high energy and amazing persistence,” he says. “I love it here. Our rapid-growth days are still in the future. You need patience, perseverance, perpetual reinforcement, and no escape buttons.”
The rise of the newly affluent consumers will have a double-edged effect. It will create new opportunities and, at the same time, give rise to a new era of competition. For those companies in the United States and Europe that are fast and resilient enough to take advantage of the market growth, there will be spectacular wealth: a share of the $10 trillion prize. For those that are not fast and responsive, there will be competitors that, having grown up in China and India, will attack with deadly force in Western markets with low-priced, high-quality goods.
To help companies, we have tried to fill The $10 Trillion Prize with an abundance of practical lessons and strategies. We believe that the newly affluent in China and India are different from those in the West. They grew up with nothing and suddenly find their lives filled with choice. They are careful buyers yet they want the recognition, respect, and sophistication conveyed by branded products. They are uniquely optimistic about the future. They expect to be richer and they expect to command a greater share of the world’s resources and income.
To win these new consumers, it is necessary to win them over—to captivate them. You can do this by focusing on six emotions:
Help fulfill their dreams—give them a moment of gratification and elevation.
Help brand them as in-the-know—discerning, informed, visibly affluent.
Help them live big, on less. Understand that they “work hard, spend hard”—every renminbi, every rupee, is precious and causes them angst as it leaves their pocket.
Understand that painful memories still haunt them. Almost every consumer we have talked with in China and India has either firsthand or family memories of deprivation and personal risk. You need to respect their history and provide them with an optimistic view of the future.
Earn their loyalty and reverence by aiding the advancement and health of their children.
Listen hard. The new consumer wants to engage in a dialogue and is looking for your respect and appreciation.
PART I
The Rise of the New Consumer in China and India
TWO
The New Revolutionaries
The Rise of the Middle Classes
Who the new consumers are, how they spend their money, and what companies should do to captivate nearly one billion people
GOVIND SINGH SHEKHAWAT does not look like a revolutionary. A hardworking forty-something who holds down two jobs in the sleepy Indian desert state of Rajasthan, he has the broad smile of a man who is happy with life. Ma Guojun does not look like a revolutionary, either. Younger than Govind by about ten years, he is an engineer and teaches at a university in Qinghai province in western China. Yet they unquestionably are part of a revolutionary movement: the rise of the Chinese and Indian middle class.
Throughout history, China and India have been sharply polarized countries, with a small elite of very rich at the top and an overwhelming majority of very poor at the bottom—and nothing much in the middle. Most people, whether in the cities or the countryside, scratched out a subsistence living. Over the past ten years, however, this has been changing, and dramatically so. In the next ten years, these two countries will have a substantial middle class for the first time in their history. In his 1947 speech “Tryst with Destiny,” Jawaharlal Nehru, the first prime minister of independent India, proclaimed that India “will awake to life and freedom.” A mere two years later, in October 1949, Chairman Mao proclaimed, “China has stood up.” In fact, it has taken more than sixty years for Chinese and Indian consumers to wake up, stand up, and start to earn and spend as never before.
As discussed in chapter 1, the number of middle-class households in China will nearly double during the current decade, rising to 202 million by 2020. This will be the largest group of middle-class consumers in the world. Likewise, in India, the number of middle-class households will nearly double to 117 million over the same period. These middle-class consumers will account for nearly half of consumer spending in the two countries by 2020 (figure 2-1). It is their newfound productivity and earning power that is underpinning the dramatic growth in consumer spending and providing people such as Govind and Guojun with their extraordinary ambition, drive, and optimism.
The level of household income defines this group of newly prosperous people—but it is not a homogeneous group. We segment households into lower, middle, and upper class. It is helpful to further segment the lower class into the left-behinds and the next billion, to segment the middle class into emerging middle and middle, and to segment the upper class into lower affluent and upper affluent. The next billion are people in the lower class who have some disposable money in their pockets for the very first time and have the energy and ambition to move up into the middle class—they work hard, they care about their children’s education, and they choose better quality goods.
FIGURE 2-1
How the $10 trillion prize breaks down across classes
FIGURE 2-2
Household income in China, 2010 and 2020
In China, the threshold for entry to the middle class, taking into account the lower cost of goods and services, is an annual household income of $9,750. But we put the threshold for entry to the emerging middle class at $7,300, while the ceiling for the richest members of the middle class is $23,200 (figure 2-2). Guojun, who earns around RMB 80,000, or $12,500, fits squarely into this category.
In India, the middle class has an income range of $6,700 to $20,000 (figure 2-3). We often subdivide this class into two groups: the urban and the rural. Govind is comfortably middle class, earning more than 500,000 rupees, or around $11,000, from his various business ventures.
But if income is a key segmentation factor, it is not the only one. Other factors include education, occupation, and geography—and, as we will see in this chapter, these differences influence consumers’ attitudes and, importantly, their patterns of consumption.
First, though, we should meet the new members of the middle class.
FIGURE 2-3
Household income in India, 2010 and 2020
The Middle (Class) Kingdom: China’s New Bourgeoisie
Ma Guojun is typical of this new class. Born near Xining, the capital city of Qinghai province, he grew up in a poor family, the eldest of three boys. His father worked for the local electricity company and dreamed that his son, if he studied hard, would rise up through the ranks of Chinese society.
As it turned out, Guojun
