Strengthening Purchasing Power On Display at FIFA World Cup 2014
- Catalina Osorio
- Jul 1, 2014
- 6 min read
As the world's eyes focus on the exciting World Cup action on the various futebol (aka, futbol or soccer) pitches in Brazil, an interesting story about changing wealth distribution in Latin America is playing out in the stadiums' stands and outskirts. Statistics that track where World Cup fans traveled from to attend the tournament show a huge turnout from Latin American countries, evidencing a historic shift in wealth and purchasing power of Latin Americans. This post explores this trend and why it is significant for businesses seeking to grow in the region.
World Cup fans: Where are they from?
Let's first look at the statistics. According to FIFA's official ticket sales numbers, the top ten ticket buying nations are as follows:
Brazil - 1,363,179
US - 196,838
Argentina - 61,021
Germany - 58,778
England - 57,917
Colombia - 54,477
Australia - 52,289
Chile - 38,638
France - 34,865
Mexico - 33,694
Source: FIFA
While informative, official ticket sales don't tell the whole story because (although FIFA might want to publicly state otherwise) there is undoubtedly a large secondary market for tickets that are bought by fans who are actually in attendance. A better map is provided by Facebook based on its GPS-powered "check-in" feature where Facebook users are able to let their friends back home know where they are any time. See picture below or click "play" button on the link here to see the travel flows develop.
Based on these Facebook "check-ins", one can get a better picture of non-Brazilian tourist's actual travel behavior. The check-ins also permit a view by cities of origin, rather than the country-wide statistics provided by FIFA. This article, for example, analyzed the Facebook data (roughly based on the size of the blue dots on the Facebook check-ins map) to come up with the following ranking of fans' cities of origins:
Bogota, Colombia
Santiago, Chile
Mexico City, Mexico
Buenos Aires, Argentina
London, England
New York, USA
Paris, France
Monterrey, Mexico
Medellin, Colombia
Sydney, Australia
This list makes clear that the largest proportion of non-Brazilian tourists at the World Cup are from large Latin American cities.
Broader Shift in Wealth
What is driving Latin Americans' decision to travel to the World Cup in such large numbers? Certainly, part of the answer stems from Latin Americans' passion for the game, the fact that their national teams have fielded strong squads at the tournament, and the relative proximity of Brazil. But a recent New York Times article makes a convincing case that another major contributing factor is the significant rise in wealth (or, alternatively, reduction in poverty) among residents of Latin America. The article, which sites Inter-American Development Bank figures and a series of interviews with fans and economists, explains that the expense of the World Cup -- even one hosted in South America -- has only recently become accessible to an increasingly larger swath of Latin American populations. That trend has seen the middle class grow by over 60% in the region in just the last decade, with the growth coming from virtually all of the countries in the region including some stand-outs like Chile and Peru which have seen their middle classes double and Colombia whose middle class has grown almost 70%. See here for more interesting stats on middle class growth trends in Latin America.
Implications for Business
The implications of the rise of the Latin American middle class for expanding businesses are both numerous and encouraging. While it is true that more needs to be done to improve conditions for Latin America's poor (protests in Brazil leading up to the World Cup evidence this need), the marked increase in the region's middle class provides well-informed businesses an opportunity to address and service a fast-growing population of customers that have only recently achieved significant purchasing power.
Here are just a few of the implications we have brought to our clients' attention:
Early movers will do well
The rising middle class evidences relatively new wealth that will direct its consumption power to firms that are successful in reaching out to them with products and services. Those companies that are quickly able to learn about the buying habits and needs of the middle class and market to them effectively stand to outperform businesses that are slower to direct marketing dollars and campaigns to the new middle class.
Rethink traditional distribution channels
Of course, one thing is to want to reach the emerging middle class and quite another is knowing how. The same companies that have been successful reaching higher-wealth markets are invariably weak in terms of understanding how or where the emerging middle class go to buy their products and services. That is why, when expanding businesses have sought our advice on reaching new customers, we typically advise them to rethink their current distribution channels , study new and alternative channels, and be prepared to engage customers in different ways (see here for an introduction to international distribution channels).
Many successful channel innovations involve companies going to where the emerging middle class typically shop and conduct their affairs. Banks are a great example. In Latin America, banks have proven to be effective channels for products and services as diverse as personal computers and life insurance policies as companies have figured out that, when banking, the emerging middle class may seek to finance a range of consumer goods (not just big ticket items like homes) as well as provide for security to their families beyond the traditional savings account.
For retail products, many companies have also found that the traditional local store or tienda remains a very good channel to reach the middle class which has not necessarily been smitten by the "big box" retail trend (see here for a related post on Home Depot's difficulties expanding into Latin America).
Low-cost alternatives will be in great demand
While the purchasing power of the emerging middle class is undeniably increasing, it is still not strong compared to the wealthier, upper classes that have traditionally been willing to pay premium prices for brand-name and big ticket items. As the New York Times article shows well, this doesn't mean that the emerging middle class will not spend money, but rather that they will seek lower price alternatives to stay within their budgets. Expanding businesses eager to reach the emerging middle class should therefore consider developing low cost versions of their traditional products in an effort to attain lower price points that will be more easily attainable by the middle class consumer.
Companies employing a low-cost strategy for their goods and services range from higher ticket items to retail food products. On the high end, automobile and even appliance companies have done very well with basic, low-cost models with limited features. At the lower end, retail products companies have experimented with a range of strategies designed to reduce price points including reducing the size of their packages to better match the more frequent (daily vs. weekly) purchasing patterns of the emerging middle class. See here for an excellent country-by-country survey of retail packaged food practices across the Americas.
Use technology as part of your middle class strategy
As prices for IT and mobility products and services continue to decline worldwide, the growing middle class in markets such as Latin America have emerged as heavy internet users. One major beneficiary of these trends are social media sites like Facebook that, as we covered in this previous post here, owe the bulk of their current and expected growth to new users from markets such as Latin America. Businesses seeking access to new customers, therefore, are well-advised to consider social media advertising and other online marketing strategies to reach this demographic.
We will continue to track how companies are directing their expansion plans on the growing middle class. In the meantime, enjoy the festivities at the World Cup and best of luck to your favorite teams!
For a downloadable pdf version of this article, please see here
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Andres Snaider is a founding partner of Nextant, a consulting firm specializing in assisting companies expand their businesses in international markets, with a strong focus on Latin America. With a degree in law and experience working as an international attorney and businessman, Andres has advised clients on a range of commercial matters and investments across the Americas. He is a graduate of the Harvard Law School and currently lives and works in Boulder, Colorado.
Email Andres at : asnaider@nextant.com
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Nextant has extensive experience in assisting leading clients through its Market Expansion and Business Optimization services. For more information on how Nextant can assist your company in socializing a market entry and initiating sales, please visit our website at http://www.nextant.com
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