Category creativity

Branded edible oils in Sudan, soy fruit drinks in Brazil, isotonic drinks in Indonesia. Five years ago, these categories were barely on the radar in these countries. By 2011, they ranged between $400 million to $890 million in revenues in these markets, generating significant profits for the companies that took the initiative to introduce them.

Emerging markets may be expanding at a record-setting pace, but many also are undergoing rapid category consolidation. It's to the point where, in many cases, the top three to five players now control the lion's share of a category in any given market. Consolidation can slim margins for incumbents and limit opportunities for new players. That leads some consumer goods companies to conclude they're locked out. But the fact is, identifying new categories and subcategories and building them from scratch can serve as a powerful path to growth. It allows companies to surmount the consolidation hurdle and capture their share of consumers' rising disposable income. For those that understand how to unleash its power, the category creation strategy is nothing short of a game changer, often delivering success in just a few years.

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Taking a new consumer goods category from zero to 100 Mike Booker: Winning in developing markets

INDUSTRY EXPERTISE

Consumer Products

Over the decades, the real masters have used category creation to pave their way into both emerging and advanced markets. Now new kids on the block are discovering the power of inventing new categories or subcategories that go beyond meeting consumers' basic needs. That's what Vietnam's Tan Hiep Phat (THP) did when it brought ready-to-drink tea to the country in 2007 and grew it into a $200 million business by 2011—on the back of its existing beer and soft drinks business. Category creators often aim for the sweet spot between branded basics and luxury goods.

This is a fast-moving game where, as evidence shows, anyone has a shot at winning: multinationals and local players, incumbents and newcomers, companies selling premium or mass products. It's a particularly attractive route for multinational consumer goods makers that are late in entering key emerging markets like India and China.

Drawing on deep consumer insights, companies that take the right steps can make the leap from product introduction to profits faster than they ever could have predicted. Look at Pocari Sweat, which grew sports drink sales in Indonesia from about $140 million in 2006 to $400 million in 2011. Another superstar is Saudi Arabia–based Savola. The company launched its branded edible oils in Sudan in 2006—four years later it was reaping 11% margins.

But even for companies that understand the nuances of category creation, it isn't always that easy. The time required to succeed isn't obvious. And some ideas don't pass the consumer test. For others, companies may have trouble replicating those that do, particularly when it's hard to adapt to local tastes.

To position themselves for rapid growth, we've found that consumer goods makers typically take three fundamental approaches.

The initiators

Fast-track initiators use two models to achieve rapid growth: creators and branders. Creators develop new category concepts by spotting an unmet consumer need or fill product gaps by understanding local markets and generating deep insights into consumer behavior. Branders work to switch consumers from unbranded to branded products.

The replicators

Agile replicators adopt one of two models: repeat by market and repeat by category. Companies that repeat by market take product ideas that work in either advanced or emerging markets and then look for countries where they can replicate them with minimal tweaking. Companies that repeat by category replicate their success formulas with new categories in a particular market by relying on strong distribution systems or retail connections that can’t be reproduced in another country.

The copycats

Copycats are opportunists that believe they can take someone else's successful idea and do it better or cheaper by locally developing their own categories or subcategories.

Five rules for repeat category creators

As successes emerge, so do the winning formulas that both foreign and local companies take to envision, create and replicate profitable new categories.

1. Identify market gaps, market needs and the right timing

In Vietnam, Masan Consumer recognized the opportunity in branded table sauce and moved quickly. Its research showed that the local company had an edge over any foreign players: Consumers' strong local taste preferences protected the category from aggressive competition by multinationals.

2. Develop a winning concept and business model that spells out an entry strategy, with a clear path to profitability

Repeat winners understand what consumers need and what they'll pay for products that fill the need. They look at key success factors to determine what would make the proposition profitable. They make reasonable assumptions about how much it would cost to modify the format, how fast they could ramp up volume to break even, what kind of distribution is required and how much promotion would cost.

3. Localize products, price, placement and promotions With a working economic model in hand for a new category, successful companies then fine-tune it for a local market by focusing on the key success factors.

Products. When Danone launched its Mizone electrolyte sports drink targeted at consumers who needed to rehydrate, it chose to offer the drink only in a 500-millileter bottle – but in multiple flavors.

Price. Petra gained significant ground in Indonesia by pricing its compound chocolate bars at 500 Indonesian rupiah, the traditional coin given to students for after-school treats.

Placement. Pocari Sweat’s strategy called for initially distributing the drink only to modern retailers to reach middle- and upper-income shoppers. It also placed the electrolyte drink in hospitals and schools and promoted for its health benefits.

Promotions. Brand leaders design their promotional campaigns to win over priority customers in local markets by paying attention to their needs. For example, New Zealand dairy giant Fonterra differentiated its Anlene brand calcium-enhanced milk formula by positioning it around bone health in key markets across Southeast Asia and China.

4. Assemble the right teams

To execute their strategies, companies need the right team— seasoned sales, marketing and operations professionals capable of quickly ramping up a local launch. To fill talent gaps, repeat category creators often cycle in expert teams with ground-level experience when launching new categories and tailoring them to local markets.

5. Stay the course

Winners understand that creating a new category or subcategory requires patience and can take five or more years to reap a return on their investment.

As consumer goods makers from all corners of the globe focus their attention on developing markets, they're also accepting a new fact of life: As categories consolidate and as consumer incomes rise, sometimes the best new option for growth and profits is to build a new category from scratch.

Mike Booker is a Bain & Company partner based in Singapore and head of the firm’s Consumer Products and Retail practice in Asia-Pacific. Melanie Sanders is a partner based in Melbourne and head of the firm’s Customer Strategy and Marketing practice in Asia-Pacific.