The other month, I participated in a Singapore Sessions and Harvard Business Review video webinar on “What is the Right Entry Point for Emerging Markets?” I joined Harvard Business Review editor Angelia Herrin, P&G’s Bruce Brown, and Innosight’s Scott Anthony for a lively panel discussion. The full webinar can be viewed here and the executive summary can be found in PDF format here.

We only had limited time during the session to answer audience questions, so in this post, I’d like to address some of the queries we were unable to answer.

Q: Is price leadership the only option to enter emerging markets [with] companies jumping onto a differentiation strategy [later on]? After all, emerging markets have an understanding that imported stuff [is] costlier.

No, quite the contrary, my co-panelist Bruce Brown mentioned, P&G’s SK-II product has been selling very well in the Asian market at a premium position. SK-II is differentiated by its high quality and its technological advantage. We learn from these examples that consumers do not simply and gradually trade-up from lower tier products into higher tier products, but consumers trade-off from one category to another category. That is, they might save on furniture, but spend more on skincare products. These complex demand patterns need to be understood in order to make the smartest entry decisions. Companies who merely chase market size and economic development statistics will find the overhyped middle class in emerging markets attractive. Those same companies may find the middle to be an empty middle. An entry strategy and price premium position allows brands to capture surpluses that can then fund brand differentiation. Hilton captures this surplus through managing two brands, the more upscale Conrad brand and the Hilton in Asia.

Q: Does the increasing purchasing power in emerging markets increase brand loyalty?

Increasing purchasing power in emerging markets does not increase brand loyalty. In fact, the increased availability of information as the market ‘emerges’ makes consumers more promiscuous. The consumers in these emerging markets are being bombarded with numerous products and services at every price point, and they are discerning and sophisticated. It is more important for brands to tap into the consumer’s emotions and really relate itself to the consumer’s daily life ecosystem in order to generate any sort of brand loyalty.

Q: How about B2B market entry strategy? Do these principles hold?

No, they don’t hold for B2B markets. My point was that the emerging middle consumer market is a large opportunity, but the hype in its favor is mostly driven by an economic rationale. Economists forecast the growth in the middle class to double from today’s very small fraction in ten years, growing from the current annual per-household disposable income of $4,000 (urban consumers only) in China. In comparison, the standard of living in developed countries today is about ten times that number; in the US, per-household disposable income is about $35,000. In favor is the number of people in the emerging markets. There could potentially be 400 million people in China in 10 years, or 167 million households — though their disposable incomes will still be around $8,000.

When it comes to economics, I concur with the Danish physicist Niels Bohr who said: predictions are difficult, especially about the future. So, I still caution about relying on economic numbers. First, they suggest to me that while the market sizes are large, disposable incomes will remain relatively small. That’s why I recommended that companies enter emerging markets with a dual strategy, at a more premium position with their Western brand and at the low-tier with an entry through collaborations and partnerships with local firms. This provides at least some form of participation in growth at the bottom of the pyramid.

These ideas, however, do not apply to B2B markets.

Q: Can these entry points be applied to other emerging markets such as Latin America?

Though the research might yield different consumer wants and desires in emerging markets in Latin America compared to Asia, the concept of entering at a premium and tapping into consumers’ wants and desires remains the same. I am very familiar with Latin America, and I believe similar consumption patterns do exist.

As I mentioned during the webinar, in Asia, we are not seeing consumers moving in a simple pattern from the bottom to the middle and then to the premium. Instead, they are willing to spend their income on certain top-of-the-line items, but will spend less on other products. It would be essential in all emerging markets, including Latin America, to see where consumers are trading off.

At the same time, there definitely are differences between the Asian and Latin American markets. For example, in Asian countries like China, the Western concept or ideal of “the middle class” does not exist, nor is belonging to it necessarily a desirable thing. However, in Latin America, the concept of the middle class does exist. There is an understanding among consumers about who belongs to the middle class and who does not. In Latin America, membership to the middle class is largely desirable and also aspirational.

As mentioned in the webinar, culture and context trumps everything. But the constant in all emerging markets is that you will never win by making an ‘average’ product for an ‘average’ consumer. Consumers in all markets want premium (or the perception of premium) products, not ‘average’ ones.

- Erich Joachimsthaler

Last week, Vivaldi Partners Group CEO Erich Joachimsthaler spoke with Harvard Business Review editor Angelia Herrin and Innosight’s Scott Anthony and  P&G’s Bruce Brown in a Singapore Sessions webinar.

Read More »

Vivaldi Partners Group CEO Erich Joachimsthaler will be speaking with Harvard Business Review editor Angelia Herrin and Innosight’s Scott Anthony and  P&G’s Bruce Brown in a Singapore Sessions video webinar streamed live, at 12:00 EST tomorrow. They will be discussing “What is the right entry point for emerging markets: targeting customers at the bottom or the middle of the pyramid?” If you are able to join us, you can register here. Below is an article on the topic by Erich Joachimsthaler that has been republished from Harvard Business Review’s Sponsored Webinar Report.

Much has been said about the historic shift from the developed West toward the fast-growing middle class of the emerging markets, particularly China and India. Numerous companies turned their attention to Asia in the belief that the vast numbers of consumers and their rising spending power would translate into enormous market opportunities. It is easy to see why, especially when in the West, the rise of the middle class in the 1960s unlocked hugely profitable market opportunities. Read More »

Volkswagen Super Bowl 2011 Ad: “The Force”

The Super Bowl is a quintessential American ritual every year. It is a gigantic nationwide get-together of family and friends. For many, the actual outcome of the game is of lesser importance. But most will at least attend to the advertising, and there is much talk about it afterwards. The Super Bowl is only half a football game; the other half is an advertising festival. Read More »

Vivaldi Partners CEO Erich Joachimsthaler

I was asked to speak at the Corporate Image and Branding Conference yesterday about “Strategic Brand Management: Reaching your Stakeholders with a Comprehensive Strategy.” I thought about what it is that an audience of CMOs would want to hear about, and so I asked myself what is it that every CMO is asked to achieve. CMOs are often tasked with driving top line growth and market share while better defining the brand and value proposition and optimizing the marketing process in order to maximize business performance.  Read More »

In the countdown to the Corporate Image and Branding Conference on January 26 & 27 in NYC…here are Erich Joachimsthaler’s don’t-miss articles on social business, branding and marketing from last week. Enjoy!

1/ An infographic of the top 50 most valuable brands and social media
http://thenextweb.com/socialmedia/2011/12/08/how-the-worlds-50-most-valuable-brands-are-faring-in-social-media-infographic/

2/ This might be a really fun game
http://www.fastcodesign.com/1665593/can-you-identify-these-brands-without-seeing-their-names-or-logos

3/ Twitter strategies – three success stories
http://on.wsj.com/vfBoqX

4/ The next frontier in innovation from McKinsey Global Institute http://shar.es/oFqKZ

5/ According to Pew’s latest study, the internet is a complete waste of time
http://www.readwriteweb.com/archives/apparently_the_internet_is_a_complete_waste_of_tim.php

About 20 years ago, companies realized that the biggest value creation was to identify, nurture and protect the intangible asset value of the firm. Then, there was a recognition that this intangible asset value was not only important, it was growing faster than tangible assets. Back then companies and executives put their focus on management of the intangible assets, even though many of them could not be shown on the balance sheets in some countries, due to accounting regulations.

I took this as a cue to begin studying how to manage better brands, which for many companies was the biggest intangible asset value. Back then, branding was a tactical discipline within marketing. Brand managers were junior employees who made tactical decisions for the brand. This all changed when a British consulting firm developed a valuation of a large consumer goods brand as part of a mergers and acquisitions (M&A) activity. The valuation of the company’s brands far exceeded the value of the firm as it was assessed otherwise (book value).

From that year on, every executive I met told me that they were looking to build a brand. Not just brands for products that you could put on the shelf but also corporate brands, range brands and ingredient brands. Branding became one of the most significant value creation opportunities for two decades.

Today, I see a new way that companies create value and it reminds of 20 years ago. The new form of value creation is also focused on leveraging and managing intangible assets. But the assets are different now. Take a look at this chart.

It describes the Internet evolution in two dimensions. One dimension is the connection between information and the other is the connection between people. Taken together, I call these two connections something like collective intelligence.

If you were to put your fingers on the biggest value creation opportunities for companies today, it is the identifying, nurturing and leveraging of collective intelligence. I am not sure about the predictions inside this chart and how they explain the evolution of the web. Web 2.0 is here and we are now entering Web 3.0. Whatever is inside the chart is actually less interesting than the dimensions themselves (the x and y axis), because the dimensions describe the journey we are on, of ever-faster speed and acceleration.

I predict we will see enormous acceleration in 2012 as various technologies become increasingly available. David Reed, one of the early thought leaders of the Internet, groups these technologies into three clouds, the connectivity cloud that facilitates the transfer of information. There are a host of applications in this group – from networking technologies such as global broad adoption and penetration – to the device proliferation and availability of smart phones. Then there is the resource cloud, which includes the ability to store massive amounts of data at very low costs. And finally there is the social cloud, which includes the networking and collaboration technologies that currently appear like wildfire.

I think it is this latter set of technologies — the social media applications, social technologies, and networks that were the missing piece so far to fully leverage the Internet. Through these technologies, value creation shifts from merely leveraging the connections between information, as Google has done, to value creation from leveraging the connection between people. This new form of value creation leads to entirely new business models, new ways of leveraging the Internet (the social media model), and new ways of building strong brands.

As far as branding is concerned at Vivaldi Partners, we have a name for this form of value creation: the building of social currency. Building social currency involves managing the collective intelligence (the connection of information and the connection of people), and social currency is the extent to which people share the brand or information about the brand with others as part of their social lives.

My advice? Understand the connections between people as they share a brand and information about a brand. This will be one of the biggest opportunities in value creation for companies in the years to come.

The Customer is Always Right

The customer is the boss! Repeat after me: the customer is the boss. Never in the history of business has incumbency or leadership in technology been so irrelevant. A company that wishes to create sustainable value must consider the infinite world of opportunities in customer-centric innovation. We are in the midst of dramatic changes in marketing and sales where social technologies provide barn-sized opportunities for innovation and growth of companies.

Target-oriented innovation management

The matter is not the innovation itself but the entire playbook of innovations that a company executes over time. Innovation management (IM) has two major roles in ensuring success in marketing and sales. First, it ensures that innovation to consumers is not an occasional effort but rather a systematic and repeatable process. There is this illusion that a company must find the next big idea, but this is a delusion. It is like trying to find the magical pot of gold at the end of the rainbow. A target-oriented IM ensures that ideas, small and large, are systematically translated into innovations. It ensures that a company has a system for winning in the market place. Second, IM makes sure that innovations are not merely product-driven, but rather the full spectrum of innovations come to play when launching new products or services. It integrates different perspectives from functional silos – from marketing, finance, operations and R&D.

Beware of missed opportunities for innovation

The biggest reason for missed opportunities is past success. Success does not beget success, it begets failure. The more successful a company is the more it sees opportunities from its own perspective, its own capabilities, its own products and services. This perspective narrows the focus of the company to existing customers and existing products. The more successful you are, the more you don’t see the biggest opportunities in plain sight.

The Role of Social Media

We are moving from social media to social business. Now companies recognize that social media is not just about Facebook, LinkedIn and Twitter activities. Companies doing it right develop an enterprise point of view about social technologies and networks. As part of this new perspective, companies integrate these technologies and networks into every aspect of the mix from consumer insights generation, to branding, to customer service and customer experience management, to market research and more. We are in the midst of a sea change of what social really means in companies. It is about integration, and moving social out of the silos. Social should not exist in a marketing or PR bubble of a company. A social program needs input from every area of business to be successful. And yes, every company does have to be active in social. No question about it.

The next great wave in the current sea change of marketing

We live in the midst of three major trends: the growing ubiquity of devices, the infinite amount of storage capacities, and the growth of networks beyond the Internet. These three trends are creating the most drastic change in the last sixty years of marketing. The big word is not push but pull. Consumers are interacting with brands in the most seamless way ever, and this will be increasing. Consumers will choose to be part of brand networks and ecosystems – and the experiences these brands create. Consumers are curating their involvement with brands and they will deselect those that don’t live up. The brands that gain permission will intersect in the daily life of consumers in the most seamless way ever – through all sorts of technology including mobile, location-based, visualization, new search technologies and more.

I strongly believe that marketing’s role is to create a customer (Peter Drucker). It is what I call an outside-in perspective. I believe companies fail with innovation again and again if they look at the world of customers in terms of targets. I hope that target-oriented IM does not suggest that consumers are the target!! Customers don’t want to be targeted. They are not standing at the end of the shooting range, waiting for you to position your messages towards them.

Companies who wish to innovate successfully must view the opportunities in the outside world today — never forgetting that the customer is the boss.

If you compare just ten years ago versus today, you can see these biggest changes in plain sight. Back then, the way to exploit the web was easy; simply connect to more-or-less static content. A case in point is Google that linked search to key words which in turn created one of the most valuable firms in the world. And with it, Google built one of the strong brands, according to one source, Google’s brand is worth more than $55 billion.

Today, this rather web-centric model is replaced by the social media model. This model changes brand building as we know it altogether. Rather than exploiting the connection to search through advertising in the case of Google, marketers must now find ways to exploit the connections among people, real people who live their social lives online, on their smart phones, and where the on and offline converge. People are now empowered by these complex connection, they expect brands to be as savvy as they are. Ultimately they expect experiences, and they’re willing to share those experiences with their networks when they are impressed.

Welcome to Vivaldi Partners new blog, the Vivaldi Salotto. Taking its namesake from the Italian word meaning a place to converse, generate and share ideas, this blog will be that – a place for discussions on what we know best: Marketing, Innovation, and Technology.

Expect posts from the Vivaldi Partner leadership and staff team, as well as contributions from experts in the industry focused on:

- Ahead-of-the-curve thinking on business with particular regard to our DIG methodology, a consumer-driven perspective.

- The topic of social currency and how it relates to branding and marketing, expanding on the conversation around our Social Currency 100+ initiative.

- Innovative applications and critical perspectives of digital and social media in the corporate sector.

Our aim is to provide you with useful, practical insights, and a place to share your perspectives.

Thanks for joining us.

Erich