Profit and the Poor; Consumer-Goods Makers Are Realizing They Have Only One Direction to Go for Growth: Down-Market

Newsweek International, July 19, 2004 | Go to article overview

Profit and the Poor; Consumer-Goods Makers Are Realizing They Have Only One Direction to Go for Growth: Down-Market


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CORRECTION: In "Profit and the Poor," we cited an article from Foreign Policy magazine that said low-wage earners from the 18 largest developing nations take in $1.7 billion a year. The amount, in fact, is $1.7 trillion. NEWSWEEK regrets the error.

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Byline: Mac Margolis (With Stefan Theil in Berlin and Sudip Mazumdar and Sumeet Chatterjee in New Delhi)

CORRECTION APPENDED

It wasn't exactly banner news, but May marked a watershed for the Brazilian economy. In the run-up to Mother's Day, consumers flooded stores, snapping up 1.5 million cell phones. The vast majority of these were prepagos --basic, cut-rate handsets that operate on prepaid phone cards and can be had on installment plans for as little as $3 a month. More than a shopping binge, the Mother's Day mob represented a new consumer vanguard: a battalion of buyers with shallow pockets but a keen eye for a deal. The result: Brazilians now own 53 million cellular phones, nearly 20 million more than two years ago--and 78 percent of them are prepagos. "The cellular phone is no longer an item for the elite," says Roberto Iunes, executive vice president for marketing and innovation for Vivo, Brazil's biggest mobile operator. "Companies that turn up their noses at low-income consumers are snubbing their own potential for growth."

Not so long ago, "poor consumers" sounded like an oxymoron. According to conventional wisdom, the societies of the developing world were built like great pyramids: the few phenomenally rich at the top, a thin wafer of middle class just below and, sitting on the bottom, a colossal plinth of poor folks who had nothing but their dreams. In Brazil there was even a name for it: Belinda, a tiny and prosperous Belgium surrounded by a teeming and destitute India. Companies instinctively poured their efforts into pursuing the wealthy consumers; for "India," there were only economic scraps and the dole. Even academics and policymakers tended to see the poor not as consumers but as victims. Now the wizards and the wonks are taking a second look. "The great white spot in the world economy is the lower-income market," says Laercio Cardoso, who oversees low-income markets in Brazil for the Anglo-Dutch laundry-soap manufacturer Unilever. "Reaching them isn't charity--it's business."

Lately, business is booming. Makers of everything from bicycles to bouillon cubes are scrambling to serve the most modest of patrons. Factories are retooling to turn out no-frills goods such as floor fans, single-door refrigerators and basic air conditioners. The most popular footwear in Brazil, the Havaiana, is a flip-flop. And cheap doesn't have to mean chintzy: late last year, Consul, a Brazilian affiliate of Whirlpool, designed a fully automatic three-cycle centrifuge washing machine that costs no more than a clunky tank washer, about $220. The big seller in rural India is the Boxer AT, a sturdy, low-maintenance motorbike, priced at about $600. And single-serve packets of everything from shampoo to Nescafe are flying off the shelves. "Just look at our customers," says Hugo Bethlem, executive director of CompreBem, a Brazilian discount supermarket. "All over the world, the low-income market is the market."

The view from the boardroom has shifted south for the simplest reason of all: economic necessity. Not long ago, the rule in the underdeveloped world was to protect local markets from carpetbagging multinationals and their flood of cheap and durable goods. What emerged was a bell-jar economy in which inefficient industry flourished in artificial splendor, selling overpriced wares to the wealthy few. The clubby days are over now, thanks to globalization and the wave of free-market reforms that swept the world in the 1990s. Given half the chance, savvy consumers betrayed their familiar homemade goods for quality foreign brands, from Heineken to Honda. But there's just so much foie gras the market can bear. …

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