George S. Day and Christine Moorman

Using Customer Insights to Grow in Emerging Markets

Monday Aug 22, 2011

Procter & Gamble is hitching a big part of its growth strategy to “$2-a-day consumers” in emerging markets. As noted in the Fortune article reporting this move, CEO Robert McDonald wants to acquire 800 million new customers by 2015! To do that, he’s focused on Asia and Africa, where per capita spending on P&G products is only $1-3 per year. P&G has discovered that the key to unlocking this largely unexplored wealth of consumers is not cutting costs, pricing accurately, or distributing to rural markets. Instead, the real challenge is to gain meaningful and predictive customer insights that will enable P&G execute these growth strategies with impact. In strategy speak, growth strategies have to be married with a complementary customer insights capability.

P&G learned the hard way that operating under untested assumptions about customer needs can be costly. Its razor launch in India failed because the company tested the razor with Indian men at MIT, instead of India, where lack of access to water made it a painful and ineffective product. Today, P&G is taking steps to learn about emerging market customers in ways that will yield insights that create value for the customer and for P&G.

At the heart of such strategies lies a simple notion—observation creates insights. As an example, water scarcity in Lanzhou, China makes lathering shampoo impractical for women with long hair. So why not cut it shorter? In-home observation by P&G revealed customer Wei Xiao Yan’s adamant belief that women “should have long hair.” Yan had long used laundry detergent to wash her hair for years rather than trim it! Understanding these types of motivations behind consumer behavior is crucial to P&G’s ability to satisfy customer needs. In Wei’s case, P&G found that leave-in conditioner served two needs—it softened her hair and conserved water. Additionally, the company is opening an R&D facility in Beijing to coordinate research efforts among all of its units. This facility also includes a hutong, or a simulated Chinese home, where researchers can observe customers interacting with products.

While surveys and experiments can produce useful insights, direct observation provides a rich understanding of how and why customers use products. Unique and difficult to imitate ideas are much more likely to pop up in observation. As another example, in the West, hair dye functions as a personal care luxury, but researchers learned that developing world consumers use it to make job seekers presentable for employment opportunities. Given this, reducing the price and the amount of water necessary for such dyes will be key to the success of these products.

The late management scholar C.K. Prahalad advocated serving these “bottom of the pyramid” customers. He knew, as P&G is finding out, that competitive advantage in such endeavors will be sharply divided between two types of companies—those that know how to understand these customers well and how to use these insights to drive growth strategies and those that don’t.

To review the Fortune article, see Jennifer Reingold, “Can P&G Make Money in Places Where People Earn $2 a Day?,” January 17, 2011.

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