eLearning Session

After completing this chapter, you should be able to:

1. Discuss how economic indicators and global markets shape consumption.
2. Outline some basic global trends influencing consumption.
3. Define the major world consumption areas including North America and western Europe; Japan and the newly industrialized countries, transitional markets in eastern and central Europe, and developing and Third World countries.
4. Explain something about consumption patterns and preferences in major world areas.
5. Describe some patterns in cultural values in major world areas.
6. Identify trends and likely changes in consumer behavior for several different parts of the world.

• The purpose of this chapter is to describe consumer behavior within a global context.
• Globalization is a social process where geography's effect on social and cultural relations and actions is diminished.
• Localization is about preserving a sense of identity, home and community. There is a revival of local culture. Consumers are expressing a return to their roots and adapting global consumer goods and meanings to fit their local cultures.
• The development of taste and demand for such items as Vietnamese restaurants, Japanese reggae music, Chinese films, and Afghan jewelry in the United States and Europe illustrate a dialogue between unique local identities and global flows of people, money, technology, media, and ideologies. The Swiss firm Nestle′ offers a prominent example of the dialogue. Exhibit 4.1 illustrates the global production and consumption of this brand. Notice that while Nestle′ is a global company it also helps spread localization by, for example, making Asian noodles in Latin America.

Exhibit 4.1: Global and Local Blends (50.0K)

• Understanding consumers requires a basic understanding of the distribution of economic power and potential around the world.
• The nature of the economic system within a country affects nearly every facet of consumer behavior. As economies grow, markets become different, larger and more demanding.
• With improved economies, the range of tastes, preferences, and variations of products sought by the consumer increases.

1. Economic Indicators
• Gross domestic product (GDP) and gross national product (GNP) are two measures of a country's economic activity. GDP is a measure of the market value of all goods and services produced within the boundariesofa nation. GNP includes the market value of goods and services produced by all that nation's business operations including those in foreigncountries.
• Another useful indicator is the average GNP per capita, which can be represented as the dollar value of a country's final output of goods and services in a year, divided by its population. The average GNP per capita in selected nations is shown in Exhibit 4.2. These figures indicate the purchasing power for each resident, that is, the amount of money an average person has to spend on consumer goods and services.
• While the United States ranks first in the world in GNP, average purchasing power is greatest in the European Community. Average GNP per capita provides very important information about consumer demand, but it can be misleading. It depends further on how GNP is distributed, how and what infrastructures support GNP, and what kind of growth in GNP is expected.
• Infrastructure represents capital goods that support the activities of many industries. This would include paved roads, seaports, energy supplies, and so on. If infrastructure does not develop with an expanding population and economy then countries begin to lose economic ground.
• Growth in GDP and GNP is also an important factor. While GNP in Europe and the United States has grown at about less than 3 percent or less per year over the past 25 years, many east Asian economies are growing at more than twice that rate, a trend that is expected to continue. Transitional economies in central Europe such as Hungary, Poland, and the Czech Republic offer additional examples. Although average per capita is still quite low, many sectors of these economies are growing rapidly and there is a lot of entrepreneurial activity. Exhibit 4.3 illustrates world growth in GDP for Asia, the European Community, the United States, and Japan. Note the enormous GDP in Asia.
• Another limitation of average GNP per capita is that it does not take into account government welfare programs that provide services to consumers. Such programs free up individual income for discretionary consumption expenditures.
• Income Distribution within countries is also important in determining demand. Income distribution gives us a better idea of the size and purchasing power of potential market segments than per capita income.
• One way of comparing the distribution of income within countries is called the Gini index. It measures the extent to which the distribution of income deviates from a perfectly equal distribution. A Gini index of zero represents perfect equality while an index of 100 implies perfect inequality. Thus, the higher the index, the more unequal is income distributed. Exhibit 4.4 provides Gini indexes for selected countries. The Gini index provides marketers guidance on the distribution of appropriate price points for consumer goods, for example.

Exhibit 4.4: Gini Index for Selected Countries (50.0K)

• Variations in the Gini index imply different aspirations and possibilities for consumers in different nations.
• Another useful measure of purchasing power is Engel's Coefficient. This coefficient measures the percentage of an average household's income spent on food. As economies develop, Engel's coefficient goes down, indicating an increase in disposable income to spend on other things than food.
2. Global Markets
• The globalization of markets, restructuring of Central and Eastern European economies from command to market-driven, trends toward economic cooperation such as the North American Free Trade Agreement (NAFTA) and the European Union (EU), and increased global competition make it important to view the global economy in the context of regions of the world.
• There have been economic links between almost all parts of the world since the 16^th century. However, it is only in the latter half of the 20^th century that the world has truly become a global marketplace.
• The world of the 21^st century is divided not into countries, but into market areas.
• Three global regions-Europe, the Americas and the Asian Pacific Rim constitute a new economic order for trade and development. Global companies that are triad powers have significant market power in each of the Triad Regions.
• At the economic center of each Triad region is an economic industrial power. In the European Triad, it is the European Community, in the American Triad, it is the United States, and in the Asian Triad, it is Japan. Each of these regions has strong single-country markets or multi-country markets that are bound together by economic cooperative agreements.
• APEC was formed in 1989 and is the Asia-Pacific Economic Cooperation. The APEC provides a formal structure for the major governments of the region (including the US and Canada) to discuss mutual interests for trade and economic collaboration.
• In addition to these Triad Powers, there are emerging trading powers in the southern hemisphere such as the Newly Industrialized Countries(NICs) of Southeast Asia (Singapore, South Korea, Thailand, Indonesia, Taiwan), South Africa, Brazil, Nigeria, and Saudi Arabia. These developing countries now also contain important consumer markets.
• NICs are impressive exporters of many products such as steel, machine tools, electronics, and clothing. Brazil offers a great example of the growing importance of NICs in world trade.
• Goods, services, and information are produced and consumed in every nation. The flow of goods, services, and information is global, but the distribution of production and consumption varies greatly. The developed countries consume more than twice the value of imported goods and services than do the developing countries ($33.6 versus $14.7 trillion dollars).

• This section briefly outlines four trends that influence consumption patterns around the world. They represent areas of opportunity for consumer marketers.

1. The Service Economy
• It is often said that the Triad powers (European Community (EC), USA, Japan) are moving toward a service economy. In fact, of the 1000 largest corporations in the world today, almost 200 of them are service firms. North America, followed by Japan and the European Community, dominates the world market for the services that are consumed in the other nations of the world. Services include a wide range of activities, including: accounting, management and engineering services provided by firms such as Arthur Anderson, Deloitte and Touche, and Bechtel; insurance on a super oil tanker; logistics functions provided by firms like Mitsui Lines or Consolidated Freight lines; global information nets being designed by Time Warner or AT & T; and fax and photocopying services provided by manufacturers like Xerox and neighborhood copy centers like Kinkos or Alphagraphics.
2. Green Marketing
• Increasingly, global concern for the environment extends beyond issues like industrial pollution, hazardous waste disposal, and deforestation to include issues that focus directly on consumer and industrial products. By one estimate, only 20 percent of Triad nation companies can be described as proactive in their commitment to improve environmental performance.
• Industry is faced with the fact that raw materials resources are finite. Many companies have adopted the concept of eco-efficiency including 3M, Proctor & Gamble and SC Johnson Wax.
• The recycling industry is another response to the recognition that resources are finite. Nearly 90% of the raw materials that go into an average automobile are recyclable, and firms are scrambling to do more.
• In some cases, environmental activists have moved aggressively against corporations with a poor "green" profile.
• More and more, companies must contend with green marketing legislation that addresses the problem of what happens to goods after purchase. Germany has passed stringent green-marketing laws that regulate the management and recycling of packaging waste, called "take-back requirements."
3. Growing Gap Between Rich and Poor
• Another trend of significant concern is the growing gap between rich and poor nations of the world, and between the rich and poor within nations of the world.
• While an increase in marketing activity has the general effect of delivering goods and services to consumers more effectively, market economies are not necessarily effective in providing for an equitable division of consumption possibilities. Thus, one response of marketers to the widening gap between rich and poor has been the development of two-tier marketing. That is, brands and retail formats are developed to cater to the top and the bottom of the market.
4. Earthscaping
• The final and perhaps most dramatic trend concerns earthscaping. This refers to the accelerated movement of people, ideas, goods, capital, information, services, and popular culture around the world. This accelerated movement has led to the uprooting of many consumption habits from their local context and their commercialization on a global scale.
• Global earthscaping also results in the emergence of global consumer institutions that become creolized, with a blend of local and global meanings.
• Some global consumption forms like Christmas or the beauty pageant become what some have called a global structure of commondifference - a consumer performance or ritual that enables people to play out different, yet related values through a shared collection of cultural practices.
• Despite the fact that customs and behaviors are moving very quickly from one culture to another, consumer behavior researchers must be careful not fall into the trap of self-referencing.Self-referencing refers to using your own experiences or intuitions to try and understand the behavior of others.

• The discussion of consumer behavior and consumption norms in North America and Western Europe should probably also make reference to Australia, New Zealand and other nations with substantial populations of European origin such as Argentina, Chile, or South Africa. However, we generally limit our discussion to countries with average annual per capita incomes ranging from $5000 as in Spain to over $18,000 as in Sweden.

1. Consumption Patterns and Preferences
• Four main topic areas are discussed to highlight the consumption patterns in this group of nations: consumer skills, recreational shopping, leisure shopping and luxury fever. These regions are distinctive in terms of the prevailing consumption ideology, as well as the trends and changes in consumer behavior.
1. Consumer Skills
• Choice making, even for complex products such as pharmaceuticals, is a highly developed skill amongst consumers in North America and Western Europe. As a result, many consumers are extremely price and value conscious.
• Highly developed choice-making skills fuel the growth of retail discount chains and do-it-yourself outlets.
2. Recreational Shopping
• Ever since the invention of the department store in the 19^th century in France, there has been a growing trend towards recreational shopping.
• The modern, self-enclosed shopping mall in all its variant forms has become a site to which consumers make frequent pilgrimages to satisfy a wide variety of needs, including those for aesthetic enjoyment, problem-solving, and personal display.
3. Leisure Shopping
• A distinctive feature of North America and European consumers is the importance of leisure and tourist consumption in these economies. Organized gambling is commonplace in Europe and North America. It has quietly become one of US consumers' favorite forms of entertainment, generating more revenue than movies, spectator sports, theme parks, cruise ships and recorded music combined. Now, thirty-seven states sponsor lotteries and 27 offer casino gambling. U.S. consumers wagered $550 billion in 1996. However, as suggested in Good Practice 4.1, gambling has a dark side.

Good Practice 4.1: Gambling a Dark Side of Consumer Behavior (50.0K)

• The motives that inspire tourist consumption are diverse, ranging from nostalgic visits to "historic" towns and villages, to escapist entertainment at Mardi Gras, to romance at the Club Med or a cruise, to extraordinary adventures through African safaris, Himalayan trekking, or Outward Bound trips.
4. Luxury Fever
• Some experts argue that luxury is experiencing an incredible boom. In 1999, luxury spending in the USA was growing four times as rapidly as spending overall.
• Family size has gone down, but house square footage has gone up. The average U.S. house at the end of the 1990's is nearly twice as large as its counterpart from the 1950's.
• Consumers in the U.S. eat fewer meals at home, but do so on more elaborate cooking equipment.
• The U.S. is not the only economy suffering from luxury fever. For example, Japan, with fewer that half as many people as the United States, consumes over half the U.S. volume of luxury goods.
• Luxury spending is not just a trend among the rich, but middle and lower-income earners as well.

This ad for the four seasons hotels reflects one of the important consumption trends in triad countries - luxury fever. (50.0K)

2. Trends and Changes in Consumer Behavior
• Some experts predict that a move out of the Industrial Age and into the Information Age will alter culture and lifestyles in important ways. Some call it the era of fragmentation, or the culture of sub-cultures, where people can take a menu approach for their lifestyle-picking and choosing from day to day according to their mood and current fashion.
• Because of advances in technology, marketers can cater to smaller and smaller niche segments, customizing products and services to individual taste. In some ways, the Information Age connects people with each other; in other ways, it leads to isolation.
• Tens of millions of people around the world are connected to electronic bulletin boards and this number is growing at 10% monthly. These cyberspace lifestyles have the potential to make centralized offices obsolete.
• More and more people are beginning to work at home. This trend may make homes and neighborhoods much more important in developed countries than they have been for the last several decades. This trend also makes home shopping via the Internet and television a growth industry.

• The Newly Industrialized Countries (NICs) of the Pacific Rim usually refer to South Korea, Taiwan, Singapore, and Hong Kong. These four countries are also referred to as the "Asian Tigers." However, driven by aggressive investment from Japanese and Chinese among others, Malaysia, Thailand, Indonesia, and the Philippines too are candidates for joining this group.
• As one of the wealthiest nations of the world, Japan represents a huge market, changing quickly toward a culture of consumption. Nevertheless, the direction of Japan's economic progress since World War II foreshadows the changes we now see expanding in other countries of the Pacific Rim.
• Japan shares many values with other countries of the Pacific Rim, where Confucianism forms the foundation for ethics and morality in business as well as in social and personal lives.
• For international businesses attempting to penetrate the Pacific Rim, it is tempting to lump the regions together, as we have done. Nevertheless, culture and values and related opportunities differ across these nations. Such differences complicate segmentation, positioning, and marketing communications.
• Most consumers in the NICs are rapidly becoming more educated and their household incomes are growing. More women are entering the work force, especially in Japan, increasing the number of dual-income families.
• With the acceleration of economic affluence, consumer interests are moving beyond basic necessities to include consumer appliances, electronic products, cars, and cosmetics.

1. Consumption Patterns and Preferences
• As in North America and Europe, the general attitude toward consumption is extremely diverse. Two powerful ideas that have underwritten much of the development of markets in the NICs are the twin themes of modernization and rationalization.
• In recent years, there has been a rapid adoption and domestication of Western consumption styles, often in forms westerners might consider highly artificial. Nonetheless, Japanese appreciate artificiality for its own sake and for its beauty.
• In a number of NICs, the focus of consumer spending has, until quite recently, been on consumer durables.
• Consumers want information about products and brands rather than fancy packaging, displays, or promotional gimmicks.
• Consumers in the NIC countries are open to foreign goods, but as in Europe and North America, consumers are selective in their choices.
2. Trends and Changes in Consumer Behavior
• Dramatic changes are underway in the NICs of the Pacific Rim. Many of these nations are made up of youthful consumers; and, in many of these countries, the populations are growing rapidly.
• In almost all, we see a shift away from a savings orientation that has characterized the years since World War II toward a new consumption orientation. As a result, personal bankruptcy has been increasing dramatically among young people.
• Many leaders of Asian countries are concerned that the new influx of Western culture will undermine traditional values. As a result, while Thailand, the Philippines, and Indonesia are moving to deregulate broadcasting, China, Malaysia, Singapore, and Vietnam continue to ban private ownership of satellite dishes.

• By transitional economies, we are referring primarily to the countries formerly dominated by centralized command economies. These countries include Albania, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, the Slovak Republic, Poland, Rumania, the former Yugoslavia, eastern Germany, Russia, and the ten republics of the Commonwealth of Independent States. This sector represents a population of 430 million and about 15 percent of global GDP.
• The most advanced in the creation of market led economies include Hungary, Poland, Turkey, and the Czech and Slovak Republics.
• Marketing executives in Hungary, Poland, and Bulgaria agree that consumers are becoming more demanding. More demanding consumers require that companies develop more refined market segmentation and develop customized products.

1. Consumption Patterns and Preferences
• After the fall of communism in 1989, protected and subsidized economies began to liberalize. Industries were privatized, there was a dramatic influx of foreign goods and foreign investment, and national economies experienced a long period of inflation.
• In these transitional economies, consumers' standards of living eroded under the impact of price inflation and the loss of guaranteed employment.
• Consumers have responded through a variety of strategies. For example, they get second jobs, spend more time producing their own food for consumption, and sell private products and produce directly to other consumers.
• Engel's law states that as real income goes down, so does the sharedevoted to luxury products. However, in1990 as real income decreased in Czechoslovakia, Hungary, and Poland, the demand for perceived luxury products increased. This may be explained by the non-availability of luxury goods in the past or by the luxury boom gripping the US, Japan and other countries. This trend continues.
• Competitive pricing is most important in those countries where market transition is most advanced such as Hungary. Product quality issues figure importantly in successful marketing as well. As competition between local and foreign products increases, product quality issues become important.
2. Trends and Changes in Consumer Behavior
• At this stage, multinational consumer products companies like Unilever, Nestle's, Proctor & Gamble, and Colgate-Palmolive and numerous European firms like the German publishing Giant Bertelesmann have experienced dramatic growth in Eastern Europe. However, the buying binge of 1989-1992 has settled. Real household incomes in much of this region are stagnating and penny-pinching is the norm. Moreover, shoppers in these transitional countries no longer view imported brands as necessarily superior. Perceptions of "made in Poland" are increasingly positive and many shoppers in Central and Eastern Europe are looking for homegrown quality products. Media are revolutionized; scores of consumer-oriented magazines are now available, as is commercial satellite television.
• One clear trend is that the priorities of western Europe, which include the emergence of "green" segments and a voluntary simplicity movement, are not likely to characterize this part of the world in the short run.
• Consumers in transitional economies have been denied things for such a long time that there is a large demand for consumer products.
• Simplified, more resource conscious packaging may be a trend in Western Europe, but in transitional economies, consumers want to taste first the privileges of a better standard of living, before they work to save the planet.
• The growth of Internet use is dramatic in Eastern Europe. Internet use is predominantly by business people, technical specialists and students. The majority of access (approximately 38 %) is at universities and schools. The popularity of the Internet in Croatia is fast approaching that of Western levels. The latest Croatian broadcaster to put its programs online is HRT, Croatian Radio and TV. The network makes live feed of HRT's channel three network, HR1, HR2, and HR3, plus its local station, Sljeme Radio, all available online in RealAudio stereo. Internet users can also tune into a live feed of HRT's channel three network, in RealVideo. These trends have provided growth markets for industrial computer suppliers like Unisys and personal makers like Compaq.

www.hrt.hr

• The advertising industry has grown dramatically in transitional economies in the past decade. Nonetheless, consumers remain skeptical of heavy-impact, high frequency advertising, as it reminds them of communist propaganda techniques.
• While Western Europeans expect to be informed about brand differences, Eastern Europeans expect advertising to provide information about products per se and expect variety in product range.
• It is difficult to predict the future of consumer behavior in the transitional economies, and some will fare better than others.
• Privatization has taken hold in at least some of these countries such as Hungary, Poland, and the Czech Republic. A distribution infrastructure is evolving in some cities.
• If consumers can survive the inflation, recession, unemployment, and political turmoil surrounding them, they may soon begin to realize Western European consumption lifestyles. Consumer Chronicles 4.1 is taken from an interview with a Hungarian grammar school teacher. She is divorced but would like to remarry and have a baby. She describes her consumer desires in simple terms.

Consumer Chronicles 4.1: Hungarians in Transition: Viktoria Rozsa (50.0K)

• By the term, "developing world" and Less Affluent (LAW) countries, we primarily refer to countries in the Southern Hemisphere in Asia, Africa, and Latin America. We somewhat arbitrarily define the developing countries as those in which the annual per capita income is greater than $1500 and less than $5000. These countries are primarily in Latin America and Asia.
• Some of these markets are attractive because of their large populations-535 million in Africa alone.
• In many of these nations, basic necessities, adequate food, clean water, appropriate clothing, and sanitary housing are unavailable to a large part of the population, creating opportunities for sales of basic infrastructure to local companies and governments.
• However, the distribution of consumer incomes tends to be highly skewed creating small segments of very wealthy and large segments of very poor consumers. For example, in Peru, one percent of the population accounts for nearly half of the national income! This pattern is referred to as dual income distribution. For example, in Peru, I percent of the population accounts for nearly half of the national income. Marketers who cater to the middle class are likely to do less well in these countries than those who cater to the wealthy and the poor. Still, the middle class is growing rapidly, even in developing countries such as India, where it numbers approximately 250 million people. Consumer Chronicles 4.2 describes McDonald's in India.

Consumer Chronciles 4.2 McDonalds In India (50.0K)

1. Consumption Patterns and Preferences
• Marketers seeking to do business in the LAW must be prepared to deal with less stable economic environments than in developed countries, the NICs, and even some countries with transitional economies. Sales tend to follow a boom and bust cycle. The pay-offs for investing in developing countries can be great, but so can the risks.
• Many "white goods," like microwaves in the mature or decline phase of the product life cycle in North America or Europe, are in the growth phase of the product life cycle in Brazil and other developing countries. Thus, only 15% of Brazilian households own a microwave oven, compared to 91% in the US.
• Marketers must be prepared to meet the needs and respond to the particularities associated with traditional consumption sets, complexes of goods preferred in these countries.
• It may be useful to separate market strategies for different types of consumption behaviors involving subsistence necessities, social investments, and luxury expenditures.
• Many third world people produce a larger share of their subsistence necessities for direct consumption than do those in the first world.
• Wealthy consumers in developing countries often aspire to Euro-American consumption patterns.
• Among the more numerous poorer segments, consumption choices are often faithful to patterns that are perceived to be highly traditional. These patterns do represent marketing opportunities.
• Another distinctive type of consumption behavior in many developing or third world nations is the tendency to devote considerable amounts of disposable income to social investments designed to contribute to social status and prestige.
• Finally, developing country consumers make important purchases of luxury goods of foreign origin (especially consumer electronics and motorbikes) that may symbolize a cosmopolitan orientation to them.
2. Trends and Changes in Consumer Behavior
• The developing countries are in the throes of a dramatic mutation. Changes in macro-economic and demographic factors (e.g., economic liberalization, the growth of a monetary economy) have transformed customary modes of acquisition.
• Populations are growing rapidly, and there is a visible gap between basic needs and ability to meet them.
• Expansion of commercial radio and satellite TV results in new desires for novel consumption goods.
• In many LAW nations, marketers must proceed with care in promoting exotic consumer goods in order to avoid becoming the target of anti-foreign sentiments.
• Some consumers in Latin America and Asia see the sudden recent miraculous explosions of Euro-American consumer goods as evidence of cultural imperialism, the imposition of foreign values and practices through the power of advertising hype.
• One interesting third world trend is the creative recycling and re-consumption of goods produced in the first world. These examples often provide instances of the movement of goods on the wheel of consumption from disposition to consumption. For example, kerosene lamps made of caste-off Pepsi cans are common in rural Malaysia.
• In many parts of LAW, civil servants and other new elites act as a relay for the diffusion of Western styles of consumption.
• Elite consumers in LAW often adopt "modern" or Euro-American consumption orientations.
• Because nationalism, the idea of the nation state as the sovereign authority, often developed at the same time as former colonies achieved their independence, consumption preferences often take on blended or creolized styles. Such consumption patterns combine elements of local, traditional consumer behavior with cosmopolitan or imported consumer behaviors.
• Creolization is an outcome of the acculturation of people to different cultural settings that is discussed more fully in Chapter 5.