Low income consumers in the world's emerging markets want many of the same things out of life and the same quality in their products as middle class consumers, but they differ in their purchasing behaviour, according to a recent global study by Synovate.
The study found that a lower income doesn't necessarily mean lower standards - just different priorities. Synovate surveyed over 8,000 consumers in 14 'hot spot' markets around the world to gain a better understanding of their attitudes, values and purchasing habits. The countries examined were Argentina, Brazil, China, Egypt, Hungary, India, Indonesia, Mexico, Poland, Romania, Russia, South Africa, Thailand and Turkey.
The research showed that when it comes to attitudes, low income consumers in emerging markets have many of the same life priorities, values and brand perceptions as their middle class cousins.
Health, family and physical security are the top three most important things in life for more than 80% of low and middle income consumers, followed by a good home, an education and a good income.
Fifty seven percent of both middle and lower income consumers strongly believe that the poor are getting poorer while the rich are getting richer; over half believe that the environment is polluted; and more than a third think that not everyone benefits from free trade.
One in three respondents from both consumer groups strongly believes that in five years things will have improved for them.
Similar brand perceptions
Just under two thirds of low income consumers prefer local brands if price and quality are equal; one third believe that local brands are as good as international brands; and 31% agree that most people don't know the difference between local and international brands. These responses all mirror those for middle income consumers.
Despite the income gap, low income consumers will use additional income in a manner similar to those from the middle classes. When asked how they would use the extra money if given a 20% increase in income, 38% of low income consumers said they would spend their extra income, 47% would save or invest it and 15% would pay off debt. Similarly, 34% of middle income consumers would spend it, 56% would save or invest it and 10% would pay off debt.
Not surprisingly, where the two groups of consumers do differ substantially is in product ownership. Many more middle income consumers own personal computers and cars; and have bank accounts and credit cards.
However, mobile phones are no longer the domain of the rich and middle classes, with over two thirds (67%) of low income consumers owning a mobile phone, compared to 84% of middle income consumers. Interestingly, ownership of a mobile phone gave low income consumers in South Africa much more than a way of calling people. In many cases, this phone ownership gave people their first permanent address, helping to create a sense of identity.
According to Mike Sherman, Synovate Executive Director, Consumer Insights, the attitudinal data demonstrates that, although some believe that lower income consumers want different quality products to those with more spending power, this isn't actually the case. He added: "Synovate's research shows that low income consumers want many of the same things out of life and their products as their middle income counterparts, but are constrained by their relatively limited purchasing power. This suggests that as their income grows - which is projected to happen in many of these markets - the lower income consumers will display the same kind of spending habits as the middle class."
Key to future growth
Synovate found that the key to future growth in many countries lies in low income consumers' access to credit, as well as a marketer's ability to understand purchasing habits and preferred communication channels. According to Ignacio Galceran, CEO for Synovate Latin America, in markets like Brazil major retailers are taking this on board. "Brazilian consumers do use credit, but 70% do not have the credit history to qualify for loans or credit cards, so major retailers tend to fill the gap. This is at very expensive rates - often upward of 70% interest per annum. However, if low income consumers are offered credit at a more reasonable rate, they would spend less on repayments and more on the goods and services that they want and need, increasing their spending power."
Word of mouth is key
Low income consumers also tend to shop locally and develop a loyal, trusting relationship with the owner of their small neighbourhood store. This gives the owners of such stores a unique ability to influence low income consumer purchasing habits, both through the products they stock and those that they recommend. Such word of mouth plays an important role in all product communication. Many low income consumers are illiterate with little formal education and while they watch plenty of television, word of mouth recommendations, visual identity and communication using graphics is vitally important.
Sherman says that the low income market is large and, while not rich, the consumers are savvy, discerning and in need of affordable solutions that still deliver the core benefit they are looking for, as well as the quality. This may mean, he says, that the same product in smaller, more affordable packaging, a scaled down version of a product or a product with simplified, less expensive design, is called for. "Marketers also need to understand that the competition they face in such a market is not just from other brands within a product line but from other product categories altogether as, due to budget restrictions, low income consumers face choices between two entirely different types of products, rather than choices between brands.
However, Sherman warns: "It's worth noting that this finding does not apply in the same way in developed markets. Synovate also surveyed 2,000 consumers in the US, UK and Japan for the purposes of comparison and found that, in these markets, low income consumers have very different priorities and attitudes to their middle income counterparts."