By Manuela Artigas, Julia Broide, Patricia Ellen, Vijay Gosula, and Fernanda Hoefel
Walk down the streets of Rio or Sao Paolo, and the Internet is impossible to miss.
Cyber cafes are everywhere—and they are not just for the middle class. Rio’s most populous favela, or poor neighborhood, Rocinha, has 150 of them alone.
There is still room to grow. Though Internet penetration has been growing at a 25 percent clip since 2004, it is still only 36 percent—much less than in the U.S. or U.K. (75 percent) but higher than either China (29 percent) or India (7 percent). As Brazil grows, however—and the country is expected to grow 5 percent this year—so will use of the Internet. The government is investing big money in improving broadband infrastructure, and so is the private sector. As a result, costs are expected to drop, which will draw in more people.
Moreover, Brazilians love the Internet. Everyone wants access, and those who have it spend an average of 26.6 hours a month online, sixth among the 170 nations surveyed and well above the world average.
Brazilians use the Internet distinctively, socializing more than almost any other country. Eighty-five percent are on social networks, the highest in the world after Canada (87 percent), and well ahead of the U.S. (70 percent). Twitter, for example, finds in Brazil the second-largest penetration worldwide (20.5 percent, just behind Indonesia). Brazilians are also semi-addicted to multi-media, with widespread use of photo-sharing and video sites. For them, the world-wide web is a social one; it is all about interacting. Content is the currency for relating online, be it between individuals or between individuals and brands.
Missing the boat
For Brazilian business, the advent of the Web should spell opportunity. But so far it has largely been a case of opportunities under explored, as we learned from more than 50 stakeholders of the digital ecosystem we interviewed. Most companies have not yet realized the full potential of digital marketing and sales tools: They have not quite cracked the Internet code. Moreover, the talent to exploit it is scarce and there is a deep-seated resistance to change.
There is also an important generational dimension. The generation that runs Brazilian industry was not born digital, but the mass of new consumers changing the landscape were. There is also some fear of change. Any number of times when we talked to marketing executives we heard, “If I buy TV time and it fails, it’s just an error. But if I do something with the Internet and it doesn’t work, I could get in trouble.”
Digital is influencing the way consumers inform themselves, and how they buy and relate to brands and businesses. Making digital a source of competitive advantage represents a huge opportunity. Companies must be in the right places to speak to consumers and to influence what is being said. They must also provide personalized and trusted ways to shop. The latter is crucial. One of the reasons e-commerce has built so slowly in Brazil is that many non-e-consumers say they are not confident the Internet is secure.
The larger point is this: Integration between the online and offline worlds is key—and by and large, it is not happening in Brazil. Companies do realize that digital marketing is important, and they want to invest more in it. But they fear that they lack the internal capabilities, the culture and the metrics to measure success. That is what we heard from more than 40 CMOs we interviewed.
At the same time, the digital ecosystem is reorganizing, as new players enter the market. Traditional ad agencies are only beginning to adjust to the digital consumer. As the market fragments, advertisers are left with a large number of highly specialized third-party providers to manage end-to-end marketing strategies.
A few numbers tell the larger story:
- Forty percent of Brazilian companies have no online presence and of those that do, 62 percent cannot recognize their online consumers. The Internet is all about personalization and targeting; if you do not know who your customer is, you are missing the target.
- Though e-commerce is growing at 30 percent-plus a year, it accounts for only 2 percent of retail sales, compared to 10 percent in the U.S.
- The Internet accounts for only four percent of marketing spending (compared to 16 percent in the U.K. or 13 percent in the U.S.). Of this, mature vehicles such as banners and search account for almost 80 percent.
Secrets to success
Not everyone is behind the curve, of course, and there are good practices up and down the value chain. One car company, for example, launched a Web site and asked users about what they would like to see in a new car it was developing. The firm integrated results into a social networking platform, including pictures and comments. Tweets kept the buzz going, and a concept car based in large part on these efforts was unveiled at a 2010 auto show. Although it is impossible to quantify these results into a specific money figure, there is little question that the firm got noticed, and also strengthened its brand.
More generally, the opportunity to excel lies in customers’ attitudes. Brazilians appear ready and able to migrate online in all kinds of ways. General advertising is distrusted, but almost half of Internet users say they look up what other consumers post online. "Using information I can research online ahead of time gives me confidence. I know about the new things that will be available. That means it is harder to fool me,” a Brazilian told us. It makes sense for business to follow consumers; clearly, this is towards digital.
In one sense, Brazil’s business sector hasn’t been penalized much for being slow adapting to the digital age, because no one has gotten too far ahead. But there is tremendous digital power just waiting to be unleashed. We believe that companies need to take responsibility for entering the brave new Digital world back into their own hands. The businesses who succeed in seizing the digital opportunity will be those who take the time to learn about trends in digital behavior; understand what the Internet can (and cannot) do; and become comfortable with the Net, instead of intimidated by it.
Manuela Artigas is a principal in the Sao Paulo office; Julia Broide is a senior research analyst in the Latin America Consumer and Retail Practice. Patricia Ellen is an associate principal and Vijay Gosula is a principal in the Sao Paulo office, where Fernanda Hoefel is an engagement manager.