A question of marketing

Julian Chillingworth, chief investment officer at Rathbone Unit Trust Management, on the importance of gauging future consumer trends

In recent weeks, Nestlé, the food giant, announced its intention to target the price-conscious consumer in peripheral Europe, based on relatively successful marketing initiatives in emerging economies. At the same time, Tesco announced its intention to expand its online offering around the world. The retailers have a double whammy on their hands: to secure brand loyalty in new territories and instigate recession-busting initiatives.

A world of opportunity

The concept of having to tailor products to new and changing environments is an interesting one. The success of products lies in their marketing, and no more so than now when a world of opportunity awaits.

The world’s population, currently 6.8 billion, is expected to grow to 7.7 billion by 2020. Today, nearly 6 billion people live in developing and emerging markets: countries such as Brazil, India and Indonesia. These initiatives have huge implications for investors when analysing the retail space for those companies whose brands are likely to capture market share.

The Primani trend

Two growing global trends are the shift to value and aspirational spending. Dubbed the ‘Primani’ theme, high street retailers have certainly become polarised. On one end of the spectrum, there is ­Primark, owned by AB Foods, a discount retailer. At the other end, there is luxury goods giant LVMH, which appeals to the super-wealthy. Beneath the obvious, these two very different businesses do share some common ground: both AB Foods and LVMH are forecast to produce double-digit earnings growth at a time when other retailers are resisting downgrades.

There is an added layer of complexity brought about by cultural nuances. This includes understanding the fragmented nature of the marketplace within a country; seasonal impact (buying for occasions); and to some degree, the aspirational effects of class structure, appropriating the brand.

Diageo shows spirit in China

Drinks giant Diageo, for example, makes about one-third of its sales in developing markets. It recently announced plans to launch some local brands in India by creating its own or acquiring local labels. Up until this point, it had a sole focus on the sale of its global brands in the region. In China, Diageo is looking into a tie-up with a Chinese partner, giving it access to a huge local spirits market.

Unilever is another example of a company that has customised its marketing presence for emerging and developing markets. This year (by its own admission), it cleverly tapped into paranoia about personal hygiene in some emerging markets, with high-profile advertising campaigns.

The campaigns have taken into account local sensibilities. For example, ads for Lynx deodorants in India have been tailored for private channels (such as mobile phones), so that families are not offended. In Japan too, where youngsters do not congregate in the same manner they do in the West, advertisements have been approached accordingly. What Unilever has also been successful in doing is tying in its products with local health initiatives. In 2009, developing and emerging countries represented 49% of total group turnover.

The old adage of knowing one’s market still holds true.