Implications for Business
The rising middle class is the most important consumer segment in China and India. In our work with companies, we have identified three strategies that should be mastered to achieve success with this consumer group.
First, it is imperative that products deliver technical, functional, and emotional benefits. Although the new middle-class consumers are optimistic and ready to spend money, they still have a natural inclination to keep their cash in their pockets. They worry that their newfound wealth could disappear as quickly as it arose—not least because there is no Western-style social safety net. This means that companies have to develop convincing products offering real value: products with technical and functional innovations. These consumers will become mini-experts in the finer points of the products, typically reading the lists of ingredients, studying the product manuals, and asking store clerks for more information. In the end, this is how they justify their purchases to themselves and to their friends. When consumers are able to articulate the functional benefits to their friends, they ladder up emotionally. They become advocates and apostles.
In India, for example, Maggi, a brand of instant noodles owned by Nestlé, the Swiss food company, has come to understand the technical, functional, and emotional needs of mothers. Nestlé has built up the Maggi brand over a decade. It started with “two-minute convenience” positioning for a quick snack for the child, but that did not resonate with mothers. To rethink its strategy, Nestlé engaged with mothers to determine their needs with regard to nutrition and local taste. It then created a variety of Indian flavors and offered whole-wheat nutrition—along with vegetables, as suggested by the mothers—to make a hearty snack. The result is that Maggi is now a $500 million brand with an 80 percent share of the instant noodle market.
Second, the full range of products offered should include aspirational items. Companies should price their products in a way that makes some items in the line just out of reach. Pricing that embraces the good, better, best range works well in the Chinese and Indian markets. In India, for instance, LG, the South Korean consumer electronics and handset manufacturer, has taken market-leading positions in a number of consumer categories, even though its products can cost more than a local branded product.
In an example of aspirational products in education, V. K. Bansal, an unemployed engineer with a passion for science and a need for money, decided to start tutoring young men for the entrance exam to the Indian Institutes of Technology in the early 1990s. He began with a small group of six in Kota, a medium-sized industrial city in the northwestern state of Rajasthan. Five out of the six earned a good rank on the exam, and very quickly Bansal’s fame started growing. Slowly the numbers increased, from six to sixty and then six hundred students. Bansal Classes became renowned in nearby cities and soon all over India. Over a fifteen-year period, the program grew to more than five thousand students, and imitators started similar training academies. Kota now provides more than 25 percent of enrollment in the Indian Institutes of Technology (IIT), drawing test preparation candidates from as far as fifteen hundred miles away. Students now must take entrance exams to get into the top-rated preparatory classes. Middle-class parents who send their children to Bansal Classes (and others) and to live away from home for as long as two years dream about an engineer in the family.
As the third and final strategy, every product must have perfect safety, reliability, and quality assurance. Once poor, but now better educated and relatively well off, these new consumers will not tolerate shoddy products. They want to buy products that will stand the test of time. This is a large contributor to their preference for branded products: a good name is a guarantor of quality. The quickest way to a rapid market decline is to provide consumers with low-quality, unreliable, inconsistent, or health-threatening products.
The revolutionary middle class—320 million newly affluent households by 2020—represents the core growth market in China and India. Without them, there is no $10 trillion prize. They are consumers with incredibly high aspirations, irrepressible energy, and great confidence in themselves and in their children’s future. There have been “I want more” generations before—notably the postwar baby boomers in the United States and Europe. But the new consumers in China and India are an “I want more” generation the likes of which has never been seen before. Most started life experiencing poverty and deprivation, and they can recount the stories of their parents’ or grandparents’ suffering through famine, war, or political repression. Most were born in rural communities and migrated to cities, where they found factory or service jobs and received enough education to capitalize on lucky breaks. Today, they have critical mass, recent memory of hardship and denial, hunger for the back story about brands and goods, and low levels of debt.
Right now, Chinese consumers have more disposable income than Indians do. In India, where the families are large and women are not encouraged to work, consumers have less money in their pockets for goods and services. But in both countries, consumers are more vocal than ever before—going online to blog about their hopes, dreams, and fears. In a political setting, this is revolutionary, especially in China. But it is revolutionary in a commercial setting, too. These consumers really do want it all: aspirational products that offer comprehensive and advanced features at a value price.
Companies will need to do everything possible to satisfy the needs of these nearly one billion consumers and grab the first-mover advantage. The consumers are careful purchasing agents—open to buying better food, better housing, better education, better cars, and all the trappings of the middle class. Companies that listen to their hopes, dreams, and needs and respond with products that elevate and certify the consumer’s taste can expect to win a disproportionate share of the prize, garnering loyalty, advocacy, market share, and profits.
THREE
The Boom of the Superrich
The Millionaires (and Billionaires)
How ambition, persistence, luck, and timing create a significant population of wealthy consumers
IN 2001, FIFTY YEARS AFTER Mao’s revolution and Gandhi’s triumph, there were just five billionaires in the two most populous countries in the world (figure 3-1). Back then, China’s only billionaire was Rong Yiren, an eighty-five-year-old descendant of Wuxi traders whose close relationship with China’s top leaders became a platform upon which he built a business empire. Three of the four Indians on the Forbes 2001 list were self-made entrepreneurs whose fortunes were transformed after the end of British rule. The fourth hailed from an old business family.1
Azim Premji, aged fifty-six in 2001, turned Wipro, originally a palm oil company, into one of the world’s largest information technology (IT) services companies; Dhirubhai Ambani, then aged sixty-nine, started Reliance Industries, India’s largest conglomerate; and Shiv Nadar, fifty-six in 2001, cofounded HCL at the age of thirty-one, which became India’s second-largest IT company.2 Finally, Kumar Mangalam Birla, a youthful thirty-four in 2001, ran Aditya Birla Group, another conglomerate, after his father’s untimely death in 1996 at the age of fifty-two.
That there were only a handful of ultrawealthy people in these two countries told the story of the economic stagnation and isolation of China and India in the decades prior to the 1990s. It demonstrated that the economic reforms then under way had yet to create opportunities for massive wealth creation in the private sector. Only a dramatic upward surge in domestic consumption and a dramatic deepening of capital flows between these markets and the world would make this possible—and, in the 1990s, these had yet to occur.
FIGURE 3-1
Number