A few days ago I received a surprise phone call from a sports salesman. It had been many years since I had spoken with him. He was quite agitated and said he needed my help. Apparently, a long standing client and his largest was cutting back on his sponsorship package in a very high profile sporting event. The client was essentially cutting his commitment in half for the next three years. The advertiser’s CEO was moving funds outside of the US into some emerging markets.
My old acquaintance was livid. I understood his annoyance at losing significant billing but I had to tell him that this kind of thing was going to happen more and more to people selling to mature brands in the U.S. Local and regional media will likely be hit harder than national network media, I added, which really made his day.
Here is what I think is slowly beginning to happen. Many mature brands in the U.S. are treading water. They are firmly entrenched and work on paper-thin margins. Volumes may be high but there is not great pricing power. So, because capital always tends to move where it can get the greatest return, many marketers are spending advertising and promotional dollars overseas.
Both consulting firm McKinsey & Company and the United Nations have produced reports saying that private consumption in emerging markets is at about $12 trillion per year. By 2025, that projection will top $30 trillion. So put yourself in the place of a CEO or global marketing officer of a consumer brands outfit. You would be foolish not to market your brands aggressively in Bangkok or Jakarta or Sao Paulo rather than maintain your share of voice in Pittsburgh.
China and India combined are together adding 70 million members of the middle class every year. We, sadly, appear to be losing several million middle class citizens each year due to a struggling economy. There will be ups and downs for sure over the next 20 years in emerging markets but the net result has to be a tidal wave of consumption across all types of goods be they luxury, disposable, digital or mechanical.
Also, a mere six countries—China, India, Indonesia, Brazil, Mexico, and Russia have just over half of the world’s population. And, other than China, which will soon have an aging population, the others all skew younger than the U.S. and most of the West and Japan. Also, keep in mind that the really explosive growth percentage wise will come from smaller countries in Asia and Latin America.
People focus a lot on tech and look at companies such as Apple or Samsung or Google. But, a rising middle class brings other categories explosive growth. How about something mundane like soap companies? They are growing like wildfire in Latin America and Asia. It is very simple—as you become middle class, you use more personal care products.
Imagine a young lad growing up on a small subsistence farm on an Indonesian island. He has an aptitude for math and after finishing the local school eventually finds his way to Jakarta and works as a clerk in an insurance office. At night, he takes accounting classes at a business college. He now shaves daily (a gain for Gillette, a P&G brand), uses whitening toothpaste twice a day (Colgate) and showers each morning with Dove (Unilever). These companies are beautifully positioned as millions more enter a middle class lifestyle each year. Why does KFC open a store in China daily and McDonald’s 2-3 per week there as well? Because, simply, the sales potential is enormous. Coke is now in all but three countries on earth (Burma, Cuba, and North Korea) and growth is interesting as per capita consumption levels are 80-100 years behind the U.S. in most emerging markets.
Years ago, I worked every now and then with a real character. He was undisciplined but a very dynamic presenter. New business was his forte. He pitched like crazy because he said clients were like a leaky barrel. You poured some new ones on top regularly but always lost some from the bottom each year.
My many friends in the media business are about to become acquainted with the leaky barrel. But, in this case, ad dollars are going to be leaving the North American continent forever. They are going to have to be very resourceful to find replacement revenue for some of the old stalwarts who are finding emerging markets to be a happy hunting ground for profitable sales growth.
If you would like to contact Don Cole directly, you may reach him at email@example.com