Strategy For Market Penetration In Emerging Countries

Published by MBA Skool Team, Published on October 17, 2012

Due to the present economic climate prevailing in the developed world, which are facing one crisis after another like U.S economic growth slowing down to 1.5% and the Euro region in general not recovering from sovereign debt crisis which claimed Greece, Italy and now Spain, it has become very difficult for many established MNCs to sustain profitability by sticking to their core businesses in these geographical regions. This has mandated that the companies that are focused on growth lay emphasis on the high growth markets of emerging countries like India, China, Brazil, South Africa and Russia. Contrary to the slow growing developed countries these countries have shown tremendous GDP growth rate over sustained period of time.  This is no news, but of great interest to companies would the fact that the purchasing power of the people in these countries has increased manifold in the last decade. The spending habits of the people have changed and now the new aspiring middle class growing in these countries has experienced the standard of living in developed countries and tries to emulate that life style. This has given rise to a rabid culture of consumerism and spending beyond ones means, which are the drivers of economic activity in these countries.

LESSONS FROM THE PAST: The lessons from the firms that failed in their attempt to penetrate the market have to learnt. The framework to understand these failures has to be developed and each element attributed to the failure has to be tackled independently and effectively.

Toyota failed to crack the executive sedan segment due to its positioning its cars in the same price bracket as the Mercedes C-class, which has much higher brand equity. The same happened to its flagship SUV Toyota Land cruiser, which ran into direct competition from Land Rover Discovery and Mercedes GL500. Similarly when Nestle Milo tried to penetrate the matured market of health drinks in India, its initial strategy was to undercut its rivals on price and offer innovative schemes and prizes catering to school kids. This worked well initially till the prize scheme was in affect. After the withdrawal of the promotional scheme the sales rapidly declined due to the association of Milo as a cheap brand. This was also partially due to the faint taste of the product, which the consumer associated with poor quality.

The real lessons from these mistakes are learn to understand your brand and position it accordingly , undercutting price can be a short-term strategy but it cannot be mistaken for a core competency.

SOME STRATEGIES THAT WORKED: The strategies that succeeded are the ones that understood the secret needs of the customer. The Indian customer is very vary of appearing as a price conscious person, so he/she may respond in the survey that one might purchase a product of good quality irrespective of price but in reality the truth is really opposite.

This was observed by the companies which provided goods/products at lower prices while only highlighting the features and avoided mentioning its price advantages as their potential owners might shy away from purchasing it due to stigma attached to buying lower priced goods. Many consumer goods and apparel companies have adopted this method of advertising. Eg: Flying machine, Killer jeans which are considerably cheap compared to Levis jeans do not mention the low price in any advertisement.

List of strategies that worked in emerging countries:

  • Good design, expensive look but stripped down product on inside
  • Compromise high quality with moderate to low price
  • Make smaller packs of product to ensure consumption by large majority of rural population
  • Financing the purchase by the seller of the product
  • Easy financing for the extended family that purchases the product as only one family cannot afford the product
  • Freebies and special offers at important festival times

This article has been authored by Mellam Ramkishore from SJMSOM.

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