When Sustainability Meets its Best Friend:

How Income-Squeezed Middle-Class Consumers

Justify their Price-Based Shopping
 

S. Tamer Cavusgil
Regents’ Professor, University System of Georgia
Fuller E. Callaway Professorial Chair
Executive Director, CIBER

Georgia State University

March 2022 1
What are these folks doing on a remote
mountaintop in Northern England?
 Air Farming Business - Making money out of fresh air

Leo De Watts 'farms' fresh-air from Dorset, Somerset, Wales,

Wiltshire and Yorkshire and sells the bottles to the smog-plagued
elite of Beijing and Shanghai. People are paying upwards of $170
for a single container of air.
Australian entrepreneurs sell
cans of clean air to China
December 17, 2015

5
What are Megatrends?
Why do they Matter?
 Megatrends – A Sample - 1
• Globalization & and de-globalization
• Locus of economic activity & dynamism moves to EMs :
Regionalization  China  India Africa
• VUCA - Volatility & uncertainty  Risk mitigation –
Resilience and Agility
• Demographics Generations - Seniors, Generation Y and Z
• DEI - Diversity in the workplace  Women empowerment
• Technological change: Connectivity; Processing power;
Digitalization; Data explosion; Business model disruption;
Human Augmentation Technologies (AI, Autonomous
Vehicles,…) Data privacy; Cybersecurity…

8
 Megatrends – A Sample - 2

• Resource scarcity; climate change  Sustainability

• Rise of entrepreneurship - Born Globals  Born
Digitals; Unicorns
• EMs  Middle Class; EMNEs / Global challengers
• Rise of Mega Cities  From ‘international marketing’ to
‘city/region-based marketing’
• Elusive nature of democracy
• Poverty & Inequality of opportunity
• Stakeholder accountability  Social, environmental,
governance

9
What is Unique about
Emerging Markets?
 What is Common to Most to EMs?

• High-growth, high potential -- but high risk too

• Not just economic – but also political & cultural phenomena
• Unique patterns of transformation in society & politics
• Both family-owned & state-owned businesses in the landscape
• Government – an active participant
• Home-grown companies on their way to become regional or
global powers (The New Multinationals)
• A new generation of entrepreneurial class hard at work
• Rising middle class
12
 ADVANCED MATURE EMERGING FRONTIER DEVELOPING
DIMENSION EMERGING OTHER
ECONOMIES MARKETS MARKETS MARKETS ECONOMIES

Canada, Israel, Hong Kong, Brazil, China, India, Bulgaria, Romania, San Marino,
REPRESENTATIVE COUNTRIES France, Japan, United South Korea, Indonesia, Turkey, Nigeria, Ukraine, Angola, Bolivia, Burundi, Saudi
Kingdom, United Poland, Singapore, Mexico… Morocco, Croatia, Bangladesh Arabia
States Taiwan

APPROXIMATE NUMBER OF 27 8 18 37 30 69
COUNTRIES
POPULATION (% OF WORLD) 13% 1,4% 55% 12.5% 9.6% 8%
APPROXIMATE AVERAGE PER- $46,274 $17,206 $8,386 $10,149 $1,618 $8,991
CAPITA INCOME (U.S. DOLLARS;
PPP BASIS)

APPROXIMATE SHARE OF
WORLD GDP (PPP BASIS)
43.1% 2.2% 42% 6% 2% 5%
POPULATION (MILLIONS) 996,29 103 4,176 994,57 727,24 623
TELEPHONE LINES PER 1,000 3,230 17,501 2,016 4397 1703 5524
PEOPLE (MOBILE)
SECURE INTERNET SERVERS PER 1,364,379 234,392 133,878 333,857 3,333 193,689
1,000,000 PEOPLE

PERCENTAGE OF INDIVIDUALS 85% 41% 54% 62% 18% 37.57%

USING INTERNET

MOTOR VEHICLES PER 1,000 511 214 213 227 27 91

PEOPLE

13
14
 Mega-Projects
Project Investment Benefit Estimate / Year Location
Completion

Delhi-Mubai 24 smart cities and 23 industrial zones

Industrial Corridor $ 100 billion interconnected
2025 India

Connect Asia with Africa and Europe via land

China’s Belt and and maritime networks along six corridors with China
Road Initiative US$1 trillion the aim of improving regional integration, N.A. & some 70
increasing trade and stimulating economic countries
growth.

Urban paradise to house 700,000 houses and 4

Forest City $ 100 billion central parks
2040 Malaysia
Al Maktoum
Airport expansion to handle 200 wide-body
International $ 32 billion aircraft at a time.
NA Dubai
Airport
Hong Kong- Zhuai – World’s long sea bridge reducing transport in
Macao Bridge $ 10 billion 80%. 2018 Hong Kong

IGA Airport $ 35.6 billion New international airport 2015 Istanbul

Rio de Janeiro Rio de
International $ 10.5 billion Expansion to increase passenger capacity 2014
Janeiro
Airport
Moscow MSW $2.32 billion Collection and transport of waste 2018 Moscow
Export Services
15
 Mega Cities + Mega Projects pushing Infrastructure
RANKING CITY 2020 CITY 2030
1 Tokyo 37.39313 Delhi 38.9387
2 Delhi 30.29094 Tokyo 36.5738
3 Shanghai 27.05848 Shanghai 32.86927
4 São Paulo 22.04303 Dhaka 28.07566
5 Ciudad de México (Mexico City) 21.78238 Al-Qahirah (Cairo) 25.5167
6 Dhaka 21.00586 Mumbai (Bombay) 24.57245
7 Al-Qahirah (Cairo) 20.9006 Beijing 24.28191
8 Beijing 20.46261 Ciudad de México (Mexico City) 24.1106
9 Mumbai (Bombay) 20.41127 São Paulo 23.82422
10 Kinki M.M.A. (Osaka) 19.16534 Kinshasa 21.91434
11 New York-Newark 18.80355 Lagos 20.60016
12 Karachi 16.09379 Karachi 20.43185
13 Chongqing 15.87218 New York-Newark 19.95761
14 Istanbul 15.19034 Chongqing 19.6491
15 Buenos Aires 15.15373 Kinki M.M.A. (Osaka) 18.65806
16 Kolkata (Calcutta) 14.85007 Kolkata (Calcutta) 17.5836
17 Lagos 14.36833 Istanbul 17.12424
18 Kinshasa 14.34244 Lahore 16.88309
19 Manila 13.92345 Manila 16.84134
20 Tianjin 13.58908 Buenos Aires 16.45612
16
What is Middle Class?
 What is Middle Class?

• Disposable income >> Discretionary consumption

• Sizeable, upwardly-mobile consumers aspiring to enjoy
comfort, lifestyle, and western brands.
• Searching: better housing, healthcare, educational
opportunities for children, reasonable retirement and job
security, and vacations & leisure time
• Transition to MC is accompanied by changing perspectives
towards education, politics, and society.
• Often: ‘trend setters’ and ‘change facilitators.’
 Why Middle Class Matters?

• Engine of economic growth

• Stimulates competition, innovation & quality products
• Source of entrepreneurial class & productivity
• Signals an improvement in income equality
• Ushers in vocal consumers & eventually more
transparent governance
• Pulse of a progressive society
• Promotes certain attitudes toward working and saving
 What Does it Mean for Western Firms?

• Procter & Gamble's retail sales in Brazil and Russia are

eclipsing European countries (they ranked 3rd and 5th, respectively in
2014)
• Coca-Cola now derives 37 percent of its revenue from Latin
America, Africa and Asia; these markets contribute 49% of
profits.
• Colgate-Palmolive receives 45% of its revenue from these
markets and nearly half of its income.
• Companies such as Unilever, Gillette, and Nestlé all capture
one-third or more of their revenue from these markets, with
profitability equal to, or higher than, what they achieve in
advanced economies.
20
 Emerging Market Multinationals
Home Grown Multinationals Country of Origin Industry Sub-Industry Market Value (in U.S. $, millions)

TAL Education Group

China Consumer Services Educational Services 36,563
Aier Eye Hospital Group Co Ltd
China Health Care Facilities & Services Health Care Facilities 22,094

Meituan Dianping
China Retail - Discretionary E-Commerce Discretionary 110,580
Industrial Bank Co Ltd
China Banking Banks 47,419
Avenue Supermarts Ltd
India Retail - Consumer Staples Food & Drug Stores 19,440
Vingroup JSC
Vietnam Real Estate Construction 14,136
Yandex NV
Russia Media Internet Media 13,453
Banco de Credito del Peru
Peru Banking Banks 13,142
Raia Drogasil SA
Brazil Retail - Consumer Staples Food & Drug Stores 6,968
Capitec Bank Holdings Ltd
South Africa Banking Banks 5,803
Guangzhou Kingmed Diagnostics Group Co Ltd
China Health Care Facilities & Svcs Health Care Services 4,596
El Puerto de Liverpool SAB de CV
Mexico Retail - Discretionary Department Stores 3,921
Equatorial Energia SA
Brazil Utilities Utility Networks 3,737
Sumber Alfaria Trijaya Tbk PT(Alfamart)
Indonesia Retail - Consumer Staples Food & Drug Stores 2,586
Zee Entertainment Enterprises Ltd
India Media Entertainment Content 2,535
Relaxo Footwears Ltd
India Apparel & Textile Products Apparel, Footwear & Acc Design 2,430

Cogna Educacao (Kroton Educacional)

Brazil Consumer Services Educational Services 2,211
Robinsons Retail Holdings Inc
Philippines Retail - Consumer Staples Food & Drug Stores 2,155
Empresa Nacional de Telecomunicaciones SA(Entel)
Chile Telecom Telecom Carriers 1,940

Dr Lal PathLabs Ltd

India Health Care Facilities & Svcs Health Care Services 1,679
Deeper Aspects of Middle Class?

Discretionary
Consumption

Education,
Occupation,
Ownership of
Assets

Values,
Expectations &
Attitudes
23
Turkey
Some Outcomes of the Rise of
Middle Class
 Notable Outcomes of MC Rise

• Innovation:
New product and service offerings flourish,
facilitated by rise of entrepreneurial activity.
• Rise of eCommerce
• Digital Start-Ups / Platform business models
flourish, some even make it big!
Illustrations from
Turkish Market

CW Energy
Stroller with solar
panels
(to power your
phone battery)
 TWIZYTUR
Nazlıhan Ekşioğlu Demirkol
Mini electric powered vehicles for
congested urban areas
https://www.ekonomist.com.tr/girisim-kobi/trafik-ve-park-sorununu-ortada
n-kaldiran-girisim.html
 Digital Start-Ups – Turkey’s Unicorns

• Trendyol $16.5 billion

• Getir $7.5 billion
• Hepsiburada $4.2 billion
• Dream Games $2.75 billion
• Peakgames $1.0 billion
• Insider $1.0 billion
Trendyol
Turkey’s fashion
e-commerce
marketplace
Valuation: $16.5
billion
86% of shares
owned by Alibaba
 e-commerce store offering a such products as
electronics, apparel, stationery, home decor, &
groceries.
Valuation: $4.2 billion
• https://www.forbes.com/sites/nathanv
ardi/2019/07/11/father-doesnt-know-b
est-the-unlikely-rise-of-turkeys-e-comm
erce-queen/?utm_source=pocket_mylis
t&sh=3bea176421d9
 Insider - Hande Cilingir
“One platform for individualized,
cross-channel customer
experiences.”

We simplify the lives of marketers by

helping them connect their data,
understand how their users think, and
predict what they’ll do next with the help
of AI. Freeing marketers from IT helps
them create captivating experiences that
build brand love—at scale.
 Yemeksepeti
Online food
delivery
Recently acquired by
Delivery Hero SE

https://uk.finance.yahoo.com/ne
ws/delivery-hero-turkish-brand-ye
meksepeti-080000512.html?gucc
ounter=1
GETIR
Valuation: $ 7.5 billion

https://cmr.berkeley.edu/2021
/09/getir-a-remarkable-exampl
e-of-a-digital-disrupter-from-a
n-emerging-market/
Getir, A Turkish Grocery Delivery Business, Debuts In Chicago
 The New Reality:
Erosion of Middle Class in Ems
 The New Reality: Erosion of Middle Class
• A host of factors in EMs have led to the impoverishment
of middle-class households:
• prolonged recession; unemployment; hyperinflation;
mismanagement of national economies; corruption; …
•Globally, some 150 m. became poorer in 2020 due to the pandemic
•In Latin America, 4.7 m. people were pushed out of middle class
•India’s middle class shrunk by 32 m. in 2020
•Some 56 m. people moved from MC into poverty in Asia Pacific --
especially in Bangladesh, India, and Pakistan .
•Pew Research, World Bank, ESCAP (2021 reports)
 Decline of MC in Brazil
• The middle class suffered the most in Brazil.
• For the first time in 10 years, MC population is as the same size as the low-income group (47% of the total
population).
• This shrinkage challenged especially the domestica (housemaids) and babas (nannies).
• Those without savings felt the most pain.
• Usually those type of jobs were not allowed to receive government financial support. There is an interesting
report from EY about the consumption changes. Is in Portuguese but it might be interesting specially showing
how some habits changed.
 Turkish Middle Class: An Elusive Segment?
• Some 27% of consumers who previously considered themselves
as middle class, no longer do so (2021). Increasingly, they find
themselves in an economically precarious situation.
• Consumer Response: EM middle-class households report:
• curtailing ‘non-essential’ consumption, and
• Practicing highly price-sensitive shopping
• Business Response:
• Withdrawals by foreign MNEs: Honda shuts down its Turkish
CIVIC plant
• Volkswagen cancels its plans to build an assembly plant
directed at MC consumers
• Creative responses by those firms that stay in business
 Marketers’ Dilemma:
How to Appeal to Consumers who
Have Fallen Out of
Middle Class Ranks?
 Responses Directed at Cost-Conscious Consumer - a

• Portals that enable price comparisons

• Akakce
• Cimri
• En Uygun Nokta
• Price discounts offered by:
Private colleges; Telecoms; Cargo service
 Responses Directed at Cost-Conscious Consumer - b
• Reduce the size of packaging (while keeping the price
the same – often misleading the consumer)

• Sale of cheap imported goods

 Rush to Discount Retailers
• Hard Discount Retailing
Carrying a limited number of highly-discounted store
brands (about 750 items)
• BIM
• A101
• SOK
 Responses Directed at Cost-Conscious Consumer - b

• ‘Own a car or an apartment via small, periodic deposits’ A

form of crowdsourcing
htps://www.fuzulev.com/

https://www.eminevim.com/
Crowdfunding- A Familiar Concept in other EMs

Brazil: Known as Consortium

• https://www.embracon.com.br/blog/compre-seu-
apartamento-com-o-consorcio-de-imoveis
• https://www.portoseguro.com.br/consorcio-de-
imoveis
• https://www.mrv.com.br/consorcio
• https://www.santander.com.br/creditos-e-
financiamentos/para-veiculos-e-maquinas/
consorcio-de-veiculos
• Payment Convenience: Interest-free sales
• Purchase of cars, apartments

• No Frills Marketing
• Intercity bus transportation: Flixbus
• Airlines: Pegasus
 Pegasus

GOL Airlines (Brazil)

 How do Income-Squeezed MC Consumers
Justify their Price-Based Shopping?

Research suggests that humans strive to

preserve self-esteem and avoid
social devaluation and social rejection –
especially in the context of conspicuous consumption.

When Marketers Meet their Best Friend:

Socially (Environmentally)
Responsible Consumption
 Saving Face
• Consumers who have fallen out of middle-class ranks cling on
to a psychosocially pleasant justification for highly price-
conscious shopping.
• ‘Socially responsible consumption’ -- aspiring to highly touted
sustainability objectives may provide these consumers a very
convenient justification for price-conscious shopping.
• MC consumers rationalize their radically different shopping
behavior by the pretense of conforming to socially-acceptable
sustainable consumption behaviors.
• Marketers (brand owners, retailers) ride on the (indisputable)
sustainability bandwagon to lure customers.
 Post-Pandemic Purchase Intentions
 (Ernst & Young Survey of 14,500 consumers across 20 countries)

• Affordability. Some 58% of consumers plan to be more

aware and cautious of their spending in the longer term;
63% say price will be the most important purchase
criterion for them.

• Sustainability. Some 49 % of consumers say that they will

prioritize the environment and climate change in how they
live and the products they buy; for 26%, sustainability
will be their most important purchase criterion (E&Y,
2021).
Middle Class Transformation is more than a boost to Consumption!

Discretionary
Consumption

Education,
Occupation,
Ownership of
Assets

Values,
Expectations &
Attitudes
• Second-Hand Shopping Portals
• Dolap
• Gardrops
• Letgo
• Sahibinden.com
• Decathlon 2. Sans
• Blablacar…
• Facilitating exchange of used apparel, electronics, cars,
camping gear, etc.
• H&M Geri Donusum
• Yeniden Giy, Tekrar Kullan
• Sustainability Appeal:
“Bring your used apparel, electronics, etc., and
receive credit towards a new purchase!”
H&M * LC Waikiki * Cotton
Buying &
selling
secondhand
products has
taken hold in
advanced
economies
as well
 Conclusions
• Emerging markets continue to be dynamic and
exemplify VUCA environments
• Perceptions of ‘middle classness’ is elusive
• Innovation comes in many shapes and sizes
• Digital technologies provide distinct opportunities
for EM firms
• Marketers are quick to pivot and deploy: new
business models, enterprises, competitive
strategies; and contemporary appeals such as
‘sustainable consumption’