Any marketer worth their salt understands that markets are not homogeneous units. Populations vary according to demographic, cultural, social and economic factors and all these factors will affect consumer behavior.
Understanding how this diversity within the consumer base affects your customers is a key part of your task as a global marketer. Compared to established economies, the lack of homogeneity within emerging markets can be particularly striking. Emerging markets tend to share the characteristics of rapid growth and a fast acceleration in low per capita income.
But they also tend to share characteristics of inequality that mean this economic improvement does not benefit all members equally. In China and India the average annual earnings of middle-income households range from US$1,300 to US$15,000. These are significant differences even within the income of the middle classes.
China’s tiered cities
China is such as huge market that the best way to approach it is using the so-called tiered approach. Devised by the Chinese government, this uses the concept of tiers to rank different areas of the country according to factors such as level of economic development, regional GDP, infrastructure, and historical and cultural significance.
Although these tiers aren’t rigidly delineated, big metropolitan cities such as Shanghai, Beijing, Shenzhen and Guangzhou are definitely classed as first tier cities and represent about a trillion US dollars of income. Economically vibrant areas that don’t quite match the big cities include Chengdu and Nanjing: these are in the second tier, which includes about two dozen cities and contain around 40 millions households.
Cities further down the tiers rank less highly for factors such as income per household and speed of economic growth. Consumers in tiers four and five will almost certainly be less sophisticated than their first tier counterparts, and may be relatively new to using the internet and online shopping. They may also have a more rural outlook than those in big cities.
Whilst the tiers system isn’t flawless, it can be a useful guide to how China’s population is divided. In an interview with CKGSB Knowledge, Ogilvy & Mather Director Kunal Sinha offers some invaluable insights into how to approach the different tiers. His approach argues that each tier is essentially an independent market in which to operate: competitive conditions vary between the tiers, and what consumers want seems to be very different. But he also stresses that there is a huge amount of fluidity and change.
Although lower tier residents may be novice consumers still with modest household income, that picture can change very quickly as the market adapts. Sinha warns that local businesses are the ones with their fingers on the pulse; best able to react to changing conditions in the tiers they are targeting. External companies may not be able to respond as speedily as the tiers adapt. When it comes to a fragmented market, things can change fast and segmentation models can quickly become outdated and ineffective.
Cultural contributors to market fragmentation
But a lack of market homogeneity is not merely about how the gains of economic growth are shared amongst its population, or the practicalities of infrastructure. Markets of all kinds are also beset by other division factors including culture and language.
In parts of the Arab world, one side of a country can often be far more conservative than another. In Saudi Arabia, cosmopolitan coastal Jeddah is considered far less conservative than more traditional parts of the country such as Riyadh. That affects the way people in these different parts of the country dress, behave and consume – and it impacts on how businesses should interact with them.
Religious and historic factors can be behind the internal differences (sometimes divisions) within countries. The US is divided between a number of religious perspectives, in particular conservative evangelical Christians and more liberal residents, the latter often living in the coastal zones.
One author, Colin Woodward, argues that the US actually consists of 11 different ‘nations’. He argues that the 11 distinct cultures that make up the States have a long historic standing based on their origins in early settler groups of various backgrounds.
One cultural group he identifies as the materialistic ‘New Netherland’ part of the country. This encompasses areas such as New York, which was originally settled by Dutch pioneers. The author characterises the New Netherland culture as having deep tolerance for diversity on matters such as religion.
Another cultural group that he identifies he christens the ‘Deep South’, which has origins in slave owners of British origin and takes a rigid approach to social structures. Curiously, Woodward argues that people tend to migrate towards areas they have more sympathy with, a behavior he describes as ‘self sorting’. The author argues that this behavior means that America’s internal cultural divisions are becoming more pronounced in geographic terms.
Does homogeneity help the economy?
A study by academics in Denmark has argued that countries that are less linguistically diverse tend to thrive better economically than those facing internal language barriers.
The logic behind this is partly that linguistic homogeneity improves social capital – a measure of the social networks that contribute to building factors such as trust, reciprocity, information, and cooperation within a society. An absence of language diversity means more social capital, which theoretically leads to higher levels of positive economic factors such as information sharing and co-operation.
Of course there are examples bucking this trend. North Korea is linguistically homogeneous but struggles economically. Wealthy Switzerland confidently communicates in four languages. North America is financially prosperous but the population speaks a huge number of languages (although residents generally agree on using English with one another).
A trend towards better economic performance also seems to emerge in countries that are ethnically homogeneous. The wealthy countries of Europe tend to be more ethnically homogeneous as does Australia and Japan; these are among the richer countries in the world.
Bolstering this argument is the fact that African countries tend to be much more ethnically diverse and also tend towards lower levels of economic prosperity. Whilst richer countries tend to less diverse, the major economic successes of North America buck the trend: the US is only moderately ethnically homogeneous and Canada is strongly diverse.
It isn’t clear why this trend exists. Perhaps ethnic homogeneity corresponds to cultural homogeneity and this makes a bigger contribution to social capital than a more diverse approach. It may be the case that political leaders are more inclined to focus on policies promoting economic growth in a more homogeneous population, rather than being focused on internal divisions. The fact that many successful economies have emerged from countries that show a significant lack of homogeneity suggests that internal divisions can be overcome.