Navigating New Consumer Realities |”New Markets: The Great Re-balancing” | BCG

One of the most significant effects of the recent economic crisis has been the reduced role of Western consumers as drivers of growth in global consumption.

Today, U.S. consumption makes up 17 percent of global GDP, and since 2000, consumers have accounted for 74 percent, or $3.5 trillion, of U.S. GDP growth. By 2020, U.S. consumers are expected to account for 35 percent of global discretionary spending, compared with 40 percent today, and China will account for 22 percent, up from just 9 percent today. The economic downturn hurt both the willingness and the ability of many consumers in the developed economies to spend. This stands in strong contrast to the emerging markets, where attitudes toward spending are much more buoyant, reflecting consumers’ outlook on the economy.

Developed markets will continue to play a significant role in the world economy because of their absolute size. But over the next few years, growth in consumption will primarily occur in the emerging markets, such as China and India, where it is expected to exceed 50 percent in five years. (See Exhibit 3.)


Redrawing the Global Map of Consumption :

Developed-market economies may be performing a bit better than they were in 2009, but the economic hangover continues to linger, and shoppers are behaving accordingly. Without easy access to credit and with depressed property values bringing a diminished sense of wealth, consumers in the U.S., Spain, and the U.K. are reluctant to spend as they once did. Fully 44 percent of consumers in the U.S. said that they plan to reduce their spending over the coming year. That’s down only slightly from the 46 percent of consumers who made the same claim back in 2010.

Many economists anticipate that, because of the recession, household debt levels will retreat from the precipitous brink that they reached in some countries. U.S. households have indeed been slowly decreasing their debt, with levels now at “only” 146 percent of disposable income, down from a peak of 162 percent in 2007. And credit growth has likewise slowed in the U.K. and in some European countries. Still, household de-leveraging has yet to happen in many developed regions, such as Canada, Australia, and the Nordic countries, where debt levels remain at all-time highs. A decrease in net new debt over the next few years could put further downward pressure on consumer spending.

As the engine of spending growth in the developed world decelerates, the developing world (especially China and India) is taking up an increasing portion of the slack. China is already the world’s largest market for automobiles, and it is poised to rapidly take a leading position in many other categories. Thirty-six percent of Chinese survey participants said they expect to spend more or much more on discretionary items in the next 12 months, compared with only 8 percent in the EU and 11 percent in the U.S.

Consumer spending in other emerging markets has also remained comparatively robust throughout the downturn and is expected to continue growing more rapidly than in the developed world. These developing economies, showing strong growth and positive consumer sentiment, are ripe to lead the growth in global consumption over the near term. (See Exhibit 4.) However, many of them are also grappling with inflation, which is eroding consumers’ spending power and may somewhat distort the picture of real spending growth.


Whether consumers are trading up, trading down, or looking to find a compromise in the middle, the recovery is clearly taking different paths and occurring at different speeds determined, in part, by differing starting points in consumer sentiment around the world—thus underscoring the importance of de-averaging consumer segments. For a more detailed discussion of the multi-speed recovery as it affects specific markets.

A supplement to this report that looks at the 21 markets we surveyed in terms of FOUR distinct groups, described as follows:

1. Getting Brighter. In these countries, which include Brazil, China, and India, growth rates are relatively high and consumer sentiment is buoyant.

2. Modest Growth. In Australia, Canada, Russia, and most of the countries of Europe, expectations of growth are lower, though consumer sentiment is rebounding.

3. Question Marks. Here, economic and consumer signals are mixed, and there are significant questions about future growth trajectories; these countries include Italy, Japan, Mexico, and the U.S.

4. Still Struggling. In Greece and Spain, no return to growth or consumer optimism can be detected so far.

The Emerging Middle Class in Developing Markets :

Approximately 125 million households in emerging-market cities will enter the middle class between 2010 and 2015, an increase of more than 70 %.  However, companies should not assume that these new consumers will spend in the same ways or have the same aspirations as middle-class shoppers in the developed world. Their starting points in terms of disposable income, constraints on their daily lives, and spending priorities are often very different. Consumers in China, for example, are more likely to trade up in general and significantly more likely to trade up in specific categories, such as consumer electronics, than middle-class shoppers in developed economies. (See Exhibit 5.) And in India, middle-class consumers are twice as likely as consumers in the U.S. and the EU to say that they increasingly value education and see it as an area for disproportional spending. Addressing these differences will require insight into the values and needs of specific segments of consumers.


Although the emerging middle class is often viewed as homogeneous, it can differ considerably across markets. And even within countries, there are very diverse sub-segments. Middle-class consumers in China’s smaller cities, for instance, tend to be more optimistic than their counterparts in large cities. And because the cost of living is lower in small cities, consumers there have greater purchasing power and are willing to spend more than consumers in larger cities, where a higher cost of living and the greater impact of the downturn have meant less enthusiasm for spending.

Yet there are also some commonalities among emerging-market consumers. As the middle class becomes more affluent, success is increasingly valued. Consumers in China, India, and Brazil are more than twice as likely as consumers in the U.S. and Germany to say that professional success and status are more and more important to them. By understanding the emotional drivers of consumers’ attitudes across these markets, companies can identify and leverage commonalities where they exist.

Implications for Companies: Catching the Consumption Wave :

The heterogeneity of emerging middle-class markets and the rapid changes they are undergoing pose significant challenges to multinational companies, especially at a time of anxiety about inflation. Although the emerging markets represent a large and growing customer base, it is critical that companies entering them develop a keen understanding of how consumption trends will play out in their categories, as well as of the differences among consumers across regions and demographic segments.

FOUR tactics are particularly critical in winning over the emerging-market middle class : 

1. Carefully pick your spots. Know the markets, segments, and cities you want to target. Allocate resources appropriately and “refresh” them frequently to stay ahead of trends. Choose a clear methodology for prioritizing expansion across markets, including integrating markets into clusters to create greater economies of scale.

2. Understand how the “take up” curves play out in your categories. Consumption won’t take off at the same time in all categories. Consumer electronics, for example, will start early, while premium yogurts and niche hair-care products may come later. Make sure to develop scenarios of economic growth and consumption rates for different markets, and know the trigger points and thresholds in your category.

3. Walk in consumers’ shoes. Get to know consumers’ unique constraints, such as unstable incomes, small living spaces, and unreliable access to utilities, as well as the priorities of specific segments—for example, middle-income and affluent consumers in cities of different types and size. Then adapt and customize your offering, products, and brand experience to the specific market. Consider, for example, offering fewer SKUs and a limited mix of middle- to high-end products in smaller cities, and offering a full selection and more choices in larger cities. Find innovative ways to educate consumers about products, such as on-site sales service and grassroots campaigns, especially in smaller cities.

4. Strike the right balance between global and local efforts. Determine when you should leverage the existing global product portfolio and when you should adapt products to meet local needs. Explore opportunities to use emerging-market R&D facilities to encourage local adaptation. Drive “boomerang” innovation by leveraging emerging markets as a hotbed for innovation on a global scale.


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