Emerging markets: volumes, not margins

One of the global megatrends underlying the shift taking place in global markets with respect to new market strategy has been that of the rise of the aspiring consumer from hitherto overlooked segments of the population in developing nations.

This article from The Guardian reporting that Sony Ericsson’s profits have been down even as the number of handhelds shipped increased gave me some food for thought. Relevant snippets,

The company said it had increased its focus on low-end and middle-market phones. This boosted overall sales, with 25.9m units shipped compared with 19.8m a year earlier, but meant it made much less money on each one.

[…]

Manufacturers are increasingly using entry-level handsets to target the developing world, which is a key market as mobile phone ownership approaches saturation point in America and many European countries.

Over a year ago, I recall questioning whether it was time that the metrics of success by which a company’s performance would be measured would need to be changed in order to adapt to these changing conditions and constraints placed on them. Now I wonder if there are deeper issues to be considered and pondered over. The combined market forces of saturated developed markets and growing entry level ones are not going away anytime soon.

At the most, one can expect that rising income levels and concurrent rise in aspirations will result in a certain percentage of conversion to higher margin products, particularly in something as crucially important to this segment as the mobile phone, a documented creator of wealth and opportunity. And the replacement market will always be there. But in the medium term future, if not the longer term, sheer numbers will speak for themselves, the world’s “other 4 billion” are still a greater percentage of the global population.

Therefore, what are the options available for companies that seek to serve this market or are compelled to by market forces? The article states that Sony and Ericsson came together in this joint venture originally to address the premium segment but find that their lower end products are more popular, hence the shift in emphasis.

Rather than looking at profits in terms of per unit sold, would they have to contemplate a shift in their own business models? And as many global corporations begin to look at what is called the “triple bottom” line approach – NovoNordisk comes to mind – then would the same metrics apply as indicators of successful market performance?

What will be the implications of this shift on the future of not only the design and development of innovative products and services, but also business models and perceptions of successful implementation?

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