By Vimal Choudhary and Prashant Gandhi
Multinationals—especially those from the West, but also their counterparts in countries such as Japan and Korea—have long been good at catering to affluent, “top of the pyramid” emerging-markets consumers, whose preferences and wallets tend to resemble those of customers back home. But they have had less success (and often less interest) in pushing further down the pyramid.
That hesitation often arises from outdated beliefs that other emerging-markets consumers are too difficult to understand and unlikely to provide enough in returns to be worth the effort. In fact, while serving the “bottom of the pyramid” does indeed require a significant change to the business model, the burgeoning “middle of the pyramid” in emerging markets is much more reachable. And it has grown too large to ignore. By 2022, four sectors—banking, high tech, consumer goods, and retail—show a potential revenue opportunity among the emerging-market middle class of more than $100 billion apiece.
Even those multinationals that acknowledge the gap in their portfolios are struggling to meet these consumers’ distinct needs. To guide companies in such efforts, the McKinsey Asia Center (a Firm globalization initiative) has developed a framework based on research from sources including the McKinsey Global Institute, and a variety of multilateral agencies. Clients are starting to see results: by understanding the needs and cost-consciousness of rising middle-income African consumers, a leading beverage company successfully introduced a new, low-priced beverage using a new distribution model.
A growing pie, but can multinationals get a slice?
Using a fairly broad definition of the “middle class” that encompasses households with an annual income of between $13,500 and $113,000 (at purchasing-power parity), Firm data show that these emerging-market consumers already account for almost $7 trillion in consumption. One forecast suggests that total consumption by the middle class in emerging markets could reach $20 trillion by 2022. The result will be rapid growth across virtually every consumer-facing business, as well as in certain B2B2C sectors such as medical devices. At the same time, improved communications means that middle-class consumers everywhere show a strong interest in brands, creating a significant opening for multinationals.
But multinationals must act quickly, as local players are already using innovative strategies to build loyal followings and a formidable lead on their global competition. In India, for instance, white-goods-maker Godrej has introduced the Chotukool (pictured on the right): a $70 refrigerator that eliminates the usual compressor in favor of sophisticated cooling chips and a fan, similar to those used in computers.
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This material originally appeared as a McKinsey Knowledge Bulletin.