One of the most important things to understand about doing business internationally is that one approach can’t work everywhere.
Brands need to re-evaluate every aspect of their approach as they enter new markets, localising every part of their offering to match the needs and expectations of the local audience.
This includes the value proposition: the core part of the brand’s identity that explains how the product meets the customer at their pain point, and why it’s a better choice than another competitor’s version of the same product.
When western companies enter emerging markets, redesigning the value proposition is invariably the key to success in the new location.
Many have tried and failed because they got the business model completely wrong.
Making minor changes to the model, such as producing a smaller sized product for that locality, isn’t enough. Brands entering emerging markets need to reevaluate their fundamental profit formulas and operating models in order to really meet the new audience where it is.
Capturing the mass market
The approach can enable a brand to capture a far larger share of the audience than they would do without re-evaluating their value proposition. Many brands entering the BRIC markets are trying to capture a vast audience of emerging middle-class consumers.
By fundamentally re-evaluating the business model, it may be possible to engage with this large audience, rather than simply engaging with a much smaller elite of wealthy consumers in emerging markets.
Brands that fail to redesign their value proposition for entering emerging markets often engage only with a small audience in the upper-income bracket, which limits the scale of their ambitions in the new market.
The emerging middle-class audience often has a smaller disposable income and lower spending power compared to established market consumers.
To purchase a new product, they may make trade-offs that would be considered unusual in a Western market. In some markets, people will sacrifice necessities in order to afford highly visible purchases that indicate social status.
For example, consumers may make huge sacrifices in order to afford a mobile phone that indicates social status.
Brands that can position themselves as aspirational products that are nevertheless affordable may succeed where audiences have this mindset.
With low disposable incomes, the consumer is likely to have to make trade-offs in order to afford the product. With this in mind, brands need to think not just about what purpose their product serves but also how it answers the aspirations of the consumer.
In many emerging markets, there will be an abundance of locally made and cheaper substitute products. To compete, the newcomer needs to design and position their product alongside other dimensions of value.
This might include performance, as many emerging market consumers see foreign-made goods as higher quality.
Finding the right price point
Reinventing your offering for a local market begins with understanding the audience’s mindset, their values and expectations, and also how your offering fits into their lives. It also needs to be sympathetic to their financial situation.
Not only do emerging market consumers have low spending power and a limited disposable income, it’s also common for that cash flow to be relatively unstable. Many consumers are also outside the banking system.
This means that it can be tricky to organise the repayments for larger purchases, such as cars.
Tata motors responded to this reality by introducing an affordable car with a realistic financing model calling for a down payment that many consumers could realistically afford.
Monthly repayments stretched over 5 years, making them feasible for emerging market consumers. Emerging market consumers often find ‘bite sized’ payments best, and these will often be made in cash.
Kraft foods originally found sales of their Oreo cookies to be unimpressive in China. Many Chinese consumers considered the cookies to be too sweet, and the price per unit too high.
But Kraft spotted that Chinese consumers were consuming more and more milk and milk-related products as part of an aspirational Western diet that was seen as strengthening and healthy. Kraft completely redesigned its product, including the cookie itself (made less sweet) and the price per unit, which was reduced.
More significantly, they aligned the idea of eating Oreo cookies with milk and educated Chinese consumers about this Western concept. As a result, the reinvented ‘Oreo’ wafer cookie became China’s best-selling biscuit in 2006, even outselling local rivals.
Kraft had answered a consumer desire for an aspirational diet based on Western consumption of dairy but made it more affordable for them to do so.
But customising product solutions to specific markets, however large, is often an expensive endeavour. Brands that aim to re-evaluate their business model for a specific market incur costs doing so, which in turn pushes up the product cost – exactly what they want to avoid doing for these markets.
This is where companies need to really get creative in order to pursue cost-effective customisation for the local market. Getting partners and even the wider user community involved in product design, or finding solutions that can be customised locally, is one way to approach this problem.
It’s well worth redesigning your brand’s value proposition when taking on the challenge of engaging an emerging market.
Products that are tailored to local markets in order to meet cultural expectations tend to fare much better than those that are not adapted in any way. Although emerging market consumers may want a low price, it’s wrong to assume that they will necessarily sacrifice either comfort or social status for it.
That’s the essence of redesigning a value proposition that’s going to work: understanding this trade-off.