Emerging Market Consumers

"When I left India in 1992, a consumer could buy one of three models of cars," says K. Sudhir, Professor of Marketing. "And two of those were dinosaurs based on 40 year old designs. There was no real choice. Now you have pretty much every model from every major manufacturer available."

A lot has changed in the consumer landscape since Professor Sudhir left his native India. In India, as in other emerging markets, economic development has spurred rising incomes, new products, new retail formats, and an increase in advertising, fueling a rapid growth in consumption.

Sudhir is director of the new China India Consumer Insights Program (CICI), a multi-disciplinary research program of the Yale Center for Customer Insights, SOM’s research center that seeks to understand customer behavior and marketplace dynamics. The CICI program examines the changing patterns of consumer spending and investing as emerging markets grow and bring economic, social, and cultural change. Its initial focus is on China and India, but it may expand to include other emerging markets such as Russia and Brazil.

The idea for the research program started simmering in Sudhir’s mind two years ago when he pioneered and began leading the Customer course in the Yale integrated MBA curriculum. Unlike an average marketing course that focuses only on marketing concepts, the Customer trains students to bring together a range of disciplines, including finance, accounting, and organizational behavior, to create organizations that are aligned with the shifting needs of their customers. A session on the global customer drew more students to Sudhir’s office for after class discussion than any other lecture. The student interest, his own research interests in China and India, and the overall lack of consumer insights in these countries, converged.

"It looked like a nice opportunity for us to start building knowledge in this area," says Sudhir. "There is little research on international customer insights. What exists mostly looks at macroeconomic factors. There is little micro understanding of the reasons underlying these countries’ growth. What do these consumers want? How are companies using insights about consumers to develop these markets? Most of the people who have done research on developing countries are development economists, but most of their attention is on issues like poverty and nutrition. There is not a sense that these people are consumers who can drive global growth."

Internal consumption, says Sudhir, is the backbone of the development of these economies, but that story has been overshadowed by their exports to developed countries. "The future growth story in these countries is really around their own internal consumption rather than exports."

The program will also research the flip side of consumption: saving and investing. This aspect of the program will bring in other SOM and Yale faculty who are interested in finance and economics, including Professors Zhiwu Chen, William Goetzmann, and Mushfiq Mobarak.

"It’s important to us that this research program is not just about marketing. We want to bring in many different ways of thinking including psychology, economics, and quantitative anthropology, and learn in as broad a way possible."

Sudhir and his colleague Ravi Dhar, the George Rogers Clark Professor of Marketing and director of the Yale Center for Customer Insights, recently traveled to China and India to establish partnerships with retail and financial services companies that collect rich consumer data including Shopper’s Stop (India), the Future Group (India), McKinsey China, Citibank, HSBC and Motilal Oswal (India) as well as quasi-government organizations like the National Council of Applied Economic Research (India). The types of data they are examining include daily food consumption, durable goods purchases, and investment choices.

Sudhir and his fellow scholars will use the data to examine questions that are unique to China and India, rather than merely replicate the types of studies that have been done to understand U.S. consumers. On a broad level, the initial research priorities are to understand the process of development in these countries and how these dynamics, and the vast geographic and cultural diversity, affect consumer behavior.

"China and India are like field laboratories for learning about the evolution of consumer tastes and behavior because of the fast pace of change. The now-developed countries took over 150 years to reach their current stage of development. It was very slow progress. In China and India, you are seeing development at a more dramatic pace. There is rapid urbanization and migration and dramatic improvements in transportation and communication infrastructure. When studying developed markets, it is reasonable to assume many of these factors are stationary. When studying emerging markets, you cannot make that assumption. We need to create new methods or adapt existing models to study these dynamics that we currently abstract away from because the current models are not relevant. Also, because all of this development has happened in a short 20 to 30 year span, researchers can get great data to study how development and people’s behavior and attitudes change over time. From a researcher's perspective, the opportunity to use new data and create new methods is a dream — a goldmine waiting to be mined."

The program will also study how the vast geography of these countries affects consumer preferences and marketing strategies. Although the U.S. is a geographically large country and there are some differences in culture and attitude between regions, the easy mobility across states makes the differences negligible.

"The order of magnitude of the role of geographic and cultural differences in China and India is so much higher. From a business perspective, as well as from a research perspective, the idea that China is one country or India is one country and you’re going to have a pan-China or -India strategy is meaningless. China and India are like Europe, a collection of a large number of cultures and nations under one political umbrella. Understanding the variations across these markets is going to be very critical for firms seeking successful strategies. Yet, because of the unified political umbrella, we have a unified data collection system in both China and India, unlike in Europe. Again, this is a dream opportunity for researchers to actually study these differences."

Developed-country business models also do not translate well to these markets. For example, in India, organized retail now targets the top 10% of consumers, the very top of the income pyramid. That equates to about 100 million people, which many companies would consider a very large market. "But you also realize very quickly that when the 100 million people are spread across a very large area with diverse cultures and traditions, marketing is not very simple," says Sudhir.

In meeting with India’s retailers, Sudhir learned that to be successful in India they believe companies have to go beyond the top 10% of consumers and reach the top 30 to 40%. "That 30 to 40% of consumers is critical for organized retailing to take off, because that would mean adding about 300 to400 million customers."

"But the next 30 to 40%," Sudhir continues, "live very differently from the top 10%. The way you want to communicate with them and serve their needs is very different from those at the top 10%. We have very limited insights about what makes them tick. Even within a city like Mumbai, India’s financial capital, there are huge differences between the elite top 10% of consumers with a very Western-orientation, and the next social classes who live in an almost parallel universe."

In contrast, organized retail in China is much more developed and accounts for a larger percentage of today's market. "But even China will not exactly follow the U.S. retailing model because people there still don’t have the cars, they cannot travel far, they can’t buy in bulk. So stores have to be reasonably close to where they live and that affects store design, product assortments, and so forth," says Sudhir.

A broader question that Sudhir is interested in is how organized retail affects the entire lifestyle of a community. "It may be hard to believe, but consumers rearrange their life around a new retail store. How do they reorganize their shopping times? How do they shop? When do they shop? What goes into the basket? There are so many various ways in which organized retail will impact consumers and their lifestyle. The successful retailers in India are ones who will understand their impact more broadly and tailor their offerings with such insights."

The challenge this emerging market research poses to academics to create new research methods or adapt existing methods, and, most importantly, to think of research questions differently is also an opportunity to attract the highest quality of academic researchers to work in the area. Sudhir sees the CICI program as a way to elevate the profile of international research in the academic marketing community.

"Right now there is a sense that international market and consumer research is not serious research and that it’s not grounded in deep methodological or substantive thinking. I really want to change that image. My hope is that in three or four years there will be a lot of smart people who want to work in this area and be vested in it, and that we will have created a community of scholars focused on groundbreaking international research."

In April 2009, the CICI program will draw scholars to the Yale School of Management campus in New Haven for its first annual international, interdisciplinary China India Consumer Insights conference. In subsequent years, the conference will rotate among locations in the U.S., China, and India.