Wednesday, September 23, 2009

Having it all in Emerging Markets

Qualcomm CEO Paul Jacobs recently pointed to the opportunity at both the high and low end in emerging markets, citing the need for mobile handset manufacturers to sell inexpensive devices in tandem with high-end smartphones. The existence of a stratified market is an important feature of developing countries. On the one hand, there is a small, but wealthy and influential, upper class in fast-growing cities. On the other hand, there is also a very large, and increasingly addressable, lower-income group living above the subsistence level in urban and rural areas.

Indeed many multinationals are pursuing both sets of emerging-market customers.
Nokia has penetrated the low end with affordable entry-level phones while maintaining a foothold at the high end. Its new Comes With Music service will initially provide high-end customers in markets such as Brazil, India and Mexico with unlimited music downloads. Meanwhile, the company has unveiled initiatives aimed at lower-income consumers such as installment plans, agricultural services and mobile payments. Microsoft has also adjusted its products to capture a larger segment of the lower-end market. It previously launched the Windows Starter Edition with reduced functionality and price compared to its standard operating system. More recently, Microsoft launched the new OneApp platform, which enables low-bandwidth versions of social networking and other applications to run on lower-end phones common in emerging markets. Adobe is also catering to both market segments. It decreased the features and price of its flagship Photoshop software to create Photoshop Elements, which is usable and affordable to a wider customer segment. The entire Netbook product category was initially geared to lower-income, first-time purchasers in developing countries, but found another market as a second PC in the developed world.

Targeting consumers at both ends of the market can run the risk of confusing a company’s brand identity, but there are also some clear benefits. High-end sales yield attractive margins which can help offset the smaller margins garnered at the low-end of the market. Entry-level products and services can build customer brand loyalty that may extend to a future purchase of a more advanced product. This also speaks to the benefits of targeting the growing middle-tier markets of the developing world. Addressing all levels of the market does not necessarily require a completely new offering. Through relatively small changes in functionality and pricing of core products, implementing new business models (e.g., services), or finding alternate usage scenarios, a company’s current offering becomes relevant to groups of consumers with entirely different needs, income levels and purchase behaviors. Multinational corporations may want to consider how their products, services and business models might be adapted (or repositioned) to have it all in emerging markets.

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