As Western companies struggle to navigate the worst economy in generations, here’s one piece of advice: Look at places where volatility is business as usual—emerging markets.
In these countries, companies have learned they can’t just hunker down when bad times strike. They have to go on the offensive. In Eastern Europe, South Africa and Latin America, managers look at tumultuous times as a chance to implement bold, creative ideas, outflank rivals and boost their business.
That means coming up with new ways to price their products. Or scrapping old marketing approaches. Or focusing on figuring out where the economy is heading next—and how to use that information to grab market share.
Here’s a closer look at the lessons companies might do well to follow, if they want to survive—and even thrive—in this crippling recession.
1. When the economy is down, get customers to trade up.
When times are tough, consumers focus on getting the best deal for their money. Often, this means trading down: Instead of buying, say, the “ultra” version of laundry detergent, people opt for the regular, cheaper variety. Even though these basic products have slimmer profit margins, companies figure some sales are better than none.
But in emerging markets, companies have learned that the opposite approach is often the smart one: They get customers to trade up to premium products—even though disposable income is much tighter.
Taking the Offensive
- The Crisis: Facing a turbulent economy, Western managers often simply try to ride out the storm—slashing costs and waiting for the situation to improve. But managers in emerging markets often can’t do that, since economic turmoil is a fact of life.
- The Rethink: Managers in these markets take a more aggressive approach to financial shocks, seeing them as an opportunity to build customer loyalty and get ahead of competitors.
- The Strategies: Successful managers have used a number of innovative approaches in trying times—everything from changing the price structure of their products to refocusing their marketing efforts.
How? They’re very careful about how they set prices on the different tiers of their products. Companies know that they can’t raise prices too much between basic and premium goods, or cash-strapped consumers will get turned off. So, the companies make the price increases much smaller and more consistent—which signals to buyers that premium products are a good value.
That means accepting a lower profit margin on premium products, lower than most Western
Get Premium Already a Premium Subscriber? Sign In
Purchase
Buy this article
Purchase one or more copies as a PDF
Copyright © Massachusetts Institute of Technology, 1977-2011. All rights reserved.
Dr. Roth,
I would like to thank you this wonderful and broad vision on how to deal in emerging markets. It is a perspective that I share and lived with it in the last 25 years of doing business in Brazil, but not only in Brazil.
I already tried to pass this vision of a different approach to develop business in emerging countries, but it is not easy when the mental models of “doing business” are constrained to pramatic frameworks of rules and methods that may work in the Northern countries but at the South of the equator line will not.
The strategic approach is different, the cultural dimensions (using Hoftede reference) are different and the confusion made with Ethics, that, here, they are more “flexible”, it is an error! Because there aren’t different values of conduct from North and South, what exists, it is the excuse to develop “easy business”. Several years ago, in an interview, when someone asked Peter Drucker what he would teach about Ethics, he answered: “If you can’t look yourself in the mirror for something you’re about to do, don’t do it.” That answers all questions and I think that the mirrors are the same in any place of the world.
Kind regards,
Mario Luis Tavares Ferreira