limited and often unstable financial resources and so are wary of large up-front outlays and commitments to recurring expenses. In add-ition, they also have physical constraints: many live in tiny dwellings, without a permanent electricity supply or running water.
A small number of companies — both large multinationals and domestic leaders from RDEs — is figuring out ways to profitably serve the next billion. Their "secrets of success" include
- Designing products with functions and prices that compensate for poor living conditions, unreliable utilities, limited budgets and other constraints.
- Partnering with existing networks to ensure broad coverage, low cost and reasonable control. In Mumbai, telecom operators market SIM cards through the dabbawallas, a network of 5,000 men who deliver homemade lunches from suburban kitchens to downtown offices.
- Conducting educational marketing programs that explain the importance of a product's benefits.
- Collaborating with companies from other industries – even competitors – to enhance consumer programs and improve economics.
- Leveraging business models across multiple markets. The M-Pesa service of Vodafone/Safaricom in Kenya allows customers to perform money transfers by mobile phone and will be rolled out to Afghanistan, India and other African markets.
- Organising for the next billion. The innovators tend to house their next billion activities in a distinct organisational unit in order to experiment without being saddled by the existing practices of the parent organisation.
- Working with regulators and policymakers so that they recognise the commercially viability of these consumers and will allow market forces to work.
- In the next few years, the next billion will accelerate their climb up the economic ladder. Companies that win their loyalty early will capture the lion's share of the opportunity. Those that devise the right offerings and create the strategies that radically change the economics of serving this segment will generate long-term competitive advantage from the next billion.
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