4 Best Practices for Retailers Entering Emerging International Markets
The world's largest online retailer is testing unmanned drones in the United States and piloting a project with India's postal service, both for streamlining order delivery. If there ever was a metaphor for the comparative challenges of retailing between developed and emerging economies, this has to be it.
Another challenge is that emerging markets, whether in Asia, Latin America, Africa or Eastern Europe, defy all attempts at taxonomy. What works in one market may not even be remotely relevant to another. The sheer diversity of profiles, characteristics and dynamics makes it virtually impossible to compile a shopping list of best practices that global retailers can leverage across markets. However, there are some fundamentally relevant factors that retailers must consider in order to succeed in emerging economies. Here they are:
1. Brace for the voids. In most emerging markets, the retail value chain is still in a nascent phase. This means that key links along the chain — e.g., logistics, payment infrastructures, talent, etc. — will either be inadequately developed or outright missing. Even the best honed business strategies can disappear into these institutional voids, making it imperative for retailers to invest in identifying, understanding and addressing these gaps. Where possible, retailers can structure their strategies around the void. But if business-critical components in the supply chain, for example, are lacking, then they'll need to develop competencies and/or partnerships to rectify the situation.
2. Small is the new black. Consumer spending trends are driving even large global retailers in developed markets to think smaller format stores. In post-recessionary times, disposable incomes shrink and consumers tend to abstain from stockpiling essentials. Additionally, emerging market consumers may not perceive adequate payoff, in terms of time, money and effort, in driving to suburban big-box stores in spite of the lower prices.
For retailers, small formats, in both emerging and developed markets, represent an opportunity to get closer to their customers. Smaller formats can also help retailers channel their investments into more locations to maximize reach. Though a straightforward per square foot rental and development cost calculation may not skew favorably towards urban locations, the potential for higher traffic can put those investments in the black. For all this to work, however, it will have to be backed by a strategic approach to site selection, category/assortment and customer experience.
3. Location's good; loyalty's better. Emerging market consumers are among the most price sensitive in the world, yet value is the final arbiter in their retail relationships. According to a recent study, customers in emerging market geographies like Asia-Pacific, Africa and Latin America were most inclined to choose retailers that offered loyalty programs. The same study emphasized that the loyalty program penetration in these geographies, especially Latin America and Africa, was significantly lower than that in developed markets.
In emerging markets, loyalty programs and focus on customer satisfaction have the potential to build more mutually productive engagement models than lower prices alone. For example, interest-free credit and free delivery can perhaps be integral parts of a loyalty reward program. Conveniences like a three-day return policy are likely to be great hits, too.
4. Localize. Global retailers need to understand that the product and service standards they ultimately have to beat are those set by local retailers. Those are the competitors with long-standing customer relationships rooted in cultural and consumer knowledge, generations of loyalty and an unflinching focus on service. Retailers need to invest in deconstructing the nuances of local culture and consumption to create a product offering that's relevant in terms of price, pack size and preference. In many emerging markets, local retailers have built a service model that includes interest-free credit and free delivery. Chain stores may not be able to match them on these metrics, but they will surely have to explore any and all opportunities to even out the imbalance.
Many global retailers have stumbled on the unique dynamics of emerging markets and their consumers. Do these consumers aspire to the retail experience available in developed economies? Absolutely. But that doesn't mean that their needs and preferences converge with those prevailing in more mature retail markets. To succeed, retailers must power their strategies with a penetrative understanding of individual market characteristics. If there's one all-encompassing retail best practice for emerging markets, it has to be this: Go deep before you go wide.
Suresh Bharadwaj is the industry principal for retail CPG logistics and life sciences at Infosys, a provider of business consulting, IT, software engineering and outsourcing services.
