Is your Business Model Right for the Emerging Markets?
Most companies tend to forget that the value proposition for their products change from markets to markets. I was recently asked to do market research for a $100 toothpaste in India where a typical toothpaste usually costs less than a $1. So, will a $100 toothpaste (not including import tax, & sales tax) sell in India or to that matter in any emerging markets? There is a huge opportunity in these emerging markets but so are the obstacles. The Economist wrote, “The only way to prosper in these markets is to cut costs and accept close to zero profit margins”. A luxury car company markets itself as a fuel-efficient car maker in India. Companies need to remodel their business strategy in Emerging Markets.
Examples of Companies remodeling their Business Model
When Amazon decided to enter India, many feared that it would put many small stores out of business. But instead, Amazon partnered with them to reach out to the majority of Indians living in rural areas. They have localized their fulfillment platform by picking packaged goods from seller’s place of business and delivering them to customers. They have established contracts with a number of delivery services in the country.
McDonald’s had to change the customer points of view of a burger when they entered India. They localized their menu and reduced prices to the point it works. They further localized all the equipment that goes into the kitchen to reduce costs.
IKEA changed its value proposition to a western-styled aspirational brand for middle-class population when entered China. They made modifications to their products to suit the local Chinese markets and established stores outskirts of cities close to rail networks. They have approached a different marketing strategy by advertising on Chinese social media than traditional IKEA catalogue.
What should Companies do?
Companies not only require a greater emphasis on understanding what are the needs of consumers in these markets, but also a different way of approaching them. They need to re-invent their business model to build a large and profitable business in these emerging markets. As stated in HBS article ‘Reinventing your Business Model‘, they can only win if they
- Create value for customers by re-designing their customer value proposition
- Create value for itself by re-defining a profit formula
- Invest in key resources such as people, channels that are required to deliver the value to targeted customers
- Invest in key operational and managerial processes that will allow them deliver value in a way they can be successfully repeat, increase in scale, and reduce costs
The emerging markets will drive much of world’s growth in the coming years. Middle-Income families will be a major part of it. It won’t be an easy ride for companies to excel in emerging markets but those that are well positioned and have the right business model will have a long way to go.
By: Teja Sattoor